Paying commissions on the foreign exchange market is a real headache for players. Although there are tricks to limit them as much as possible, the cost of these commissions is still high overall. Today, it is nearly impossible to trade in this market without spending significant sums on transaction fees. The solution to this challenge may emerge.
Towards a foreign exchange market with more affordable costs?
Are we moving towards a low-cost foreign exchange (Forex) market for traders? That’s what a recent report from a group of researchers at decentralized financial technology firms Circle and Uniswap seems to indicate. The report is available from Thursday 19 January.
The report states that it is costs can be reduced spent on various operations on the foreign exchange market. Achieving this requires forex to move away from current centralized finance mechanisms to embrace blockchain-based decentralized finance (DeFi) protocols.
The study titled “Foreign exchange on-chain and cross-border payments” it is based on the analysis, from July 2022 to January 2023, of the transactions involving the USDC and EUROC stablecoins. These stablecoins are backed by the dollar and the euro respectively.
During this period, these stablecoins had a total trading volume of $128 million for nearly $8 million in some days. For researchers, this is a sign that there really is an alternative “within reason” to the traditional foreign exchange market.
The DeFi protocol, an underused technology in Forex?
While DeFi protocols have seen a meteoric rise in the financial sector in recent years, a similar trend is rarely seen in Forex. According to the researchers, this market would benefit from the adoption of decentralized finance mechanisms in its procedures. A choice that can consequently increase the income of the actors.
By comparing the costs associated with the traditional banking model, the most widely used system in Forex, with those generated in the foreign exchange markets using DeFi, Circle and Uniswap analysts were able to establish that the use of DeFi protocols would allow foreign exchange market participants to achieve much greater savings. More specifically, we’re talking transaction fees of up to 80%.
The challenge for operators in this market is to be able to stimulate adoption of these large-scale mechanisms. An approach that could accelerate or even prevail with the growing enthusiasm for stablecoins.
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Far from dampening my enthusiasm, a failed investment in a cryptocurrency in 2017 only increased my enthusiasm. I therefore decided to study and understand the blockchain and its multiple uses and to convey information related to this ecosystem with my pen.