Connecting blockchains:

Overcoming fragmentation
in tokenised assets
Swift’s interoperability experiments connecting
to public and private blockchain networks

Results report
August 2023
Contents 1 Executive summary 3
2 Business context 5
3 Our tokenisation journey to date 7
4 Project workstreams and use cases 8
The project 8

The set-up and preparation 9

5 Our solution 10
The solution process flow 10

Key solution components 12

6 Findings 14
7 Conclusions and next steps 17
8 Appendix 18
Glossary of terms 18

Cross-Chain Interoperability Protocol (CCIP) mechanics 19

Test scenarios 20

Message standards: MT 543 20

Status confirmation codes 20

9 Acknowledgments 21

2 Swift’s blockchain interoperability experiments – Results report

1. Executive summary
Tokenisation is on the rise, Swift is working to ensure global
but fragmentation remains interoperability of emerging
a challenge technologies and platforms
Global interest in tokenised forms of We’re focused on delivering instant and
value continues to intensify. Players frictionless cross-border transactions.
from across the industry highlight a As part of our strategy, we’ve been
wide range of benefits that could be exploring how we can enable
gained through tokenisation – including interoperability between different
the potential to unlock market liquidity, emerging platforms for some time. In
drive post-trade processing efficiencies, 2021, we published an initial white paper
enable automation, and increase that assessed the potential impact of
transparency. Market sentiment is CBDCs and how Swift could support the
strong, with a recent survey showing financial community as new currencies
that 97% of institutional investors think are developed.
that tokenisation is set to revolutionise
asset management. In 2022, we conducted a series of
experiments which tested how the Swift
Most institutions would Significant challenges remain, network could be leveraged to support
prefer to evolve their however, driven notably by the current
fragmentation in legal and regulatory
the seamless integration of both CBDCs
and tokenised assets into the existing
existing infrastructures frameworks relating to tokenised financial system. And, earlier this year,
and applications to assets that exist around the globe. On
a technical level, the current lack of
we tested our new CBDC interlinking
solution with 18 central and commercial
enable them to access interoperability between the various banks in a sandbox environment.
tokenised asset blockchain networks that host different
tokenised asset types presents another We’ve worked on developing
markets. challenge. When combined, these a blockchain interoperability
hurdles threaten to prevent the market solution as part of this new set
for tokenised assets from reaching of experiments
its potential.
Our view is that a common connectivity
layer is critical to eliminating friction
There are multiple potential paths
and enabling interoperability between
toward the future of tokenisation
the existing financial system and
In a 2023 report on the topic, the Bank blockchains to create a unified
for International Settlements (BIS) global market.
highlighted two distinct approaches
that have the potential to define the Therefore, as part of our current
future of tokenisation. The first more project, we leveraged the Swift
transformational approach would network, and the Chainlink
see Central Bank Digital Currencies Cross-Chain Interoperability Protocol
(CBDCs), tokenised deposits, and (CCIP), to create an experimental
tokenised assets brought together on solution. The goal was to test whether
a common ‘unified ledger’. The second, we could enable financial institutions to
more incremental, path would see the use their existing back-end
coexistence of multiple ledgers that are systems to interact with tokenised
interlinked with existing systems and assets and transact across both public
infrastructures. and private blockchains platforms.

The initial feedback we’ve received We further collaborated with over a

from the community on this question dozen financial institutions and financial
has indicated that most institutions market infrastructures – including
would prefer to evolve their existing Australia and New Zealand Banking
infrastructures and applications to Group Limited (ANZ), BNP Paribas, BNY
enable them to access tokenised Mellon, Citi, Clearstream, Euroclear,
asset markets – rather than having to Lloyds Banking Group, SIX Digital
build entirely new infrastructure and Exchange (SDX) and The Depository
technology stacks from scratch. Trust & Clearing Corporation (DTCC) –
to discuss technical and non-technical
considerations that would need to be
addressed to make a proposed solution
commercially feasible.

3 Swift’s blockchain interoperability experiments – Results report

 The project proved successful Business findings
and yielded valuable insights – A ‘Designated Depository’ role
The experiments successfully is important to satisfy regulatory
demonstrated that Swift connectivity obligations.
and messaging standards – in – Regulatory clarity remains the
combination with an interoperability market’s largest need.
protocol such as the Chainlink CCIP –
– Data privacy is fundamental to
can be used to achieve interoperability
any commercial solution.
between traditional financial systems
and emerging blockchain networks. As – Liability and recourse must
well as advancing our understanding of be clearly addressed for
technical and business requirements, cross-chain transfers.
the experiments have highlighted the – Cross-chain use cases lack
role that a blockchain interoperability maturity, but development
protocol could play in transferring data is expected to ramp up.
and value across blockchains.
We’re committed to continuing
The experiments have The feedback gained from the our work to support tokenisation
highlighted the role collaborative working group sessions
with the institutional participants –
and blockchain interoperability
that a blockchain covering aspects such as data privacy Following the success of these
experiments, and positive feedback
interoperability and governance, business processes,
operational risk, and legal liability – will from project participants, we’re
protocol could play be highly valuable as we iterate our continuing to work with the financial
services community to create an
in transferring data solution design and prepare to support
the transfer of tokenised value over the approach to interoperability across
and value across Swift network. multiple blockchains that leverages
market participants’ existing
blockchains. The key findings can be summarised Swift capabilities and new open
as follows: interoperability standards.

