The United States, the biggest skeptic of cryptocurrency, is adopting EVM?

Author: Paradigm

Translation: vernacular blockchain

We collected data on 63 blockchain-related experiments led by G20 member central banks. We found that a considerable number of projects (47% of the sample) in different application scenarios (such as central bank digital currency (CBDC), tokenization, DeFi, etc.) are compatible with the Ethereum Virtual Machine (EVM), that is, the technology stack based on Ethereum. In addition, more and more projects are being launched on public blockchains, proving that public, permissionless infrastructure does not conflict with the needs of regulators.

Our findings highlight several important facts:

Innovation always happens at the margins and is eventually adopted by existing institutions. Therefore, hindering innovation inevitably reduces the scope of technologies that eventually mature. Even if central banks are skeptical of cryptocurrencies (and they are), they are leveraging technology from the battle-tested permissionless world in their own unique contexts. If the U.S. government stifles innovation in information and communications technology (ICT), Fedwire communications may still use teletype machines and Morse code. To this end, central banks are starting to move beyond basic central bank digital currency (CBDC) and payment projects and are now exploring tokenization and DeFi. These projects are growing in complexity and are being deployed on public, permissionless blockchains with increasing frequency.

Here are some of the most interesting projects according to our opinion:

Mariana Project: A cross-border foreign exchange project using tokenized central bank currencies and AMMs (Automated Market Makers) on the Ethereum Sepolia test network.

Guardian Project: Three sub-projects that aim to leverage Ethereum’s second-layer solutions to build liquidity pools, structured notes, and asset-backed securities for trade finance.

It's too early to predict how many projects will be deployed on public networks in 2024, but we think there will be more from now on. As mentioned earlier, the Monetary Authority of Singapore (MAS) has launched some of the most innovative projects in this space. MAS is the undisputed leader in this space, and its move demonstrates that deploying a project on a blockchain with a permissionless validator set does not inherently violate sanctions laws.

Network effects are very important and we believe this is another indication that Ethereum has the strongest developer ecosystem among the major first-tier chains today. According to some rumors, we heard that some traditional financial institutions have abandoned proprietary enterprise blockchains and opted for EVM-based blockchains due to the strength of the developer community (such as development tools, human resources, etc.).

Open source software is battle-tested. Much of the internet today runs on Linux-based servers, and the financial industry of the future will be no different. Cryptocurrencies are often adversarial, but one benefit that is often underestimated is that projects deployed on public blockchains (and the blockchains themselves) have been significantly stress-tested in the wild, both in terms of security and economic design.

The United States is lagging behind, but it has an opportunity to create a positive feedback loop. In our sample, the United States completed five public projects, while Singapore, which has a significantly smaller capital market, completed eight projects (some of which had additional phases that we did not record separately).

On the surface, this doesn’t look promising. However, as long as other countries continue to leverage open source software projects based on the EVM, we think the United States has an opportunity to lead by being home to many of the most ambitious builders. As American technology is exported to the rest of the world, American values will spread as well. We are particularly excited to see that the Federal Reserve Bank of New York has begun adopting Rust technology.