In a significant stride towards the future of digital payments, Standard Chartered’s SC Ventures and Deutsche Bank have successfully executed the first proof of concept (PoC) for the Universal Digital Payments Network (UDPN). This groundbreaking initiative is set to revolutionize the way financial institutions interact with digital currencies and blockchain networks.
The UDPN, a brainchild backed by Red Date Technology, is designed to bridge the gap between various Central Bank Digital Currencies (CBDCs) and blockchain networks. Unlike traditional systems such as Swift, the UDPN operates through a permissioned blockchain, facilitating the exchange of messages. This innovative approach has garnered significant interest from banks, primarily due to its exclusive support for regulated tokens and its robust commitment to enforcing compliance through decentralized identities.
One of the primary challenges that the UDPN seeks to address is the interoperability issues faced by the current digital currency offerings. With the rapid proliferation of CBDCs, stablecoins, and deposit tokens, there’s a glaring lack of interoperability. Most stablecoin interoperability currently hinges on centralized cryptocurrency exchanges, which often lack adequate oversight and regulation. To ensure widespread acceptance, digital currencies must adhere to stringent Know Your Customer (KYC) and Anti Money Laundering (AML) regulations.
The UDPN offers a solution by introducing a decentralized identity infrastructure. This system facilitates compliance and cross-chain interoperability by exchanging messages instead of currencies. This means users can effortlessly swap a USDC stablecoin on one network for a Euro stablecoin on another or even a bank deposit token.
During the recent PoC, SC Ventures executed real-time transfers and swaps of synthetic USDC and EURS (Stasis Euro stablecoin) to Deutsche Bank wallets and vice versa. SC Ventures utilized UDPN software development kits (SDKs) and application programming interfaces (APIs), while Deutsche Bank employed a graphical user interface, ensuring a user-friendly experience.
Rafael Otero, CTO & CPO of Deutsche’s Corporate Bank division, emphasized the significance of the UDPN platform. He envisions it as a pathway for Deutsche Bank to actively engage its clients in the decentralized global economy of the future. Otero believes this is a logical progression in the evolution of financial transactions.
The recent PoC is just the tip of the iceberg. The UDPN has planned a total of twelve PoCs, encompassing a wide range of use cases. These include enabling banks to issue deposit tokens for client use, facilitating interbank wholesale settlements, and supporting gasless transactions on public blockchains.
The choice of messaging as the foundation for digital currencies is strategic. Traditional systems combine the message with the actual money transfer, accelerating transactions. However, the urgent need for interoperability in the blockchain space necessitates a messaging-based approach. Projects like the Regulated Liability Network are in the works to address these challenges, but they are still in their infancy.