Swift and Chainlink succeed in transferring tokenized assets across multiple blockchains
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(Kitco News) - The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has released the results of experiments it conducted with Chainlink (LINK), a leading Web3 service platform, showing that Swift infrastructure is capable of facilitating the transfer of tokenized value across multiple public and private blockchain networks.
According to a Thursday press release from Swift, the findings “have the potential to remove significant friction slowing the growth of tokenized asset markets and enable them to scale globally as they mature.”
Tokenization has the potential to increase efficiency, reduce costs, and open opportunities to move investors by enabling fractional ownership, but the fact that tokenized assets are managed on different blockchains presents a unique challenge as each network has its own functionality and liquidity profile.
“Interoperability between these blockchains is crucial, otherwise financial institutions must build connections to each platform, creating significant operational challenges and cost,” Swift said. The experiments have “successfully demonstrated that [Swift] can provide a single point of access to multiple networks using existing, secure infrastructure, thereby significantly reducing operational challenges and investment required for institutions to support the development of tokenized assets.”
Swift conducted the experiments as part of their broader strategy to “ensure secure, global interoperability as new technologies and platforms emerge.”
The interbank messaging system has been steadily increasing its exploration and experimentation with blockchain over the past few years as it looks to provide the infrastructure needed to create an ecosystem of interconnected central bank digital currencies (CBDCs) and other digital assets with new and existing payment systems.
“Interoperability is at the heart of everything we are doing at Swift to facilitate the seamless flow of value across the world in the face of increasing fragmentation,” said Tom Zschach, Chief Innovation Officer at Swift. “For tokenization to reach its potential, institutions will need to be able to seamlessly connect with the whole financial ecosystem. Our experiments have demonstrated clearly that existing secure and trusted Swift infrastructure can provide that central point of connectivity, removing a huge hurdle in the development of tokenization and unlocking its potential.”
The collaboration between Swift and Chainlink was first announced in September 2022, when Chainlink co-founder Sergey Nazarov told the audience at SmartCon 2022 that the partnership was formed to develop a new proof-of-concept (PoC) project that will enable traditional finance firms to transact on blockchain networks.
In June, Swift announced they would be collaborating with Chainlink to explore how institutions can use Swift and Chainlink’s Cross-Chain Interoperability Protocol (CCIP) to seamlessly connect their systems with any blockchain network. They selected more than a dozen major financial institutions to take part in the trial to test how these firms can leverage their existing infrastructure to “efficiently instruct the transfer of tokenized value over a range of public and private blockchain networks.”
Participants included Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX) and The Depository Trust & Clearing Corporation (DTCC).
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In the experiments, “Chainlink was used as an enterprise abstraction layer to securely connect the Swift network to the Ethereum Sepolia network, while Chainlink’s CCIP enabled complete interoperability between the source and destination blockchains,” Swift said.
The testing ultimately demonstrated that existing Swift infrastructure can provide a secure, scalable way for financial institutions to connect to multiple types of blockchain, and helped advance their understanding of “the technical and business requirements for interacting with business and public blockchains,” the release said. “The experiments also explored the value of a blockchain interoperability protocol for securely transferring data between existing systems and a potentially unlimited number of blockchains.”
“When combining Swift and CCIP, we were able to show that this new level of interoperability across various blockchains is now possible with minimal resources from even the largest banks and market infrastructures,” Nazarov said.
Experiments included the transfer of simulated tokenized assets between two wallets on the same public blockchain network, between two wallets on different public blockchains, and between a public and private blockchain network.
Swift said that moving forward, they will “continue to work with the financial community to understand the most concrete use cases for tokenized asset adoption and will prioritize its efforts accordingly. It is anticipated that the most compelling case, in the near term, will be in the secondary trading of non-listed assets and private markets.”
“It’s now clear that both top global banks and leading market infrastructures believe there will be greater adoption of digital assets across the entire banking industry, and that this adoption will happen using multiple different blockchain technologies at the same time,” said Nazarov. “The collaboration between Swift, over ten of the largest financial institutions, and Chainlink also proved that interoperability across chains is critical to enabling the next stage of digital asset adoption across the global financial system.”