SWIFT completes feasibility trials on blockchain interoperability

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The Society for Worldwide Interbank Financial Telecommunication (SWIFT), the largest interbank messaging system in the world, announced yesterday, August 31, that it had finished a series of experiments to test for blockchain interoperability.

Beginning in June this year, the trials tested Cross-Chain Interoperability Protocols (CCIP) ‘s effectiveness in transferring tokenized assets across wallets. SWIFT found that CCIP can guarantee total interoperability between source and destination blockchain. This allows the cooperative to provide a means to connect public and private blockchains without difficulties in allowing the shifting of tokenized assets.

These tests are carried out in collaboration with several financial institutions, namely ANZ, BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX) and The Depository Trust & Clearing Corporation (DTCC). SWIFT also partnered with Chainlink, a decentralized blockchain oracle network built on Ethereum. In the tests, Chainlink functioned as an enterprise abstraction layer to interconnect the Swift network to the Ethereum Sepolia network.

In regards to the success of the experiment, Tom Zschach, chief innovation officer at SWIFT, said, “Interoperability is at the heart of everything we are doing at Swift to facilitate the seamless flow of value across the world in the face of increasing fragmentation.”

What is blockchain interoperability?

Blockchain interoperability enables different blockchain networks to interact and integrate, allowing different protocols to seamlessly communicate and share data. With it, a blockchain layer can perform transactions to an outside chain.

As tokenization allows for offering smaller denominations of assets, it expands the potential pool of investors. Similarly, interoperability opens the door to more investments as it makes transactions more seamless.

Challenges in the tokenized asset market

BNY Mellon conducted an institutional survey in 2022 and found that 97 percent of hedge funds, asset owners and institutional asset managers recognized the potential of tokenization for asset management. However, they were also hesitant since assets on different blockchains are not interoperable. Each blockchain has its own functionality or liquidity, which creates significant overhead and friction in managing and trading the assets.

SWIFT is thereby looking to help these firms by developing an interoperability model that would enable access to different blockchain platforms globally, where tokens are recorded in a way that is both compliant and secure. Not only would this help firms simplify their architecture and operations, but it also minimizes investment costs and reduces the risk of technology obsolescence.

With these experiments, SWIFT seeks to collaborate with public and private blockchains—taking into account elements such as data security and governance, operational risk and legal obligation—to satisfy technical and business demands.

What this means for the future of blockchain industry

SWIFT’s experiments are expected to not only accelerate the blockchain industry’s growth as crypto adoption increases across the globe but also show capital markets the various benefits of adopting on-chain finance.

Meanwhile, SWIFT’s partnership with Chainlink is hoped to pave the way for leading institutions like Euroclear, DTCC, BNP Paribas, Citi and BNY Mellon to issue and transact trillions of dollars using smart contracts. If proven successful, this may also help accelerate the speed at which banks adopt and utilize blockchains.