A Multi-Layer Blockchain Architecture for Cross-Border Trading of CBDCs
In an era where central bank digital currencies (CBDCs) are gaining traction, a new multi-layer blockchain architecture has been introduced to facilitate cross-border trading. This innovative system ensures the security and integrity of transactions while also promoting interoperability with domestic CBDC implementations.
The architecture comprises a permissioned layer-2 that leverages the public consensus of the underlying network to guarantee transaction security. This layer acts as a bridge between various domestic CBDCs, enabling seamless cross-border transactions. Additionally, multiple Layer-3s, equipped with Automated Market Makers (AMMs), create a competitive environment focused on achieving the lowest costs.
To evaluate the practical implications of this system, simulations are conducted using historical foreign exchange rates. These simulations consider Project Mariana as a benchmark and analyze trading costs. Surprisingly, the study reveals that even with liquidity fragmentation, a multi-layer and multi-AMM setup proves to be more cost-efficient than relying on a single AMM.
This groundbreaking research offers valuable insights into the potential benefits of using a multi-layer blockchain architecture for cross-border trading of CBDCs. By combining robust security measures, interoperability, and cost-effective arrangements, this system could revolutionize international financial transactions.
Abstract:This paper proposes a novel multi-layer blockchain architecture for the cross-border trading of CBDCs. The permissioned layer-2, by relying on the public consensus of the underlying network, assures the security and integrity of the transactions and ensures interoperability with domestic CBDCs implementations. Multiple Layer-3s operate various Automated Market Makers (AMMs) and compete with each other for the lowest costs. To provide insights into the practical implications of the system, simulations of trading costs are conducted based on historical FX rates, with Project Mariana as a benchmark. The study shows that, even with liquidity fragmentation, a multi-layer and multi-AMM setup is more cost-efficient than a single AMM.