Atlanta Fed explains Web3 finance and mentions XRP as an international payment medium

The Federal Reserve Bank of Atlanta recently published a paper in its Policy Hub series on the implications of Web3 for financial services, which has caught the attention of the crypto community. The 17-page paper, written by Christine Parlour, a professor at the University of California, Berkeley Haas School of Business, is intended as a basic text and is noteworthy for its completeness.

The paper starts by discussing blockchains and explains that data is sorted and stored in specific locations called “wallets” or “addresses”. After providing the necessary background, Parlour goes on to look at decentralized finance (DeFi) and financial infrastructure.

Parlour mentions the regulatory challenges of decentralized autonomous organizations, which do not have an obvious legal entity to engage with. She also points out that using tokens as collateral generates interconnectedness among various protocols, making it more challenging for regulators to estimate or understand systemic risk.

The paper also touches on central bank digital currency (CBDC) as it discusses foreign exchange and looks at the recently launched Project Mariana, which attempts to apply DeFi protocols for foreign exchange. Parlour mentions Stellar and Ripple and describes Ripple’s XRP token as “envisioned as an international payment medium or wholesale settlement coin”.

Ripple has been in the news for its deals with countries such as Montenegro for the development of CBDCs. There has been much speculation about the United States Federal Reserve’s plans to introduce a CBDC, which the Fed has not confirmed. Parlour gives no indication of any plans of this type or that the Fed is thinking of using XRP for any purpose.

Ripple is also in a legal dispute with the Securities and Exchange Commission over the status of XRP as a security.

In addition, Parlour discusses tokenized bank deposits, a concept promoted by the USDF Consortium, whose CEO, Robert Morgan, recently described as a “third way” between traditional finance and DeFi to a U.S. House of Representatives subcommittee.