According to Lamine Brahimi, co-founder of Taurus, banks must establish their own internal systems, including permissioned ledgers, wallet capabilities, and smart-contract functionalities, to effectively engage with Swift's blockchain-based tokenized deposit network.
Essential Infrastructure Needed for Swift's Tokenized Network
Brahimi explained that while Swift's ledger facilitates continuous cross-border transfers of tokenized deposits, it acts more as an orchestration layer rather than a substitute for banks' existing systems.
To connect with Swift's ledger, "you need your own permissioned ledger that interacts with that of Swift, you need wallet capabilities, and you also need tokenization and smart-contract capabilities to be able to integrate the Swift smart contracts," Brahimi stated in a recent interview.
This indicates that banks require additional infrastructure separate from Swift’s system. Swift's ledger is designed to allow institutions to transfer tokenized deposits around the clock, while actual settlement still relies on traditional systems.
In July, Swift announced that 17 banks were gearing up for live transactions involving tokenized deposits, marking a significant update to its messaging system that has been a cornerstone of the financial industry since the 1970s. Currently, Swift manages money movements worth up to $1.5 quadrillion annually.
In August, HSBC and Standard Chartered successfully executed the first live interbank transaction using Swift's ledger. Following this, DBS and Citi completed a cross-border payment over the weekend in mere minutes, a process that typically takes up to two business days.
Brahimi emphasized that the technological requirements should not be viewed as a significant barrier for banks already dealing with digital assets, nor do they hinder Swift's ability to maintain its leading position in the market. He remarked, "The additional infrastructure needed is not a weakness of Swift's design. It's still an early-stage product, but it provides banks with a choice between traditional payment systems and the new tokenized deposits that can be processed at any time. I think it’s a good move; it provides the choice."
Taurus recently announced its integration with Swift, offering a unified platform that includes the necessary layers: a permissioned ledger, wallet-management tools, and tokenization along with smart contract software. Brahimi noted that other competitors might require banks to engage with multiple vendors for these functionalities.
The demand for such infrastructure explains why tokenized deposits remain primarily an institutional product. While banks have had internal tokenized systems for years, transferring funds between institutions necessitates shared standards and compatible systems.
"Until Swift’s announcement, tokenized deposits were seldom utilized and mostly limited to major banks like JPMorgan, due to their extensive global scale," Brahimi pointed out. Swift's framework allows deposits to remain on banks' balance sheets, differentiating them from stablecoins that exist outside the banking sector. He also mentioned that the ledger could standardize 24/7 payment offerings without requiring banks to abandon their current systems.