ParamountDax Weekly Newsletter: Is SWIFT payments giant gonna embrace blockchain in the future?
SWIFT is a payments colossus. It operates across more than 200 countries, has 11,000-plus financial institution clients and transmits some 8.4 billion financial messages every year. It is the global leader in cross-border bank-to-bank payments and recently played a key role in the West’s economic sanctions on Russia.
That doesn’t mean the Belgium-based cooperative is immune to disruption tremors, however. Critics have long maintained the interbank messaging system, founded in the 1970s, is “old, inflexible, slow, and increasingly prone to cyberattacks.” In May, Mastercard CEO Michael Miebach cast doubt upon SWIFT’s ability to survive the next five years. Meanwhile, it continues to be menaced by a rising tide of blockchain-based payment networks on one side and an expected torrent of central bank digital currencies (CBDCs) on the other.
But, last week, in a sign that even entrenched legacy financial networks can (possibly) change their stripes, SWIFT confirmed a proof-of-concept project with blockchain oracle provider Chainlink. If all goes well, SWIFT’s bank users could easily access and transfer digital assets on multiple blockchain platforms. Days earlier, SWIFT also announced it was using fintech-firm Symbiont’s enterprise blockchain platform to improve its messaging for corporate events like dividend payments and mergers.
These developments raise an intriguing question: Rather than engaging in a zero-sum struggle to the death, are traditional finance (TradFi) and decentralized finance (DeFi) firms actually converging — i.e., moving toward a common middle ground that includes tokenized assets, DeFi, interoperability and, yes, regulation?
Co-opting an existential threat?
“All financial goods will move across blockchain networks in the future,” Matthew Hougan, chief investment officer at Bitwise Asset Management, told Cointelegraph. “It’s not surprising to see legacy firms looking to adopt and/or co-opt a technology that represents a fundamental threat to their existence; in fact, it should be applauded.”
Of course, this is just a pilot program. Hougan added, “It’s not like SWIFT got blockchain religion overnight and is converting all their activities to DLT.” But, it’s a start, and for that, the network should be applauded, he suggested.
In this rapidly evolving technological world, “there is no place for binary viewpoints that embrace an ‘I win, you lose’ mentality,” especially within its capital markets and finance sector, Mark Smith, CEO and co-founder of Symbiont, told Cointelegraph, further adding:
“Ultimately what ends up being the norm is usually a hybrid, and we definitely see a melding unfolding that will borrow from the best that TradFi and DeFi have to offer.”
Jonathan Solé, strategy director at SWIFT, speaking at last week’s Smartcon 2022 convention in New York, acknowledged an “undeniable interest” on the part of institutional investors in digital assets “whether these are stablecoins, CBDCs or anything that you can tokenize on the capital markets space” including equities and bonds.
Banks and other TradFi institutions are looking to SWIFT to “bridge the gap” between their infrastructure servicers, like exchanges, custodians and clearing houses, “and all of these new blockchains that are going to provide these services” for tokenized assets, he added at a panel titled “Bridging Traditional Finance and DeFi.”
The session was moderated by Chainlink CEO Sergey Nazarov, who noted that SWIFT possessed the TradFi world’s “largest private key infrastructure,” adding:
“There is no reason to get rid of that private key infrastructure that already securely signs transactions to move around trillions of dollars in value. All of those standards can simply have an addition made to them that says: blockchain stuff.”
But, SWIFT “doesn’t necessarily want to build an integration with every single chain on the planet,” added Nazarov, which was why it was exploring Chainlink’s Cross-Chain Interoperability Protocol (CCIP) as a way for it “to become interoperable across all blockchain environments.”
Stephen Prosperi, head of product management and digital securities management of DTCC, which provides clearance and settlement services for U.S. securities markets — another TradFi heavyweight — seconded this point. Different digital currencies “will live across different chains,” and firms like DTCC don’t want to build separate infrastructure to connect to each of the 100 blockchains that host desirable digital assets. A central point of entry like CCIP could therefore be useful.
A boost to crypto adoption
Finally, what, if anything, does all this have to do with crypto/blockchain adoption? Ecumenical panel discussions like what occurred at Smartcon are encouraging, but will partnerships like SWIFT-Chainlink really “accelerate the adoption of DLT blockchains and benefit various institutions all over the capital markets,” as Nazarov suggested?
We will see if this is true in the near future, in a way or another.
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Best Wishes to all of You,
The ParamountDax Team