October 26, 2023 at 15:03 GMTModified date: October 26, 2023 at 15:03 GMT
October 26, 2023 at 15:03 GMT

Deutsche Bank, SC Ventures develop SWIFT alternate for blockchain finance

Deutsche Bank and Standard Chartered’s SC Ventures are experimenting to enable different blockchain-based financial assets to interact, similar to the SWIFT network used in traditional banking.

Two of the world’s leading international financial institutions are working together to develop and test a system to facilitate the interaction amongst blockchain-based transactions, stablecoins, and central bank digital currencies (CBDCs).

Deutsche Bank and Standard Chartered’s SC Ventures are experimenting to enable different blockchain-based financial assets to interact, similar to the SWIFT network used in traditional banking.

The initiative is a part of the Universal Digital Payments Network (UDPN), which operates on a permissioned blockchain system. Validator nodes, managed by a consortium of banks, financial entities, and consultancies, support this network.

Earlier this week, the two entities completed the first proof-of-concept (PoC) for UDPN by executing real-time on-chain transfer and swap test transactions between $USDC and $EURS stablecoins on the UDPN infrastructure. It aims to connect payments across various CBDC and blockchain networks using messages.

While SC Ventures used code leveraging UDPN SDKs and APIs, Deutsche Bank used a graphical user interface. Talking about it, the CTO & CPO of Deutsche’s Corporate Bank division, Rafael Otero, said: “For Deutsche Bank, the industry pilot on the UDPN platform is an opportunity to investigate and research how we can enable our clients to actively participate in the decentralised future global economy and benefit from applications that are built on top of the network. This is the next logical step in the development of financial transactions.”

Unlike Swift, here the institutions exchange messages via a permissioned blockchain. Banks are open to participation because the network only supports regulated tokens and enforces compliance using decentralised identities.

The UDPN system was developed by tech consultancy GFT Group and Red Date Technology, a co-founder of the Chinese Blockchain-Based Service Network (BSN). It instructs and allows transactions to occur across a spectrum of networks, ranging from stablecoins on public blockchains to CBDCs, thereby boosting interoperability.

Considering the existence of digital currencies which provide both medium and message, the need for SWIFT messages is often questioned. According to its creators, UDPN acts both as an interoperability bridge between various types of blockchain networks while also applying battle-tested decentralised digital identity standards (DIDs) to participants. This ensures that transactions occur in a regulated, bank-friendly environment.

The system also differs from traditional ones as it executes transactions on underlying infrastructures without relying on a central organisation for formats like SWIFT messages. CTO of SC Ventures, Thorsten Neumann, described it further saying: “The UDPN is a network where the affiliation of members is permissioned. But the key thing here is that the transactions themselves are placed onto the underlying infrastructure, which includes permissionless networks.”

By tokenising value for cross-border transfers, managed by smart contracts within the UDPN, the system also enhances efficiency and security. “There is almost a DeFi-type capability within a permissioned network. It’s important to note this is done without a central organisation setting out something like a SWIFT message format,” added Neumann.

Currently, about 25 organisations are part of the UDPN, conducting approximately 10 proof-of-concept tests simultaneously, as revealed by Steffen Schacher, UDPN lead at GFT Group. This group includes banks from the USA, Australia, Latin America and Europe.

“The UDPN’s transaction nodes are where the magic happens, being connected to currency systems and currency pools,” said Schacher in an interview. He believes the future of central banks to be the one where it is “owning transactions and operating CBDCs, or other financial institutions, or any other organisation that is handling digital currencies, bringing it all into a regulated environment.”