Project Mariana explores the use of automated market makers to innovate FX trading.
A new report from a collaboration between the Bank for International Settlements (BIS) and the central banks of France, Singapore, and Switzerland explores how central bank digital currencies (CBDCs) and automated market-maker technology could transform foreign exchange trading.
The “Project Mariana” report outlines a proof-of-concept for cross-border trading and settlement of euro, Singapore dollar, and Swiss franc CBDCs between simulated financial institutions.
Project Mariana successfully tested a 24/7 wholesale CBDC ecosystem with an interbank FX market powered by an automated market maker (AMM). AMMs are smart contracts that facilitate decentralized trading by matching buyers and sellers algorithmically using liquidity pools, rather than the order books used in a centralized exchange.
“[Project Mariana] successfully demonstrated that it is feasible to exchange wholesale CBDC across borders using novel concepts such as automated market makers,” said Cecilia Skingsley, Head of the BIS Innovation Hub.
The BIS found that central banks can eliminate settlement risk by using token-based CBDCs from different countries, bridges between domestic and international networks, and an AMM for instant FX execution and settlement.
The BIS found that AMMs can remove settlement risk in current FX markets, where settlement typically happens 1-2 days after the trade. However, the report stated that this benefit results in higher liquidity requirements for AMMs, which need pre-funded liquidity pools.
