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Unlocking the full potential of digital assets

Unlocking the full potential of digital assets

Digital assets and CBDCs are transforming global finance, requiring interoperability, regulation and collaboration to realise their full potential.

The global financial landscape is undergoing a profound transformation, driven by the rapid evolution of digital assets and central bank digital currencies (CBDCs) among others. 

As central banks, financial institutions and governments worldwide explore the potential of digital assets, the need for secure, scalable and interoperable solutions has never been more crucial. 

From experimentation to real world solutions 

As new forms of digital assets develop, interoperability is increasingly vital to prevent the emergence of digital islands— siloed networks and platforms that cannot interact seamlessly. Central banks and financial institutions must be able to transact and monitor diverse assets using secure and resilient infrastructure aligned with their operations. 

After successful trials and consideration of industry sentiment and customer feedback to move beyond proof of concept and sandbox environments, global financial institutions are now ready to begin live, real-time transactions. 

At Swift, we have started pilots focused on delivery-versus-payment (DvP), payment-versus-payment (PvP), and triggering fiat payments from a distributed ledger technology (DLT) network. This year, we will pilot live, real-time transactions for settling digital assets and currencies. These trials aim to demonstrate how financial institutions can transact interchangeably across existing and emerging assets and currencies while reusing their existing infrastructure. 

We also work with the Swift community to update existing standards that support digital asset transactions. These include incorporating digital token identifiers, blockchain wallet addresses or DLT-based settlement locations in transactions, and updating International Organization for Standardization (ISO) messaging standards to accommodate digital assets to ensure continuity with traditional securities operations. 

Digital assets transform global finance

The digital assets market grows at an unprecedented pace, with tokenised assets projected to reach $30 trillion by 2034. This rapid growth presents immense opportunities and underscores the urgent need for scalable and interoperable solutions. 

As part of the Monetary Authority of Singapore’s (MAS’s)  Project Guardian, Swift, UBS Asset Management and Chainlink have successfully completed a pilot connecting tokenised assets with existing payment systems. The initiative enables seamless off-chain cash settlements for tokenised funds, eliminating inefficiencies that increase operational costs, reduce liquidity and lead to missed investment opportunities in the $63 trillion global mutual fund market.

This initiative allows financial institutions to leverage blockchain technology, the Chainlink platform, and the Swift network to settle subscription and redemptions for tokenised investment funds. This allows straight-through-processing of the payment leg without requiring global adoption of an on-chain payment method.

Tackling the interoperability challenge 

Despite significant progress, interoperability remains a challenge. The risk of fragmentation threatens to undermine the transformative potential of digital assets as it drives up costs, creates inefficiencies and limits scalability.

Expanding digital asset operations is further challenged by regulatory disparities and the complexity of multiple tokenisation platforms. With more than 134 countries exploring CBDCs, integrating these into the global financial system remains a daunting task.

Our recent experiments and upcoming live trials around DvP and PvP aim to make the transfer of digital currencies across borders and platforms seamless, helping to improve efficiency, reduce systemic risks and unlock the full potential of digital assets. 

Bridging digital and established asset classes 

Collaboration is key to bridging the gap between emerging and established asset classes. At Sibos 2024, industry leaders underscored the need for partnerships among countries, financial institutions and technology providers to enable interoperability between systems.

As a neutral orchestrator of information flows, Swift enables institutions to manage security holdings across existing and distributed ledger platforms at reduced cost while boosting trust and transparency among participants. Our participation in initiatives like Bank for International Settlement’s Project Agorá and the MAS’s Project Guardian showcases our contribution to the development of the digital asset ecosystem.  

The future is now

The rise of digital assets and CBDCs is a pivotal moment for the global financial industry. The potential benefits are immense: improved efficiency, reduced costs and greater financial inclusion. However, these benefits can only be realised through strong industry collaboration and a shared commitment to address challenges in interoperability and scalability. Now is the time for all stakeholders to unite behind a shared vision for a secure and smooth transition to digital finance.

Giles Goh is Head of Business Innovation, ASEAN, at Swift