Provide FX Liquidity using wCBDC
Use Cases
About
wCBDC
This use case involves a commercial bank leveraging wCBDC to provide liquidity for FX transactions on a blockchain network.
This use case focuses on a bank acting as a liquidity provider. Instead of executing a cross-border payment, the bank deposits wCBDC to facilitate FX transactions for other participants. i.e. the bank acts as a liquidity provider for the FX market.
Description
Key Stakeholders:
Commercial Bank
Story:
The commercial bank requests issuance of wCBDC in its domestic currency from the central bank.
It transfers this wCBDC to an international blockchain network via bridging.
The bank provides the wCBDC to an Automated Market Maker (AMM) on the network.
In return, the bank receives pool tokens representing its share of the AMM liquidity pool.
Other network participants can now exchange currencies via the AMM using the bank's wCBDC liquidity.
The bank earns fees on the currency exchanges facilitated by its wCBDC liquidity provision.
Postconditions:
The commercial bank uses its domestic wCBDC to provide FX liquidity on a blockchain network. Other participants benefit from its liquidity provision.
Example
Liquidity provision by commercial banks to facilitate FX transactions. It is illustrated using the Swiss commercial bank. The Swiss commercial bank requests issuance of CHF wCBDC on the domestic platform (process I). It then transfers the CHF wCBDC to the international network using the bridge (process II). On the international network, the Swiss commercial bank provides liquidity to the AMM, ie it pays CHF wCBDC to the AMM in return for a corresponding amount of LP tokens (process III).
Source: BIS
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