Canada's Shift Away from CBDCs Threatens Web3's Future Interoperability

The development of central bank digital currencies (CBDCs) has been underway for several years, with 94% of the world's central banks actively working on them, according to the Bank of International Settlements. However, recent decisions by governments, such as Canada's shift in focus from a retail CBDC to broader payments, may impact the future of CBDCs and the broader Web3 ecosystem. A lack of interoperability is a significant challenge facing CBDCs, which must be compatible with various participants, use cases, tech stacks, data formats, and governance models, as well as foreign CBDCs and legacy systems. The world's central banks are aware of the importance of interoperability and have been considering it from the start. Creating an interoperable CBDC ecosystem is even more daunting than achieving Web3 interoperability, with international cross-border payments being a complex and fragmented web of pre-existing, independent domestic payment systems and currency exchange challenges. Central banks face enormous constraints when designing CBDCs, including the need to comply with multiple legal and regulatory frameworks. The widespread adoption of CBDCs could provide a solution to the interoperability challenges holding back Web3, but if too many governments abandon CBDCs, the CBDC landscape may become fragmented, with over 75 incompatible national CBDC networks. Nations that remain committed to CBDCs will have a more prominent voice in setting the standards for CBDC interoperability, which could be a game-changer for smaller nations with Web3-friendly landscapes. CBDCs have the opportunity to be inherently interoperable, with options including leveraging universal messaging formats, cryptographic algorithms, and data structures, operating on a single platform, or using a hybrid solution that blends elements to address specific use cases and unique needs of different jurisdictions. A lack of interoperability remains one of the primary obstacles to developing CBDCs and echoes similar issues found in scaling Web3, but CBDCs have the potential to lay the groundwork for resolving these industry-wide interoperability challenges.