A system that will enable communication between stablecoins, central bank digital currencies (CBDCs), and blockchain-based transactions is being tested by Deutsche Bank and Standard Chartered’s SC Ventures. The technology is designed to resemble the SWIFT messaging layer used in conventional banking infrastructure.A group of banks, financial institutions, and consultancies are operating the Universal Digital Payments Network (UDPN), a permissioned blockchain system made up of validator nodes, for a number of test cases, including the transfer and swapping of USDC stablecoins.
The Chinese Blockchain-Based Service Network (BSN) co-founder Red Date Technology and IT consultancy GFT Group developed the system, which directs and permits transactions across a variety of networks, including stablecoins on public blockchains and CBDCs.
In the comparatively long history of cryptocurrencies, banks and other organizations have formed consortia in an attempt to reach a consensus over the most effective way to handle blockchain-based transactions in private environments.These commercial blockchains have attracted little attention thus far, despite some hoopla.Digital currencies serve as both a medium and a communication, raising the question of why SWIFT messages need to be sent in parallel.According to its developers, the solution is that UDPN applies members’ decentralized digital identification standards (DIDs), which have been proven via testing, and simultaneously serves as an interoperability bridge across different kinds of blockchain networks, enabling a regulated and bank-friendly environment.
“The UDPN is a network where the affiliation of members is permissioned. But the key thing here is that the transactions themselves are placed onto the underlying infrastructure, which includes permissionless networks,” Thorsten Neumann, CTO of SC Ventures, said in an interview.
In the event of a cross-border currency transfer, for example, the sender institution puts the tokenized value into a UDPN-managed smart contract, from which the desired target currency is subsequently released, according to Neumann.
“There is almost a DeFi-type capability within a permissioned network. It’s important to note this is done without a central organization setting out something like a SWIFT message format,” he said.
Steffen Schacher, the UDPN lead at GFT Group, estimates that there are presently about 25 organizations participating in roughly 10 proof-of-concept tests that are being conducted concurrently.According to him, banks from the USA, Australia, South America, and Europe are part of this alliance.
“The UDPN’s transaction nodes are where the magic happens, being connected to currency systems and currency pools,” Schacher said in an interview. “The way to envision it is each currency needs a transaction of its own, so to speak. This could be central banks in the future, owning transactions and operating CBDCs, or other financial institutions, or any other organization that is handling digital currencies, bringing it all into a regulated environment.”