Why Interledger Protocols Will Outlive Single-Chain CBDCs

A digital Euro on Ethereum and a digital Dollar on Solana cannot transact without a trusted, slow, and expensive intermediary. This defeats the purpose of programmable money.

• Creates FX friction akin to traditional correspondent banking.
• Forces vendor lock-in for nations, limiting monetary network effects.
• Fragments DeFi liquidity, preventing cross-chain CBDC-based lending or trading pools.

Protocols like Interledger (ILP), LayerZero, and Wormhole abstract away chain-specific logic. They enable atomic swaps of value and data across heterogeneous ledgers, treating each CBDC chain as a node in a global network.

• Guarantees atomicity: Settlement either completes fully across all chains or fails entirely.
• Enables pathfinding: Dynamically routes payments through the cheapest, fastest liquidity pools.
• Standardizes interfaces: Allows CBDCs to interoperate with private permissioned ledgers and public DeFi.

The rise of intent-based trading and bridging proves the market demand for abstracted execution. Users declare what they want (e.g., "Pay in CBDC A, receive CBDC B"), not how to do it.

• Shifts risk to solvers: Competing networks (Across, Socket) compete to fulfill the cross-chain intent at best price.
• Optimizes for outcome, not process: Critical for CBDCs where regulatory compliance and finality are non-negotiable.
• Creates a solver economy for cross-border CBDC payments, driving down costs through competition.

Interledger protocols enable "if-this-then-that" logic across sovereign digital currencies. This unlocks true innovation beyond simple transfers.

• Automated Trade Finance: Shipment GPS data on IoT chain triggers CBDC payment on a separate ledger.
• Dynamic FX Hedging: CBDC reserves automatically rebalance across chains via AMMs like Uniswap v4.
• Conditional Aid & Grants: Development funds released upon verification of outcomes on a dedicated ledger.

The original HTTP-for-money thesis. It treats value packets like data packets, enabling atomic swaps across any ledger with a connector.\n- Solves for Universal Addressability: Uses ILP addresses, not chain-specific formats.\n- Enables Micropayments at Scale: Sub-cent transactions with ~500ms finality, impossible on monolithic L1s.\n- Architecture for Sender-Pays: Built for the internet's economic model, not just asset bridging.

HTLCs and its successors are the cryptographic bedrock, making single-chain CBDCs interoperable by default.\n- Eliminates Counterparty Risk: Settlement is atomic—it happens completely or not at all.\n- Unlocks Cross-Chain DEXs: Protocols like THORChain and Chainflip prove the model at $1B+ TVL scales.\n- Future-Proofs CBDCs: A digital Euro can atomically swap for a digital Dollar without a trusted bridge or bank.

The user declares what they want, not how to do it. A network of solvers competes to find the best path across liquidity pools and chains.\n- Abstracts Liquidity Fragmentation: Solvers can route a CBDC payment through the cheapest path across 10+ venues.\n- Optimizes for Best Execution: Achieves ~20% better rates than direct AMM swaps by scanning all options.\n- The Natural UX for CBDCs: Citizens shouldn't need to know which chain or bridge to use.

Arbitrary data passing enables complex cross-chain state synchronization, moving beyond simple asset transfers.\n- Enables Cross-Chain Smart Contracts: A CBDC on Chain A can trigger a derivative payout on Chain B.\n- Creates Sovereign Interoperability Hubs: A central bank could run its own verifier node for its digital currency.\n- The Infrastructure for Programmable Money: True composability requires messaging, not just bridging.

Minimizes on-chain settlement by using off-chain liquidity pools and optimistic verification, optimized for speed and cost.\n- Near-Instant Finality: Users get assets in ~1 min via liquidity providers, with settlement later.\n- Dramatically Lowers Cost: -90% cheaper than canonical bridging by batching proofs.\n- Practical for High-Frequency CBDC Use: Retail and wholesale payments require this latency profile.

Interledger protocols allow sovereign zones (CBDC ledgers) to interoperate while maintaining distinct regulatory perimeters and privacy models.\n- Preserves Monetary Sovereignty: Each central bank controls its own rulebook and validator set.\n- Enables Sanctions Compliance: Transactions can be verified for origin/destination before forwarding.\n- The Only Politically Viable Path: Nations will never cede monetary control to a foreign chain.

The core assumption of open, permissionless routing breaks if nation-states mandate closed-loop CBDC networks with capital controls and geo-fencing. This creates a fragmented landscape where Interledger connectors become illegal gateways, not neutral infrastructure.

