The United States Federal Reserve (Fed) has been swiftly moving towards the creation of a central bank digital currency (CBDC) under the cover of the implosion of the cryptocurrency market. In November last year, the Fed announced Project Cedar, working on CBDCs, with a focus on the wholesale market. Phase two of the project aims to test CBDCs across multiple currencies designed to enable interoperability across different platforms. The proof of concept SWIFT CBDC sandbox was tested with two blockchains, Corda and Quorum, with CBDC narrative coins Ethereum, Chainlink and the Sora Network among the finalists for the Monetary Authority of Singapore’s CBDC solution challenge.
The Rise of CBDCs: Implications for the Crypto Market
The past week saw the failure of major banks tied to crypto markets in quick succession, including Silvergate, Signature Bank, and Silicon Valley Bank. Experts predict that regulators, particularly in the United States, may use these failures to gaslight cryptocurrency and attempt to usher in full control of crypto through a Central Bank Digital Currency (CBDC).
The United States Federal Reserve has been working on a CBDC even amidst the implosion of the crypto markets. In November 2021, Michelle Neal, Executive Vice President and Head of Markets of the Federal Reserve Bank of New York, announced Project Cedar, which represented the first stage of CBDC research. The New York Fed has released a full whitepaper on Project Cedar, where it created a hypothesis that a wholesale CBDC is the settlement asset, developed a working prototype, and tested it.
Phase 2 of Project Cedar would entail a collaboration between the New York Fed and Singapore’s monetary authority. The two countries would work on cross-chain messaging and interoperability. The technology is being provided by SETL with Digital Asset, powered by Amazon Web Services, and Swift, the global financial messaging service provider.
Chainlink is an essential component of CBDC narrative coins, such as Ethereum and Sora Network. The key to the development of CBDCs is oracles that provide smart contract interoperability, where Chainlink is used. In November 2018, Kaliedo chose Chainlink to provide oracle services for their blockchain business cloud, and Chainlink has given a demo on using Chainlink oracles for their blockchain environment.
With the rise of CBDCs, the crypto market may experience significant changes in the near future. The success of Project Cedar and the collaboration between the US and Singapore pave the way for interoperable cross-chain CBDCs. Ethereum, Chainlink, and Sora Network are poised to make the most of the planned CBDCs, but there are still many uncertainties surrounding their advent. In the meantime, the crypto market awaits what March 2022 will bring, as Chainlink’s founder, Sergey Nazarov, seems excited about what is in the pipeline for the company this month.