What is Swift doing to simplify global liquidity of digital assets and currencies?

Source: Swift; Compiled 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 stage.

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 Bank and Synpulse recently estimated that the market size of real-world tokenized 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, several challenges must be overcome before digital assets and currencies can truly scale globally. Chief among these is the growth of disparate platforms, technologies, and regulatory environments underpinning digital innovation. This has led to the emergence of a fragmented ecosystem of “digital silos,” increasing costs and risks for market participants. For example, the complexity institutional investors face in dealing with multiple tokenization platforms has prevented them from scaling 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.

Enabling Global Interoperability

For 50 years, Swift has played an important role in advancing 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 many years, we have been actively exploring potential solutions in our Innovation Lab to address the challenges of extending global interoperability to CBDCs and tokenized assets. Recently, we have brought the industry together through a series of groundbreaking research projects to explore how existing Swift capabilities and infrastructure can seamlessly support interoperability between 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’re setting our sights higher

Our vision is to enable our members to use their Swift connections to conduct swap transactions using existing and emerging asset and currency types.

We have a strong 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 such as payments, securities, foreign exchange, trading and more.

Based on what we have learned, we are paving the way for real-world solutions that can interconnect various 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 pay and exchange tokenized assets simultaneously on our network in real time.

The cash component of DvP settlement is particularly challenging without a globally recognized form of digital currency. Therefore, we are looking at ways to connect the settlement of tokenized assets with the 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 currency, such as CBDCs, tokenized commercial bank money or regulated stablecoins.

Finally, we are also testing how our interoperability capabilities can be used as a technical solution to interconnect emerging bank-led networks such as the US Regulated Settlement Network with other financial infrastructure.

The Road Ahead

While a lot has been achieved, it is clear that there is much more work to do.

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 required to achieve scale – more information will be available ahead of Sibos 2024.