SWIFT partners with Chainlink to explore blockchain interoperability
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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 service platform, 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 are increasingly 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 variety 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.”
According to Swift, more than a dozen major financial institutions will participate in the trial to test how these firms can leverage their existing infrastructure to “effectively direct the transfer of tokenized value across a variety 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 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 fraction of the quadrillion dollars in value flowing through the Swift network and its over 11,000 member banks makes its way to blockchains, the entire blockchain industry could grow many times larger very quickly,” said Sergey Nazarov, co-founder by Chainlink. “We are extremely excited to help accelerate the speed at which banks can use blockchains and believe it will be a watershed moment when the first banking consortia begin to interact 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 can address potential operational and regulatory pitfalls that financial institutions face when operating in a blockchain environment.
One of the main goals of Swift is to connect siled blockchain networks into an interoperable system that allows financial institutions to easily interact with multiple blockchain-based networks in a secure and reliable manner, similar to how they currently operate when facilitating trade in traditional assets.
“There is unlikely to be a single prevailing blockchain network,” said Tom Zschach, Chief Innovation Officer at Swift. “We expect to see a multitude of different platforms emerge, each serving different customer segments with their own tailored capabilities and requirements. In such a highly fragmented ecosystem, it would simply not be possible for financial institutions to connect to each platform individually. It is why the community is working with Swift to develop an interoperability model that will enable access to different platforms globally.”
It’s also not possible for financial institutions to build new infrastructure and technology stacks 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 compatible and secure.
“Not only will this help firms simplify their architecture and operations, but it also minimizes investment costs and reduces the risk of technology obsolescence,” Swift said.
“Our experiments will help advance the industry’s understanding of 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.”
The main focus of the upcoming experiments will be to show how Swift’s infrastructure can be leveraged to facilitate interoperability, allowing tokenized value to be transferred between existing systems and both public and private DLT platforms with existing connectivity, standards and messaging.
This includes transferring tokenized assets between two wallets on the same public blockchain network, transferring tokenized assets from one public blockchain to a permissioned blockchain, and transferring 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 are excited to work with Swift,” said Nazarov. “Clearly, as banks seek to access multiple blockchains, a common connectivity layer across the different chains will be a critical building block for their use of on-chain financing. 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 trade 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 advantages of adopting chain financing.”
Swift said it will also explore a set of non-technological considerations 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 such as data confidentiality and privacy, or liability and recourse in transactions with public blockchain environments,” they said.
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