Technical findings Moving forward, we will expand

our exploration to different types of
– Token handling mechanisms
blockchain ledgers, including public
may vary by use case.
permissioned ledgers, as well as
– Nonce management is critical various on-chain and off-chain Delivery
for avoiding replay attacks. versus Payment (DvP) payment options.
– An abstraction layer is We will also explore other possibilities
necessary to manage the to address institutional needs such
complexity of blockchains. as transactional data privacy.

4 Swift’s blockchain interoperability experiments – Results report

2. Business context The market trend towards tokenised assets has
gained significant traction in recent years. There
is growing belief across the financial industry that
tokenisation – the process of converting physical
and non-physical real-world assets such as stocks,
bonds, property, or even art into digital tokens – has
the potential to become a new source of significant
value, as well as driving greater efficiency, security
and transparency in post-trade processes.

Indeed, current market sentiment that blockchain will play an important role
There is growing around tokenisation is very positive:
97% of institutional investors believe
in settlement processes going forward 2 .
Furthermore, Boston Consulting Group has
belief across the that tokenisation will revolutionise asset projected the total market size of tokenised
financial industry that management1 , and 95% of capital markets
firms in the US, UK, and Canada believe
illiquid assets alone will reach $16 trillion by
the end of the decade3 .
tokenisation has the
potential to become
a new source of Tokenisation: The potential benefits
significant value. Institutions have identified a range of benefits that regulated tokenised assets could
offer, including:

– Deliver increased liquidity: By enabling fractional ownership and facilitating

secondary market trading. This liquidity would, in theory, attract a broader range
of investors and enhance overall market efficiency and risk diversification.
– Offer cost-saving opportunities: By enhancing current value chains and
streamline the issuance, settlement, and transfer processes – reducing
administrative and operational expenses.
– Increase automation: By enabling programmability of functions which
could further reduce costs.
– Enhance transparency and security: By providing an immutable and auditable
record of ownership and transactions, reducing the risk of fraud, improving
compliance, and potentially enabling the development of new products.

1
B NY Mellon and Celent, ‘Migration to digital assets accelerates; 2022 Survey of Global
Institutional Clients | Asset Managers, Asset Owners, and Hedge Fund’

2
Accenture, ‘How your T+1 program could help pave the way to T+0’

3
Boston Consulting Group, ‘Relevance of on-chain asset tokenization in ‘crypto winter’

5 Swift’s blockchain interoperability experiments – Results report

 Significant hurdles still need to There’s potential to leverage Swift to
be overcome support blockchain interoperability
Given the optimism surrounding The feedback we have received from
tokenisation, and high levels of continued consultations with our members to
investment, the wider adoption of date has shown that the second, more
tokenised assets looks likely to continue. incremental, approach is likely to be the
Yet significant challenges remain that could most plausible for market development in
prevent the market from truly scaling. the near-term.

For instance, with the legal and Most institutions have indicated they are
regulatory frameworks still evolving in not inclined to build new infrastructure and
this domain, remaining compliant when technology stacks entirely from scratch.
making tokenised asset transactions is Firms prefer to leverage their existing
an extremely complex challenge infrastructure, message implementations,
for institutions. and proven business processes to connect
to blockchain ledgers, where tokens are
Another significant hurdle is the current recorded in a way that is both compliant
lack of secure interoperability between the and secure. This could help firms simplify
A significant hurdle different blockchain networks that host the their architecture and operations, minimise
tokens. This particular issue is leading to investment costs and reduce the risk of
is the current lack of significant inefficiencies and a poor user technology obsolescence.
secure interoperability experience for current market participants.
It also has the potential to fragment market It is in this context that we are conducting
between the different liquidity moving forward. this set of experiments. The goal: to test
blockchain networks The future of tokenisation is yet
how Swift could support members in re-
using their existing Swift infrastructure as a
that host the tokens. to be fully defined single entry-point to the public and private
In its recent report on the topic, the BIS blockchain networks needed to transact
described two broad approaches for tokenised assets.
bringing tokenisation to fruition in a future
monetary system4 . The first approach
would involve a transformation that brings
together CBDCs, tokenised deposits, and
tokenised assets on a common ‘unified
ledger’. Various industry efforts are
exploring how this could be done.

