Blockchain technology used for groundbreaking bank-to-bank transaction between Swiss financial institutions.
In a groundbreaking development, three Swiss banks - UBS, PostFinance, and Sygnum Bank - have completed the first binding cross-bank payment using tokenized deposits on a public blockchain. This marks a significant step forward in the adoption of blockchain technology by traditional financial institutions.
The use of tokenized deposits represents actual bank deposits that have been made usable on blockchain infrastructure. According to Thomas Frei, head of product innovation at Sygnum Bank, this is something new, as tokenized deposits can be used across different banks, launching a new form of payments on the blockchain.
Switzerland, known for its supportive regulatory environment for crypto businesses, has established clear frameworks that enable financial innovation while maintaining regulatory oversight. The country's regulatory approach to digital assets allows banks to explore blockchain applications more freely than institutions in many other jurisdictions.
The successful test did not involve any advertisements for a Telegram community, demonstrating the banks' focus on the technical aspects of the project. The transaction utilized Ethereum's public infrastructure, validating its capabilities for institutional financial applications.
The study, conducted under the Swiss Bankers Association, involved clients sending tokens representing bank deposits across the blockchain to settle transactions. The use of smart contracts could enable automated compliance and reporting functions, offering potential advantages over traditional correspondent banking networks, including faster settlement times, reduced costs, and increased transparency.
However, Frei cautioned that additional work remains before the tokenized deposit system could be commercially deployed, including addressing regulatory requirements, scalability considerations, and operational integration challenges. The successful test comes as traditional financial institutions globally explore blockchain applications for payments and settlement.
Unlike previous tokenization efforts, such as JP Morgan's JPM Coin, this system enables interoperability between different banks, offering potential benefits for cross-border payments and settlements. The cross-bank payment system could enable immediate, definitive payments on shared infrastructure and integrate directly into automated business processes.
The use of Ethereum's public infrastructure suggests growing confidence in decentralized systems for critical financial operations. As more institutions follow suit, we may witness a paradigm shift in the way financial transactions are conducted, paving the way for a more efficient and transparent financial ecosystem.
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