SWIFT works with Chainlink to connect networks to each blockchain
- SWIFT will leverage Chainlink’s Cross-Chain Interoperability Protocol (CCPI) to facilitate token transfers across the blockchain.
- The development seeks to build a bridge between traditional finance (TradFi) and decentralized finance (DeFi).
On Wednesday 28 September, the world’s largest interbank payment system SWIFT announced that it is collaborating with price feed provider Chainlink on a cross-chain interoperability protocol (CCPI) in an initial proof-of-concept.
Chainlink’s Cross-Chain Interoperability Protocol allows token transfers across blockchains along with the development of cross-chain applications. Thus, CCIP will allow SWIFT messages to facilitate on-chain token transfers. This will also help the interbank network to communicate across all blockchain environments.
Speaking at the SmartCon 2022 conference in New York City on Wednesday, Chainlink co-founder Sergey Nazarov said the recent step will boost the adoption of distributed ledger technology (DLT) blockchains while benefiting several other institutions across the capital markets.
SWIFT uses the Cross-Chain Interoperability Protocol (CCIP) in a first proof of concept.
CCIP will enable SWIFT messages to instruct on-chain token transfers, helping the SWIFT network become interoperable across all blockchain environments. pic.twitter.com/Pvm0Cex45e
— Chainlink (@chainlink) 28 September 2022
SWIFT’s strategy director Jonathan Ehrenfeld Solé also said there is “undeniable interest” in crypto from institutional investors. This was one of the reasons for working with Chainlink at CCIP.
Bringing TradFi and DeFi together
As crypto continues to penetrate mainstream financial markets, financial players are working to form an efficient bridge between traditional finance (TradFi) and decentralized finance (DeFi).
Players from traditional finance want access to multiple digital and traditional assets on one network that can connect different types of asset classes, said Solé.
The partnership between SWIFT and Chainlink to facilitate cross-chain interoperability will bridge the gap between TradFi and DeFi. The demand for interoperability between multiple chains has shot up significantly in recent months. This could be the next big development in financial markets to bridge the gap between traditional and decentralized finance (DeFi).
Chainlink stated that this collaboration with SWIFT will allow financial institutions to gain blockchain capability without replacing, developing and integrating new connectivity into legacy systems. Such changes would otherwise require significant modifications at very high costs.
Innovation or death
As said, SWIFT is currently the largest global interbank messaging system handling billions of dollars in daily cross-border transfers. It connects over 11,000 banks worldwide. In August 2022, the SWIFT system recorded an average of 44.8 million messages per day.
However, SWIFT must step up its game if it is to stand alongside new technologies in the market. The downside of SWIFT today is that cross-border transactions can take several days to complete. On the other hand, other technologies using blockchain can facilitate settlement instantly or within minutes.
As a result, SWIFT has also decided to adopt blockchain and distributed ledger technology (DLT). On the other hand, SWIFT has already started work on connecting several CBDC networks worldwide for cross-border payments. Earlier in May 2022, Thomas Zschach, Chief Innovation Officer at SWIFT said:
Facilitating interoperability and interconnection between various CBDCs being developed around the world will be essential if we are to fully realize their potential.