• Risk: National mandates for closed-loop CBDCs (e.g., China's e-CNY design)
• Consequence: Interledger relegated to cross-border corridors only, losing the universal thesis

Interledger relies on connector liquidity pools. If adoption is slow, high slippage and fees deter users, reducing volume and further draining liquidity—a classic cold-start problem. Competing systems like Visa's stablecoin settlement or monolithic L2s with native USDC could achieve critical mass first.

• Risk: TVL stuck below $100M threshold for major currency pairs
• Consequence: Becomes a niche protocol for long-tail assets, not a global rail

Every Interledger connector is a hackable smart contract holding escrow. A single exploit in a major ILP-ETH or ILP-Solana connector could drain $1B+ in bridged value, destroying trust in the entire network's security model. Unlike single-chain CBDCs, risk is distributed and harder to insure.

• Risk: Bridge/connector exploits remain the #1 crypto loss vector
• Consequence: Systemic collapse of trust in decentralized settlement guarantees

If major central banks (Fed, ECB) issue CBDCs on permissioned, high-throughput blockchains like Canton or Fedwire+, they have zero incentive to integrate with a permissionless Interledger layer. They will build bilateral bridges, favoring institutional participants over open protocols.

• Risk: Institutional bypass via Project Agorá (BIS) or similar
• Consequence: Interledger becomes the public internet of money, while real value moves on the private intranet

Interledger's atomic, multi-hop transactions require a global truth source for settlement finality. In a multi-chain world with varying finality times (e.g., Ethereum vs. Solana vs. Cosmos), a malicious connector could exploit timing gaps. Current cryptographic escrow (HTLCs) is slow and capital-inefficient.

• Risk: Cross-chain MEV and wormhole attack vectors on conditional payments
• Consequence: Forces reliance on trusted, centralized oracle feeds for finality

Connectors earn fees on flow, but bear 100% of the custodial and technical risk. This misalignment pushes the model towards centralized, regulated entities (e.g., banks) rather than decentralized actors. The network thus evolves into a traditional correspondent banking system with extra steps.

• Risk: Only large financial institutions can operate viable connectors
• Consequence: Defeats the decentralized, open-access purpose of the protocol

Every nation will issue its own CBDC on a preferred chain (e.g., Digital Euro on Algorand, e-CNY on a private ledger). Direct integration between each pair is an O(n²) scaling nightmare.\n- Creates walled gardens of sovereign liquidity\n- Forces intermediaries, reintroducing the correspondent banking problem\n- Impossible for a multinational corp to manage dozens of siloed wallets

Protocols like Interledger (ILP) and Catax abstract away the underlying ledger. They provide a universal packet switch for value, using cryptographic conditions for atomic, trust-minimized settlement.\n- Conditional Transfers enable atomic cross-ledger swaps\n- Universal Addressing (ILP Address) works over any transport (e.g., XRP Ledger, Ethereum, private CBDC networks)\n- Functions as the TCP/IP for money, a neutral standard no single state controls

Application-specific bridges (Wormhole, LayerZero) compete for liquidity per corridor. Interledger protocols compete for protocol-level adoption, becoming the base settlement rail others build on.\n- Bridges are features; Interledger is infrastructure\n- CBDC issuers avoid vendor lock-in by adopting a neutral standard\n- Enables cross-chain AMMs (like UniswapX) and intent-based systems (Across, CowSwap) to source liquidity from CBDC pools

Single-chain CBDCs can only automate domestic flows. Interledger protocols enable complex, multi-currency financial contracts that execute atomically across sovereign ledgers.\n- "Pay upon shipment receipt" triggers spanning a Chinese exporter's e-CNY and a German importer's Digital Euro\n- Sub-second forex swaps between CBDCs via intermediary crypto pools (e.g., USDC on Stellar)\n- Drastically reduces pre-funded nostro/vostro accounts for banks

The financial system will not consolidate on one chain. The winning architecture is a heterogeneous multi-ledger network, similar to the internet's AS system. Interledger protocols are the BGP for money.\n- Hub-and-spoke model with ILP connectors at major financial institutions\n- Pathfinding algorithms optimize for cost/speed across CBDCs, stablecoins, and crypto assets\n- Survives chain failures; traffic reroutes through alternative liquidity paths

Value locked in a bridge is a liability. Revenue from packet forwarding fees is an asset. Interledger's success is measured by throughput fee volume, not speculative deposits.\n- Fee model aligns with utility, not yield farming\n- Micro-payments (e.g., $0.001 fees) enable high-volume, low-value CBDC flows\n- Creates a sustainable public good model, akin to Ethereum's base fee burn