Source: Swift; Translated by: Deng Tong, Golden Finance
We are paving the way for real-world solutions that will enable our members to access and trade regulated digital assets and currencies on the Swift network. This is the result of a series of groundbreaking experiments we have conducted with the community in recent years, and now we are entering the next phase.
Interest in digital assets and currencies continues to grow, and the potential value of these developments to the industry has become clearer over the past two years.
Predictions for the growth of digital assets range widely. For example, Standard Chartered and Synpulse recently estimated that the market for tokenized real-world assets will climb to $30 trillion by 2034. Market sentiment is indeed strong, with 91% of institutional investors interested in investing in tokenized assets, according to a survey by Celent and BNY Mellon.
Preventing digital silos
However, before digital assets and currencies can truly scale globally, several challenges must be overcome. Foremost among these is the growth of different platforms, technologies, and regulatory environments that underpin digital innovation. This has led to the emergence of a fragmented “digital island” ecosystem, increasing costs and risks for market participants.
For example, the complexity that institutional investors face in dealing with multiple tokenization platforms has prevented them from expanding their digital asset businesses. On the digital currency front, while the latest Atlantic Council data shows that more than 130 countries and monetary unions are currently exploring central bank digital currencies (CBDCs), much work still needs to be done to integrate these emerging currencies into the broader global economy.
Achieving global interoperability
For 50 years, Swift has played a vital role in increasing global interoperability and enabling fast, frictionless and secure transactions. As we enter the next phase of our strategy, we will continue to enhance our ability to interoperate with new systems, technologies, assets and currencies.
For several years, we have been actively exploring potential solutions in our Innovation Lab to address the challenge of extending global interoperability to CBDCs and tokenized assets. More recently, we have brought the industry together through a series of groundbreaking research projects exploring how existing Swift capabilities and infrastructure can seamlessly support interoperability across different asset classes and network types.
Our successful blockchain interoperability experiments demonstrated how Swift’s infrastructure can facilitate the transfer of tokenized value between public and private blockchains. Our Phase 1 and Phase 2 CBDC Sandbox projects, conducted in partnership with leading central and commercial banks from Europe, Asia, and North America, demonstrated how we can interconnect CBDCs on different networks, as well as interconnect multiple asset and cash networks.
Now we set our sights higher
Our vision is to enable our members to use their Swift connection to trade swaps using existing and emerging asset and currency types.
We have a proven track record as a trusted and efficient central platform for transactions using fiat currencies and securities instruments. Now, we are further developing our infrastructure to be able to provide our members with the same level of access to emerging digital asset classes and currencies, covering a range of use cases including payments, securities, foreign exchange, trading and more.
Based on what we’ve learned, we’re paving the way for real-world solutions that can interconnect all forms of digital assets and currencies—including plans to test how to enable multi-ledger delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions on Swift’s secure global platform. In the future, this could enable securities buyers to simultaneously pay for and exchange tokenized assets in real time on our network.
The cash component of DvP settlements is particularly challenging without a globally accepted digital form of money. We are therefore looking for ways to link tokenized asset settlements with corresponding payment transfers made on the Swift network. The payment component will initially be made using existing fiat currencies, but will later be able to use tokenized forms of money, such as CBDCs, tokenized commercial bank money, or regulated stablecoins.
Finally, we are also testing how our interconnectivity capabilities can be used as a technology solution to interconnect emerging bank-led networks, such as the U.S. regulated settlement network, with other financial infrastructure.
The road ahead
While much has been achieved, it is clear that much more work remains to be done.
Together with the financial community, we will continue to develop the technical solutions needed to enable interoperability and access to digital assets and currencies. In the coming months, we will also explore what implementation means for the workflows, standards and market practice requirements needed to achieve scale - more information will be released before Sibos 2024.