This Study Breaks Down the True Costs of CBDC Exchange

Table of Links

Abstract and 1. Introduction

2. Background

   2.1 Layer-2 Blockchains

   2.2 Project Mariana

3. Related Work and Contribution

4. System Architecture

5. Model

   5.1 Automated Market Makers

   5.2 Price Impact

6. Simulation

   6.1 Data and Parameters

   6.2 Results

7. Discussion

8. Conclusions, Acknowledgements, and References

Graphs and Tables

3 Related Work and Contribution

There is an abundance of literature discussing the implementation of CBDCs in various countries [23], [13], [12], [21], [5], but little research on the exchange between CBDCs in AMMs, except for Project Mariana [4]. Lipton and Sepp[20] study the implicit costs (price impact) for G-10 CBDCs exchange at AMM with Concentrated Liquidity (Uniswap v3).

This work is the first research that takes the holistic approach to analyze the total costs of CBDCs exchange at various AMMs, including Stableswap Invariant (Curve v2), applied in Project Mariana. This study found that a multi-AMM set-up for CBDCs exchange on L2 is more cost-efficient than a single AMM of Project Mariana, despite the fragmentation of liquidity among various AMMs. Such a multi-AMM system on private L2 is further presented, and its behavior is evaluated via simulation based on the historical FX rates, Mariana Project set up as a benchmark.

This work makes the following contributions.

– Demonstrating that multi-AMMs set-up for CBDCs exchange is more costefficient than a single AMM.

– Designing such multi-AMMs set-up for CBDCs exchange using L2 and L3 blockchains and demonstrating its superior performance for small, medium, and largest transaction volumes and any transaction in case of spikes of gas fees.

– Conducting first detailed analysis of the total costs of CBDCs swaps on AMM-DEX—gas fees, swap fees (explicit fees), and price impact (explicit fees), among various AMMs and L1 and L2-based DEXes.

– Providing quantitative metrics to evaluate the efficiency of cross-border CBDCs on DEXes for major AMMs. Their implementation is available in the public GitHub repository [17]

– Building a framework for simulation based on historical FX rate that can be replicated in other cross-border CBDCs projects or in permission DeFi in the Ethereum ecosystem. For all metrics, the mathematical background and numerical methods with the implementation are provided, such as the Newthon-Raphon method for price impact in Cryptoswap Invariant AMM applied in Project Mariana.