SWIFT, the interbank messaging system, will partner with Chainlink labs on a cross-chain interoperability proof of concept. The announcement was made on the last day of Chainlink’s web3 conference, SmartCon 2022. This marks a pivotal moment in the convergence of the traditional banking world with the blockchain web3 space.
What is SWIFT?
SWIFT stands for The Society for Worldwide Interbank Financial Telecommunication. This organization was founded in 1973 and is located in Brussels. They provide the underlying messaging network and standards that power financial transactions across institutions. SWIFT allows around 11,000 financial institutions, primarily banks, across 200 countries to send and receive financial information. Approximately 42 million transactions are sent using SWIFT daily, accounting for trillions of dollars in financial transactions per year.
In standard times, SWIFT is a technical machination of the finance world known to few. Recently, SWIFT was called upon by the international community to disconnect Russian banks from the SWIFT network as a result of the invasion of Ukraine. These sanctions work by disconnecting banks from the international financial network, making it difficult for them to send and receive money. It’s impossible to understate how critical SWIFT is to the global financial system.
SWIFT brings its expertise to the blockchain
Recent years have seen an explosion in the amount of alternative layer one blockchains available for users. It is a technical feat to connect Ethereum to each new chain. The most common way is through bridges that transfer assets from one chain to another. However, these bridges have become a weak point for these layer 1s. Most of the highest value hacks in 2022 were related to bridges. This includes the $600 million Ronin bridge hack by a North Korean state-sanctioned group and the $325 million Wormhole hack.
The partnership between SWIFT and Chainlink aims to solve the issue of cross-chain transfers by making them more secure. The project uses Chainlink’s cross-chain interoperability protocol, allowing SWIFT messages to instruct token transfers across nearly every blockchain network. This will accelerate the adoption of distributed ledger technology blockchains in traditional finance. The goal is to allow financial institutions to gain blockchain capability without replacing, developing, and integrating new connections into legacy systems.
This isn’t SWIFT’s first blockchain project.
At the end of 2021, it was announced that SWIFT, Clearstream, Northern Trust, SETL, and other industry participants would begin exploring the feasibility and benefits of SWIFT in the development of tokenized assets. Tokenization could be applied to stocks, bonds, commodities, art, real estate, and more. Successfully connecting these to the blockchain would bring trillions of transaction volume dollars fully on-chain.
For example, someone could tokenize a Van Gogh and allow for fractional ownership. This increases the liquidity of the overall asset by enabling more people to invest in assets that would not have been possible before. The types of new protocols that could build off this unlock are limitless.