For five decades, Swift has been the invisible backbone of the global financial system — the messaging layer that enables more than 11,500 banks across 200 countries and territories to communicate about cross-border payments.
The strategic pivot of a nearly 53-years-old institution in the face of major disruption is comically a desperate product of competition—tokenized deposits.
Swift reported on March 30, the successful completion of the design phase of its blockchain-based shared ledger and progression towards the first iteration that will enable interoperability between banks' tokenized deposits to facilitate 24/7 cross-border payments.
For those unaware, tokenized deposits or deposit tokens are blockchain-based assets that represents real bank deposits. At this initial phases of deployment, most of these tokens can only operate within the banks that owns them.
The Swift solution is aimed at solving this isolation.
The MVP of the ledger is planned to go live with real-world transactions in 2026.
To put it out there, Swift has a dual strategy to navigate the rise of blockchain payments.
These developments are considered by Swift as a parallel track innovation strategy to enable fast and frictionless cross-border transactions, regardless of the type of value being exchanged and is made up of the Swift payments scheme, of which in recent report, over 50 banks around the world have signed up for, and the blockchain-based shared ledger, which is designed to enable the movement of regulated tokenized value.
The latter is the layer concerned with deposit tokens, and from where am standing, this is a clear signal on what Swift is betting on as an answer to the question of if the company will adapt or become redundant as blockchain payments take the stage on both domestic and international payments.
Does deposit tokens even need Swift?
The answer is yes.
Being tokens with crucial ties to the traditional banking system, there's a hole that needs to be filled for them to function seamlessly and truly compete with blockchain native and decentralized currencies and assets.
Swift fills that hole by being the "validation tech" for tokenized tokens.
When a payment crosses from one bank to another, the ledger does more than simply transferring a token, there's the process of recording commitments and coordinating a synchronized burn-and-mint mechanism where the sending bank's tokenized deposit is retired, and a new tokenized deposit reflecting the same value is issued to the recipient by their own bank. The Swift ledger validates and sequences these steps, providing a synchronized view of where obligations stand at all times.
Notwithstanding,
The bigger question remains
Will serving deposit tokens save Swift?
It is important that we realize that for businesses like Swift, they are only two options when it comes to how to adjust to blockchain disruption and both are high risks.
The first option is stick with the centralized systems and build hybrid rails as an adaptation strategy. In the case of Swift, this means betting against the possibility of decentralized finance winning in the long-term, effectively giving enough room for alternative companies to secure dominance of a market Swift would have served.
The second option is migrate to the decentralized world and this has immediate costs to Swift as it would be signalling to its network of over 11,500 partners that it can no longer offer the services its known for, in the environment, structures and systems that matters to them—a very unlikely situation.
This puts the company in a spot where they can only hope that where they choose to build through, wins in the long-term.
In my books, deposit tokens cannot win in the long-term, especially in the consumer market and that conclusion suggests that Swift is betting on the lower performing market of the long-term.
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