Swift Extends Tokenization Interoperability Trials to Public Blockchain – Ledger Insights

Today, Swift announced a new set of experiments with more than a dozen institutions to explore blockchain interoperability challenges to integrate with multiple public blockchains in a partnership with crypto startup Chainlink.

The institutions involved include ANZ Bank, BNP Paribas, BNY Mellon, Citi, Lloyds Bank, clearing houses Clearstream and Euroclear, as well as DTCC and SIX Digital Exchange.

The trials are intended to use existing Swift infrastructure, standards and messaging to enable transfers between current systems and public and private DLT networks.

“There is unlikely to be a single prevailing blockchain network,” said Tom Zschach, Chief Innovation Officer at Swift. “In such a highly fragmented ecosystem, it simply wouldn’t be possible for financial institutions to connect to each platform individually. That’s why the community is working with Swift to develop an interoperability model that will enable access to different platforms globally.”

Chainlink’s role in blockchain interoperability

This sentiment was echoed when Swift partnered with Chainlink for a proof of concept last year. While Chainlink is best known for its public blockchain oracle network, it also has a blockchain interoperability solution, the Cross-Chain Interoperability Protocol (CCIP).

“If even a small fraction of the quadrillion dollars in value flowing through the Swift network and its 11,000+ member banks makes its way to blockchains, the entire blockchain industry could grow many times larger very quickly,” said Chainlink co-founder Sergey Nazarov .

Three use cases are planned for the trials. First, transfers between two Ethereum testnet wallets will be performed. Next, it will test transfers from a public to a permissioned blockchain. And finally, it will explore transfers between Ethereum and another public blockchain.

Last year, Swift conducted the first phase of tokenization interoperability trials with institutions within a permissioned environment.

The research will also explore other non-technical issues, including compliance, confidentiality, privacy and liability or recourse in transactions on a public blockchain.

The most difficult problem may be regulatory challenges. Regulators are already treading carefully with permissioned blockchains. Some are reticent when it comes to public blockchains. For example, the recently finalized Basel crypto rules have a caveat that it may be necessary to adjust the rule for permissionless blockchains.

There are a number of blockchain interoperability solutions in the works for tokenization. They include the Canton Network from Digital Asset, which connects solutions using its DAML smart contract language. R3’s Corda also has the Corda Network. FinP2P has a non-blockchain routing network, and DataChain helps a large Japanese blockchain network founded by MUFG to connect to multiple public blockchains for stablecoin issuance.

Meanwhile, Swift is also involved in cross-border CBDC trials, testing blockchain for corporate transactions and experimenting with interoperability for electronic waybills, many of which use blockchain.