A Central Bank Digital Currency (CBDC) is a digital only fiat currency issued by central a bank that is considered legal tender.

A CBDC is similar to other digital currencies, such as Bitcoin or Ethereum, in that it is a digital representation of value that can be transferred and stored electronically. However, unlike decentralized cryptocurrencies, which are not backed by any central authority, a CBDC is backed by a central bank and can be used as a means of payment in the same way as traditional fiat currency.

CBDCs could potentially be used as collateral or as a means of exchange in DeFi protocols, providing a new source of liquidity and potentially enabling new financial products and services. However, the use of CBDCs in DeFi is still a relatively new and untested concept, and there are many questions and challenges that need to be addressed before it can be implemented on a wide scale. For example, there are concerns about the potential for CBDCs to be used for money laundering or other illegal activities, and there are also technical challenges involved in integrating CBDCs with decentralized networks. As such, the use of CBDCs in DeFi is an area of ongoing research and development.

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