CBDCs and Stable Coins

Wholesale CBDCs

Definition:
Wholesale Central Bank Digital Currencies (CBDCs) are digital forms of central bank money designed specifically for use by financial institutions—in contrast to retail CBDCs, which are meant for the general public.

Key Features and Use Cases:

• Institutional Settlements:
  Wholesale CBDCs are used for large-value interbank transactions, securities settlement, and cross-border payments between banks and other eligible financial institutions.

• Efficiency & Speed:
  By leveraging distributed ledger technology (DLT), wholesale CBDCs enable near-instant settlement of transactions, reducing delays, manual processes, and costs. For example, test projects like Cedar x Ubin+ (NY Fed & MAS) achieved settlement in under 30 seconds—even for complex, multi-currency chains.

• Financial Stability:
  Settlement in central bank money eliminates credit and liquidity risk, reinforcing the stability of the financial system.

• Tokenization & DvP:
  Wholesale CBDCs support the simultaneous exchange of tokenized assets and money (Delivery-versus-Payment), making securities and bond settlement more efficient.

• Examples:

  • Singapore (MAS): Live wholesale CBDC pilots for domestic interbank payments and securities settlement.

  • Switzerland (SNB): Production use of Swiss franc wholesale CBDC for settling tokenized bonds on the SIX Digital Exchange, with plans to expand further.

Key Differences from Retail CBDCs:

• User Base:
  Wholesale CBDCs are restricted to financial institutions; retail CBDCs are for the general public.

• Impact:
  Wholesale CBDCs focus on improving back-end financial infrastructure, while retail CBDCs may reshape how individuals interact with money and banks.

Stablecoins

Definition:
Stablecoins are cryptocurrencies designed to maintain a stable value by pegging their price to a reference asset, such as a fiat currency (USD, EUR), a commodity (gold), or through algorithmic mechanisms.

Types of Stablecoins:

• Fiat-Backed Stablecoins:
  Backed 1:1 by fiat currency reserves held in banks (e.g., USDT, USDC, PYUSD).

• Crypto-Backed Stablecoins:
  Collateralized by other cryptocurrencies, often over-collateralized for stability (e.g., DAI).

• Algorithmic Stablecoins:
  Use supply-adjusting algorithms and smart contracts to maintain their peg without direct collateral (e.g., AMPL).

• Commodity-Backed Stablecoins:
  Pegged to assets like gold (e.g., PAXG).

• Bank-Issued Stablecoins:
  Tokenized deposits issued by banks, representing claims on real bank deposits.

Key Roles and Innovations:

• Reduced Volatility:
  Stablecoins offer a stable medium of exchange and store of value, addressing the price swings of typical cryptocurrencies.

• DeFi Integration:
  Widely used as collateral and settlement assets in DeFi protocols for lending, borrowing, yield farming, and liquidity provision.

• Payments & Remittances:
  Enable fast, low-cost cross-border payments and remittances by bypassing traditional banking rails.

• Trading & Hedging:
  Allow traders to move quickly in and out of volatile crypto positions without converting to fiat, and serve as a “safe haven” during market turbulence.

• Regulatory Focus:
  Due to their rapid growth and systemic importance, stablecoins are under increasing regulatory scrutiny to ensure transparency, reserve backing, and consumer protection.

Examples of Leading Stablecoins (2025):

• Tether (USDT): Most widely used, fiat-backed.

• USD Coin (USDC): Regulated, transparent reserves.

• DAI: Decentralized, crypto-collateralized.

• Pax Gold (PAXG): Gold-backed.

• PayPal USD (PYUSD): Major fintech-issued, fiat-backed.