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(Kitco News) - The Society for Worldwide Interbank Financial Telecommunication (SWIFT), the largest interbank messaging system in the world, has announced a new collaboration with Chainlink, the world’s largest web3 services platforms, to explore how institutions can use Swift and Chainlink’s Cross-Chain Interoperability Protocol (CCIP) to seamlessly connect their systems with any blockchain network.
“Institutional investors increasingly are considering investments in tokenized assets as they seek new forms of value – but they face a complex challenge,” Swift said in the announcement. “These investments are tracked on a diverse range of blockchain networks that are not interoperable - each has its own functionality or liquidity profile, which creates significant overhead and friction in managing and trading the assets.”
According to Swift, more than a dozen major financial institutions will 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 include 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).
Chainlink will facilitate the process by providing connectivity across public and private blockchains for these experiments.
“If even a small portion of the quadrillions of dollars in value flowing through the Swift network and its over 11,000 member banks makes its way onto blockchains, the entire blockchain industry could grow multiple times larger very quickly,” said Sergey Nazarov, the co-founder of Chainlink. “We are extremely excited to help accelerate the speed at which banks can utilize blockchains and believe that it will be a watershed moment when the first bank consortiums begin interacting via CCIP.”
This new round of experimentation follows a series of trials in 2022 that explored how Swift could integrate digital currencies and tokenized assets with the world’s existing financial ecosystem. This trial will also explore how the industry could address potential operational and regulatory pitfalls facing financial institutions when operating in a blockchain environment.
One of the main goals for Swift is to connect siloed blockchain networks into an interoperable system that allows financial institutions to easily interact with multiple blockchain-based networks in a secure and trusted way, similar to how they currently function when facilitating the trading of traditional assets.
“There’s unlikely to be a single prevailing blockchain network,” said Tom Zschach, Chief Innovation Officer at Swift. “We would expect to see a multitude of different platforms emerging, each serving different customer segments with their own bespoke capabilities and requirements. In such a highly fragmented ecosystem, it would simply not be feasible for financial institutions to connect to each and every platform individually. That’s why the community is working with Swift to develop an interoperability model that would enable access to different platforms globally.”
It’s also not feasible for financial institutions to build new infrastructure and technology stacks entirely from scratch, so Swift is looking to help these firms leverage their existing infrastructure to connect to blockchain ledgers, where tokens are recorded in a way that is both compliant and secure.
“Not only would this help firms simplify their architecture and operations, but it also minimizes investment costs and reduces risk of technology obsolescence,” Swift said.
“Our experiments will help advance the industry’s understanding about the technical and business requirements involved when interacting with and between multiple blockchain networks,” said Jonathan Ehrenfeld, Head of Securities Strategy at Swift. “They will also highlight the potential value of using a blockchain interoperability protocol to securely transfer data and value between legacy systems and a potentially unlimited number of blockchains.”
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The main focus of the upcoming experiments will be to show how Swift’s infrastructure can be leveraged to facilitate interoperability, enabling tokenized value to be transferred between existing systems and both public and private DLT platforms with existing connectivity, standards, and messaging.
This includes the transfer of tokenized assets between two wallets on the same public blockchain network, the transfer of tokenized assets from a public blockchain to a permissioned blockchain, and the transfer of tokenized assets from Ethereum to another public blockchain.
Chainlink will be used as an enterprise abstraction layer to securely connect the Swift network to the Ethereum Sepolia network, while Chainlink’s Cross-Chain Interoperability Protocol will enable complete interoperability between the source and destination blockchains.
“We’re excited to work with Swift,” said Nazarov. “It’s clear that as banks endeavor to access multiple blockchains, a common connectivity layer across the various chains will be a critical building block for their adoption of on-chain finance. This collaboration between Swift and Chainlink could pave the way for leading institutions like DTCC, Euroclear, BNP Paribas, BNY Mellon, Citi, and many others to issue and transact trillions of dollars using smart contracts. Not only would this grow the blockchain industry by multiples from where it is today, but it would clearly show capital markets the many benefits of adopting on-chain finance.”
Swift said it will also explore a set of non-technological considerations that are necessary for regulated institutions to interact with public blockchain networks and engage in cross-network transactions. “This encompasses a range of operational, compliance, and regulatory challenges, including key focus areas like confidentiality and privacy of data, or liability and recourse when transacting with public blockchain environments,” they said.
