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Successful blockchain experiments unlock potential of tokenisation

Successful blockchain experiments unlock potential of tokenisation

31 August 2023 | 7 min read

We partnered with more than a dozen financial institutions and market infrastructures to demonstrate how our network could be used to transfer tokenised assets across multiple public and private blockchains. Read about how we did it and what it could mean for our industry.

The emergence of tokenised assets has the potential to transform the way we move value across borders. To better understand this technology, we’ve been conducting a number of experiments over the past years. Our latest report, available in full today, demonstrates how our infrastructure could be used to facilitate the transfer of tokenised value across multiple public and private blockchains. The findings could help remove significant friction that’s slowing the growth of tokenised asset markets and enable them to scale globally as they mature.

While tokenisation is in its infancy, 97% of institutional investors believe it will revolutionise asset management and be a positive force in the industry. And with its potential benefits including increased efficiency, reduced costs and more inclusive investing through fractional ownership, that’s no surprise.

One issue challenging investors and institutions, however, is that tokenised assets are managed on different blockchains, each with its own functionality and liquidity profile. Interoperability between these blockchains is crucial, to avoid financial institutions having to build connections with each platform, leading to significant operational costs and challenges.

Tom Zschach
Our experiments have demonstrated clearly that existing secure and trusted Swift infrastructure can provide that central point of connectivity, removing a huge hurdle in the development of tokenisation and unlocking its potential.
Tom Zschach Chief Innovation Officer, Swift
Connecting blockchains: Overcoming fragmentation in tokenised assets

A single point of access

In our latest experiments, we’ve been able to successfully demonstrate that our infrastructure can provide a single point of access to multiple networks using existing, secure infrastructure. This could significantly reduce operational challenges and the investment required for institutions to support the development of tokenised assets.

These experiments are part of our wider strategy to ensure secure, global interoperability as new technologies and platforms emerge. They build on work over the past few years to show how our infrastructure could support the financial community in interconnecting Central Bank Digital Currencies (CBDCs) and other digital assets with new and existing payments systems.

“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,” said Tom Zschach, Chief Innovation Officer at Swift. “For tokenisation to reach its potential, institutions will need to be able to seamlessly connect with the whole financial ecosystem. Our experiments have demonstrated clearly that existing secure and trusted Swift infrastructure can provide that central point of connectivity, removing a huge hurdle in the development of tokenisation and unlocking its potential.”

Our experiments: The details

To conduct these experiments, we collaborated with a number of major financial institutions and market infrastructures, including Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX) and The Depository Trust & Clearing Corporation. We used Chainlink as an enterprise abstraction layer to securely connect the Swift network to the Ethereum Sepolia network, while Chainlink’s Cross-Chain Interoperability Protocol (CCIP) enabled complete interoperability between the source and destination blockchains.

In addition to demonstrating that our existing infrastructure can provide a secure, scalable way for financial institutions to connect to multiple types of blockchain, these experiments advanced shared understanding around the technical and business requirements for interacting with business and public blockchains. We also explored the value of a blockchain interoperability protocol for securely transferring data between existing systems and a potentially unlimited number of blockchains.

The experiments looked at the design and technical development of a solution and considerations around data privacy and governance, operational risk, and legal liability. Transfers of simulated tokenised assets took place – between two wallets on the same public Distributed Ledger Technology network; between two wallets on different public blockchains; and between a public and private blockchain network.

Moving forward, we’ll continue to work with the financial community to understand the most concrete use cases for tokenised asset adoption and will prioritise our efforts accordingly. It is anticipated that the most compelling case, in the near term, will be in the secondary trading of non-listed assets and private markets.

Download the full report to learn more.

Connecting blockchains: Overcoming fragmentation in tokenised assets

What our participants have to say

Nigel Dobson, Banking Services Portfolio Lead at ANZ, said: “ANZ is actively exploring the use of decentralised networks and tokenisation via a ‘test and learn’ approach, particularly in underserved markets such as the trading of nature-based assets. Establishing interoperability between existing financial market infrastructure and multiple blockchains will be critical for greater adoption so we were naturally delighted to participate in this experiment with the Swift community.

Alain Pochet, Head of Client Delivery, Securities Services at BNP Paribas, said: “With the increasing number of blockchains, the task of connecting our traditional technical platforms and ensuring interoperability between blockchains presents a growing challenge that we must overcome. In this regard, the experiment demonstrated the potential to leverage the extensive connectivity already established with Swift.”

Thilo Derenbach, Head of Business Development & Commercialisation for Digital Securities Services at Clearstream, said: “As a provider of financial market infrastructure, Clearstream has a key role in supporting the financial industry in its transition to the digital era. Driving digitisation, supported by latest technologies and the tokenisation of assets, is a key topic for us at Clearstream. Joint partnerships and experiments like these help progress the industry innovation agenda while at the same time offering solutions for the interoperability of existing and future ecosystems.”

Jennifer Peve, Managing Director, Global Head of Strategy & Innovation at DTCC, said: “As a financial market infrastructure provider, DTCC is committed to co-ideating and developing solutions to connect the broadest set of market participants and ensure that innovative solutions don’t form in silos and deliver maximum value. We are pleased to engage with Swift on this important experiment that has taken meaningful steps in understanding what cross-network interoperability could mean in the future.”

Stephanie Lheureux, Head of Digital Assets Excellence Centre at Euroclear, said: “We are delighted to have participated in this important project collaborating with other Financial Market Infrastructures (FMI) and institutions with the aim to tangibly unlock DLT value through interoperability experiments. As an FMI, our approach to innovation has been to develop solutions in cooperation with our ecosystem with the objective to continuously drive efficiencies to reduce cost and risk.”

Alexandre Kech, Head Digital Securities at SIX Digital Exchange (SDX), said: “This interoperability exercise is critical to the understanding on how banks and FMIs can realise the promise of blockchain for institutional business, that is, the building of a multi-party, regulated global digital asset agnostic trading, settlement and asset servicing 24/7 infrastructure for issuers and investors.”

Sergey Nazarov, Co-Founder at Chainlink, said: “It’s now clear that both top global banks and leading market infrastructures believe there will be greater adoption of digital assets across the entire banking industry, and that this adoption will happen using multiple different blockchain technologies at the same time. The collaboration between Swift, over ten of the largest financial institutions, and Chainlink also proved that interoperability across chains is critical to enabling the next stage of digital asset adoption across the global financial system. When combining Swift and CCIP, we were able to show that this new level of interoperability across various blockchains is now possible with minimal resources from even the largest banks and market infrastructures.”