- Deutsche Bank and Standard Chartered are testing a system that makes blockchain-based transactions, stablecoins, and CBDCs communicate like SWIFT in traditional banking.
- The UDPN system facilitates cross-network transactions, integrates decentralized digital identity standards, and streamlines cross-border transfers.
Deutsche Bank and Standard Chartered, in collaboration with tech consultancy GFT Group and Red Date Technology, are making significant strides in blockchain-based transactions. The financial giants are currently testing a system that enables seamless communication between blockchain-based assets, stablecoins, and central bank digital currencies (CBDCs), mirroring the functionality of the traditional SWIFT messaging layer.
Facilitating Cross-Network Transactions
To redefine cross-border transactions, Deutsche Bank and Standard Chartered have joined forces to develop a groundbreaking system. The Universal Digital Payments Network (UDPN), a permissioned blockchain network, is the backbone of this initiative. UDPN comprises validator nodes, a collective effort involving banks, financial institutions, and consultancies. These nodes act as the linchpin for enabling transactions across a spectrum of blockchain networks.
Tech consultancy GFT Group and Red Date Technology, co-founders of the Chinese Blockchain-Based Service Network (BSN), are overseeing the engineering of UDPN to bridge the gap between blockchain networks. One of its distinctive features is the incorporation of decentralized digital identity standards (DIDs), which create a regulated and bank-friendly environment.
Streamlined Transaction Process
The UDPN design aims to make the transaction process seamless and efficient. In a cross-border currency transfer scenario, the sending institution takes the tokenized value and initiates a transfer into a smart contract managed by UDPN. Subsequently, the smart contract releases the intended target currency without necessitating a central organization’s involvement or utilizing a SWIFT message format.
Interoperability is at the heart of this initiative. UDPN acts as a vital bridge, facilitating transactions between various types of blockchain networks. This functionality reduces friction in cross-network transactions, offering a promising alternative to legacy systems.
The UDPN project has garnered substantial interest from around 25 organizations, each actively participating in roughly ten proof-of-concept tests running concurrently. These organizations represent banks from around the world, including the USA, Australia, Latin America, and Europe.
Within UDPN, transaction nodes play a pivotal role. These nodes establish direct connections with currency systems and currency pools, with each currency requiring its transaction. In the future, central banks may use these nodes to oversee transactions involving CBDCs, or other financial institutions may utilize them for handling digital currencies, all within a well-regulated environment.
The Future Outlook
Deutsche Bank and Standard Chartered’s venture into blockchain-based transactions signifies a shift in the financial industry. With the ability to connect stablecoins and CBDCs across various blockchain networks, this initiative has the potential to streamline and redefine cross-border transactions. The absence of centralized control and the adoption of decentralized digital identity standards underscore the commitment to creating a secure and regulated environment.
This endeavor is not the first in the crypto and blockchain space. Various banks and institutions have previously formed consortia to address blockchain-based transactions in private settings. However, while there was initial excitement surrounding enterprise blockchains, they have faced limited adoption thus far. As UDPN continues to undergo testing and development with the active involvement of global financial institutions, it signals a promising step towards reshaping the landscape of international finance.
