As central bank digital currency (CBDC) projects progress worldwide, patterns have started to emerge. One is the tendency for wholesale CBDCs to be token based, whereas the foundational layer of retail CBDCs is often account based. There’s a need for a bridge between the two to avoid operating two entirely separate CBDC systems. CBDC startup Fluency has developed a bridge solution that starts with an account-based but DLT-stored system. It provides interoperability with token-based and conventional payment systems, and supports offline CBDC payments.
Average users do not care about differentiating between an account or token-based CBDCs, as they focus on the CBDC’s utility rather than the backend.
However, two features related to token-based platforms make them undesirable for retail CBDCs. The first limitation is associated with offline functionalities. If a token-based CBDC uses a distributed ledger to prevent double spending, offline functionality is usually a significant challenge. However, token-based CBDCs don’t have to use DLT and account-based can use a DLT. Many jurisdictions, including the EU require offline functionality, which tilts the scales towards an account-based retail CBDC offering.
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