Swift explores blockchain interoperability to remove friction from tokenized asset settlement
Institutional investors are increasingly considering investments in tokenized assets as they seek new forms of value – but they face a complex challenge. These investments are tracked on a diverse range of blockchain networks that are not interoperable – each with its own functionality or liquidity profile, creating significant overhead and friction in managing and trading the assets.
Overcoming this fragmentation will be key to the long-term scalability of the market, and in line with our focus on removing friction in international transactions, we are working with our community to explore a potential solution. In a new set of experiments, we will work with more than a dozen major financial institutions and FMIs including 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) – to test how firms can leverage their existing Swift infrastructure to efficiently direct the transfer of tokenized value across a variety of public and private blockchain networks. Chainlink, a leading Web3 service platform, will provide connectivity across public and private blockchains for these experiments.
This latest round of experimentation builds on a series of successful trial in 2022, and will also explore how the industry can address potential operational and regulatory pitfalls that financial institutions face when operating in a blockchain environment.
Investors and intermediaries face a blockchain challenge
In the capital markets, there is a growing view that blockchain technology has the potential to generate efficiency, reduce costs and open up opportunities for certain parts of the industry. For example, private markets have historically relied on legacy systems and processes, which increase costs and hinder investment. By rationalizing operations and settlement processes, blockchain can attract more investors into the private markets and ultimately increase liquidity.
However, trading of tokenized assets remains a niche activity in the regulated space. For the market to scale, financial institutions must be able to easily interact with multiple blockchain-based networks in a secure and reliable manner, just as they do today when facilitating trade in traditional assets.