Capital markets News

SWIFT wants to provide interopability between banks, public blockchains for digital assets


Yesterday Jonathan Ehrenfeld Solé, SWIFT’s Strategy Director, explained how SWIFT could leverage its connectivity to 11,000 banks to enable them to issue, clear, trade and settle digital assets on blockchains, both public and private. SWIFT is best known for its cross border payments messaging network.

Before getting into the details, Ehrenfeld Solé was widely misquoted in the press as making bullish statements about crypto. What he actually said was, “There is undeniable interest from institutional investors in digital assets. Whether these are stablecoins, CBDCs or anything you can tokenize in the capital market space. So that could be equitiesbonds or anything else.”

Later on, he was even more specific. “For the capital markets industry, it’s not necessarily crypto where we see the big take up now or in the long term,” said Ehrenfeld Solé. “It’s more on the digital securities or the tokenization of equities or bonds. And anything linked to the cash leg of that, which could be CBDCs, stablecoins or something in that realm. But not necessarily crypto for now.”

SWIFT as a provider of blockchain interoperability

However, he is supportive of public blockchain and was talking at a Chainlink event about working on an interoperability proof of concept with Chainlink Labs. Chainlink is a decentralized network of oracles that helps to feed data such as stock prices or weather sensors for use in smart contracts. It also has a Cross-Chain Interoperability Protocol (CCIP) which aims to provide a messaging interface so smart contracts can talk to each other across different blockchains, both public and private.

Ehrenfeld Solé spoke about incumbents and digital assets. “Institutional investors want to have access to these asset at the same time as they have access to traditional assets,” he said. “And that means an asset manager wants to use the same custodian they use today. And those custodians probably want to use the same sub-custodians to settle at the same infrastructures that they do today. And that, in theory, means they want to use a network that can connect to all of these capabilities.”

He added, “And that’s where SWIFT comes into play. You have institutions saying ‘hey SWIFT, we want you to be the network to connect to that.'”

But SWIFT doesn’t want to be in the business of picking winners in blockchain. It doesn’t want to invest in integrating with a blockchain that falls out of favor next year. Hence it’s interested in Chainlink’c CCIP, which has integrated with 15 blockchains so far.

Sergey Nazarov, the cofounder and CEO of Chainlink Labs, highlighted that SWIFT has one of the most important public key infrastructures in addition to its messaging network, routing and standards. 

“Just like we don’t want to build public key infrastructure for 11,00 banks of the world because that’s already done, SWIFT doesn’t necessarily want to build an integration with every single chain on the planet because that’s a body of work that we’re focused on,” said Nazarov.

Ehrenfeld Solé noted that SWIFT’s messaging standard has already been upgraded to support asset tokenization. It’s been adapted to support fractoinalization, different asset identifiers, and the use of wallets rather than accounts.

Chainlink and SWIFT have been quietly collaborating for years. Chainlink won a SWIFT startup competition in 2016 and worked with the network on early trials of bond issuance and settlement years ago.

Meanwhile, more recently, SWIFT has been experimenting with blockchain for corporate actions such as bond payments and a separate trial for tokenized cross border payments.

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