Universal Digital Payment Network Targets Interoperable Stablecoins, CBDCs – Ledger Insights
The Universal Digital Payment Network (UDPN) was launched yesterday at the World Economic Forum in Davos. It is a blockchain-based network to provide interoperability between regulated stablecoins and CBDC. The three organizations behind the initiative are the German digital consultancy GFT, Red Date Technology and DLA Piper’s digital asset initiative TOKO.
“The purpose of UDPN is to investigate a potential alternative to existing payment systems by enabling interoperability between fiat-backed tokens of stablecoins and regulated protocols,” said Marika Lulay, CEO of GFT. “The decentralized approach and geographic breadth of participating firms, combined with the advanced technological solution deployed for these trials, sets this network apart.”
It plans to work with stablecoins and CBDC across decentralized and centralized currency systems. It says it will support regulated fiat-backed stablecoins, but “no unregulated public chain cryptocurrencies, such as Bitcoin, will be accepted.” Addition of new currency is put to vote by UDPN Alliance members and the DLT network is allowed based on Hyperledger Besu.
We wrote about the concept two years ago when the idea of UDPN was first floated as part of the Blockchain-based Service Network (BSN), a Chinese initiative to enable global interoperability between blockchain networks. Red Date Technology initiated BSN, but we note that BSN is neither mentioned in the announcement nor in the UDPN whitepaper, so the project now appears to be independent.
The network has developed a sandbox and is starting with two proofs of concept (PoCs). One is for cross-border transfers using digital currency and foreign exchange transactions with participating Standard Chartered and Deutsche Bank. Another involves implementing the travel rule for stablecoin transfers. This requires intermediaries to pass on details of the payment, the payer and the recipient in order to combat money laundering.
Several other use cases are envisioned, including enabling the use of stablecoins without consumers needing to hold cryptocurrencies for gas fees. The business pays for the gas and sends it on denominated in stable coins. Another use case is tokenization.
UDPN also mentioned three other banks that attended the Davos launch: HSBC, Bank of East Asia and Turkey’s Akbank. HSBC was also involved in the launch of the BSN Spartan Network last year.
The announcement refers to UDPN as a global payment messaging network. In particular, messaging networks generally do not need to comply with payment system regulations. SWIFT is also a payment messaging network, but is only subject to regulatory oversight because it became systemically important.
