Swift To Explore Cross-chain Transfers With Major Banks

Swift, the global interbank messaging system that processes nearly $5T in daily volume, said it is working with banking partners worldwide to trial cross-chain tokenized asset transfers.

Announced on June 6, the initiative will test solutions using existing Swift infrastructure to transfer “tokenized value” across public and private blockchains.

“More institutions are beginning to explore how to serve customers on both permissioned and public blockchain networks like Ethereum,” said Jonathan Ehrenfeld, Head of Securities Strategy at Swift. “Our experiments will help advance the industry’s understanding about the technical and business requirements involved when interacting with and between multiple blockchain networks.”

The initial tests will involve transfers on Ethereum’s Sepolia testnet, between the Ethereum mainnet and a permissioned blockchain, and between Ethereum and other public networks.

More than a dozen financial institutions will participate in the initiative, including Citi, BNY Mellon, Lloyds Banking Group, BNP Paribas, and Australia and New Zealand Bank.

Swift potentially adding support for public blockchains could serve as a major boon to the web3 sector. The company said the operational efficiencies enabled by blockchain “could attract more investors into the private markets and ultimately increase liquidity.”

In 2018, the Financial Times estimated that Swift processed roughly 50% of global cross-border transactions. However, the report also noted Swift faced criticism for its inefficiency, describing its transactions as “time-consuming, costly, and lacking transparency on how much money will arrive at the other end."

Fragmented Ecosystem

Swift said it sees increasing interest in tokenized asset investments among institutional investors. However, the technical complexity of the multi-chain web3 ecosystem creates “overhead and friction in managing and trading the assets.”

“In such a highly fragmented ecosystem, it would simply not be feasible for financial institutions to connect to each and every platform individually,” said Tom Zschach, CIO at Swift. “Overcoming this fragmentation will be key to the long-term scalability of the market.”

Ehrenfeld also emphasized the need for interoperability between blockchain protocols and legacy infrastructure. “Instead of building new infrastructure and technology stacks entirely from scratch, financial institutions want to leverage their existing infrastructure to connect to blockchain ledgers,” he said.

The pilot program will explore regulatory and operation hurdles that financial institutions may encounter when interacting with tokenized assets.

Chainlink Provides Cross-Chain Infrastructure

Chainlink, a leading web3 oracle provider, will enable Swift to interact with Sepolia and contribute its Cross-Chain Interoperability Protocol to the initiative.

“As banks endeavor to access multiple blockchains, a common connectivity layer across the various chains will be a critical building block for their adoption of on-chain finance,” said Chainlink co-founder Sergey Nazarov. The project first revealed it was collaborating with Swift in September 2022.

Chainlink’s LINK token is down nearly 9% in the past week, according to The Defiant Terminal.

In October, Swift said its cross-chain interoperability trials could lay the groundwork for the launch of Central Bank Digital Currencies (CBDCs).