Researchers compared the transaction costs of USDC and EUROC stablecoins on Uniswap to the World Bank’s estimate of average remittance costs.
According to a Jan. 19 paper jointly published by researchers from Circle and Uniswap, remittance costs will rise to “up to 80%” and may be reduced.
The paper, titled “On-Chain Forex and Cross-Border Payments,” was authored by Uniswap Data Scientist Austin Adams, Circle Chief Economist Gordon Liao, Mary Catherine Raider, David Puth, and Xing Wang.
The authors investigated Circle’s US dollar coin trading activity
USDC and Euro Coin (EUROC) on Uniswap from July to January 2022. They found that the total amount of coins was $128 million, with some days trading as high as $8 million.
During this time, the USDC and EUROC stablecoins were trading within a few basis points of the exchange rates seen in the wholesale FX market for the USD and EUR support currencies. According to the authors, this shows that the DeFi forex market is a reasonable alternative to traditional forex with its price efficiency despite the low trading volume.
However, researchers wanted to know if using a DeFi protocol like Uniswap would bring savings to forex market participants. So they analyzed the costs associated with the traditional forex “correspondent banking model” and the costs associated with DeFi forex.
They used World Bank estimates to price a $500 transfer made through the global banking system. This is then done by buying a stablecoin (USDC or EUROC) through an exchange, exchanging it for other coins on Uniswap, sending it to someone else, and having that person withdraw it on the exchange. compared with the cost.
The researchers concluded that the DeFi model incurs various fees for users, including exchange fees, DeFi transaction fees, network fees, and fees for transferring cash to and from exchanges. Nevertheless, the World Bank estimates fees to be up to 80% lower than the average price of remittances.
The Circle issued its EUROC in June. According to Investopedia, EUR/USD is the world’s most traded currency pair.