Germany’s DekaBank founded SWIAT with a grand plan to bring together global financial institutions on a shared digital asset platform, similar to what SWIFT has done for payments. SWIAT stands for secure worldwide interbank asset transfer and is an enterprise blockchain platform where banks control the nodes. It says it’s had interest from the likes of LBBW and Standard Chartered, although there are no formal commitments as yet.
Two executives from DekaBank, Germany’s fourth largest asset manager, outlined the project yesterday during the European Blockchain Convention.
The problem that SWIAT wants to solve in the securities sector is familiar to incumbents. “We have a very fragmented hierarchical financial infrastructure which slows down the velocity of transactions and is extremely expensive and extremely ineffective,” said DekaBank board member Martin Müller.
“The challenge is not to utilize the technology. The challenge is to rethink transactions entirely with the potential of the blockchain.”
DekaBank concluded that data, assets and transactions should be linked and managed on a single blockchain network. They’re not alone. Citibank is backing a similar initiative, the Regulatory Liability Network (RLN), with enterprise blockchain firm SETL. Not to mention R3’s network and all it’s financial services investors.
One network for all digital assets?
Sometimes the desire for a single network is because the operator wants to have a monopoly. But there’s a practical aspect. Currently, high financial infrastructure costs result from fragmentation and the need to integrate so many disparate systems.
When we asked SWIAT if they want to be the one and only network, the spokesperson’s response confirmed this: “It will be difficult to unite everything and everyone in one network, but what we should strive for is:
- join step-by-step smaller islands to larger ones.
- agree on open standards to reduce fragmentation and create the interoperability within and between networks.”
Hence SWIAT is not intended to target only tokenized securities. Ultimately the aim is to support traditional securities, digital securities, crypto securities, tokenized assets, crypto-assets, and money on the same network.
At the same time, DekaBank’s Jonathan Leßmann observed that most platforms and consortia struggle or fail because they try to solve too much at once. So SWIAT intends to be the only network with others offering services.
Progress so far – securities lending
The SWIAT network is already up and running with plans to close a funding round from industry participants in the middle of next year.
One of the areas already developed is securities lending. SWIAT isn’t looking to tokenize existing securities but instead create a blockchain-based settlement layer, a Digital Collateral Protocol (DCP). It wants to “maintain the securities where they belong – at the custodian and the CSD”. It carried out a securities lending transaction with Metzler Bank without advance collateralization in November. It referred to the swap of the securities as “deliver v delivery”.
The DCP sounds rather similar to another blockchain-based securities lending platform, HQLAX. The Deutsche Boerse and several major banks such a JP Morgan, Goldman Sachs and Citi are participants. Per the HQLAX name, it is designed for banks trading high quality liquid assets.
We asked how the SWIAT solution differs. “SWIAT in general and DCP, in particular, are universal solutions to a variety of needs in financial markets. It is not a specific solution to a specific problem only,” said the SWIAT spokesperson. “SWIAT is designed to be an ecosystem consisting of composable financial protocols that market participants can employ in the way they need.”
Green bonds registry
Earlier this month, DekaBank demonstrated another application by using SWIAT for a Green Registered Bond. SWIAT was integrated with the firstwire debt marketplace, where Swedish real estate firm Vasakronan AB issued a green bond to DekaBank as the investor. DekaBank also took on the role of registrar using SWIAT to track the current bondholders.
The potential business model for SWIAT includes the typical ones you’d expect from network management companies such as transaction fees, potentially product-specific fees, professional services, and for those that don’t want to host their own nodes, hosting.
The final piece of the puzzle is technology. While the network is an enterprise blockchain running Hyperledger Besu, the choice of a Besu is no accident. SWIAT wants to stay as close as possible to Ethereum because it’s the largest digital asset ecosystem so far. We observe that Besu can be used on both private and public blockchains.
On the topic of public blockchains, someone asked whether crypto is an existential challenge to banks during the conference talk.
“It’s a unique chance for the banking (sector) to get rid of a fragmented infrastructure and move from the old world to the new world. So there’s a lot in it for the financial services sector because it can overcome hurdles,” said DekaBank board member Martin Müller.
Referring to a trend towards central counterparties, he added, “Especially if you look at blockchain with its decentralized function, it’s the one and only chance for custody and other banks to maintain their role.”