Standard Chartered’s SC Ventures and Deutsche Bank have successfully concluded an initial proof of concept (PoC) using the Universal Digital Payments Network (UDPN). This venture intends to facilitate payments between different Central Bank Digital Currencies (CBDCs) and blockchain networks through message exchanges, somewhat reminiscent of Swift. However, the distinct difference lies in using a permissioned blockchain for these exchanges. This approach is gaining traction among banks, largely because the platform is limited to regulated tokens and uses decentralized identities to maintain compliance.
Red Date Technology, which also co-founded the Blockchain-Based Service Network (BSN) in China, spearheaded the creation of UDPN. The project has seen collaboration from GFT consultancy, and DLA Piper’s TOKO, a digital asset initiative. Further organizational support and governance come from the UDPN Alliance.
There’s a significant challenge with the present digital currencies – interoperability. As the number of CBDCs, stablecoins, and deposit tokens continues to surge, there’s an evident gap in seamless transactions between them. Presently, stablecoin interoperability is majorly facilitated through centralized cryptocurrency exchanges. However, given the insufficient regulation and oversight, this isn’t a sustainable model for CBDCs and deposit tokens. Hence, the necessity for robust “know your customer” (KYC) practices and stringent anti-money laundering (AML) measures.
UDPN’s proposition is to establish a decentralized identity system, ensuring compliance and bridging cross-chain operations through message exchanges rather than direct currency swaps. Currency exchanges would still happen on their original networks. This suggests, for instance, users can exchange a USDC stablecoin on one platform for a Euro stablecoin on another through UDPN.
Details of the SC Ventures and Deutsche Bank Test
SC Ventures, in their recent PoC, executed real-time synthetic USDC and EURS (Stasis Euro stablecoin) transfers and swaps with Deutsche Bank’s digital wallets. While SC Ventures integrated UDPN SDKs and APIs, Deutsche Bank operated through a graphical user interface.
Rafael Otero, the CTO & CPO of Deutsche’s Corporate Bank division, remarked, “This pilot with UDPN provides Deutsche Bank an avenue to explore the potential of a decentralized global economy. We’re examining how we can allow our clientele to benefit from applications crafted on this network. It signifies a natural progression in financial transactions.”
This trial is only one among numerous PoCs UDPN has in its pipeline. Future potentials encompass enabling banks to circulate deposit tokens for customers and facilitating interbank settlements. Another intriguing PoC looks at executing gasless operations on public blockchains.
Why Messaging for Digital Currencies?
A common question arises – why choose messaging for digital currencies? One of the primary advantages of digital currencies is the amalgamation of transaction instructions with the actual transfer of funds. This integration not only speeds up transactions but also nullifies the need for reconciliations. It further guarantees atomic settlements – meaning transactions are either fully successful or entirely unsuccessful.
However, the main reason to consider messaging is the urgent requirement for interoperability. While blockchain interoperability remains a work in progress, solutions like bridges for public blockchain compatibility have seen numerous security issues, including hacks. Though there are ongoing projects catering to banks, like the Regulated Liability Network, they are still in their infancy.
Notably, Swift has also recently tested a messaging solution for CBDCs, with other alternatives exploring standard integration using APIs and routing networks such as finP2P.