The second approach would entail

incremental improvements through the
interlinking of existing systems. In this
case, market scalability would be achieved
by financial institutions connecting their
existing systems and applications to
multiple blockchain-based networks in a
secure and trusted way – just as they do
today when facilitating the trading and
settlement of traditional assets.

4
III. Blueprint for the future monetary system: improving the old, enabling the new (bis.org)

6 Swift’s blockchain interoperability experiments – Results report

3. Our tokenisation As part of Swift’s vision to deliver instant and
journey to date frictionless cross-border transactions, we’ve been
focusing on how we can ensure interoperability
between emerging platforms that are at risk of
becoming unconnected ‘digital islands’. As well as
exploring how we can interlink the world’s central
bank digital currencies (CBDCs), we’ve conducted
experiments to test how we can enable interoperability
between multiple tokenised asset platforms.

Our first set of experiments on tokenised Many of these findings reinforced our
There was strong assets in 2022 included major market
infrastructures and custodians. This work
existing assumptions. However, a key
point of differentiation was the interest
interest within demonstrated how our infrastructure could in extending the scope of interoperability
the community in serve to interconnect multiple private
tokenisation platforms and different types
between platforms to include public
blockchains as an underlying
collectively exploring of cash payments, offering a single access settlement layer.
open questions around point to institutions for tokenised assets.
As such, there was strong interest within
interacting with Developing a blockchain the community in collectively exploring
open questions around interacting with
public permissionless interoperability model
public permissionless blockchains, as
Following the completion of these initial
blockchains. experiments, we received strong support
well as appetite for understanding how
this can be supported in a secure and
from the community to continue our
compliant manner.
innovation efforts and enable secure
interoperability in the tokenised asset
space more broadly. To inform our next
steps, we held consultations with over 20
global financial institutions and financial
market infrastructures. These resulted in
several key insights:

– There is increasing investor

demand for both digitally native
and tokenised assets.
– The future is expected to be
‘multi-chain’ and will require access
to a series of networks.
– There is broader preference for unlisted,
illiquid, or underserved asset classes.
– Institutions prefer to leverage existing
infrastructure and investments
wherever possible.

7 Swift’s blockchain interoperability experiments – Results report

 The objectives The project
4. Project workstreams
Based on the feedback we received from The experiments were structured into two
and use cases our consultations, we set out to design distinct workstreams:
a set of experiments with the following
key objectives: Workstream 1: Solution design
The first workstream centred around
– To demonstrate that there is a simple, the business design and technical
secure, and scalable way for financial development of a proposed solution. The
institutions to connect to multiple types design of a solution was predicated on a
of blockchain networks leveraging set of critical requirements for participants.
their Swift infrastructure and message For example, institutions needed to be able
implementation. to send and receive existing MT formatted
– To advance industry understanding messages. Another requirement was that
around both the technical and business blockchain wallet (see our glossary of
requirements for interacting with public terms here) private keys would remain in
and permissioned blockchain networks. the possession of the asset owners or
– To explore the value of using a their custodians.
blockchain interoperability protocol
to securely transfer data between legacy Although the solution was designed
systems and an increasing number jointly with participants, the technical
of chains. development work was simulated entirely
by Swift and Chainlink. See Figure 1 for an
In line with our commitment to collaborative overview of the experiment design and
innovation, we welcomed over a dozen use cases tested.
financial institutions and financial market
infrastructures from around the globe to
co-develop a potential solution and debate
the associated considerations necessary
to deliver it.

The project participants

More than a dozen major financial institutions and market infrastructures
joined the project, including Australia and New Zealand Banking Group Limited
(ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking
Group, SIX Digital Exchange (SDX), and The Depository Trust & Clearing
Corporation (DTCC).

Chainlink, a Web3 services platform, provided connectivity across public and

private blockchains for these experiments. Our experiments leveraged Chainlink’s
open-source protocol – the Cross Chain Interoperability Protocol – to enable the
secure and efficient transfer of asset tokens across multiple blockchain networks.

Figure 1: Experiment design

overview and use cases 5 Technical scope

Bank 1
Experiment use cases
Expe
1 Transfer of tokenised asset
Chain between two wallets on same 1
eum) public DLT network (Ethereum) Public Chain
MT 54x (Ethereum)
2 Transfer of tokenised asset
between two wallets on different Chainlink CCIP 2
public DLT networks (Ethereum,
Chain Avalanche)
nche) MT 54x Public Chain
3 Transfer of tokenised asset from (Avalanche)
a public DLT network (Ethereum) to 3
a private DLT network (Quorum)

Chain
Bank 2 Private Chain
um)
(Quorum)
5
Note: Beyond the example blockchains used in this experiment,
Chainlink CCIP can be extensible to any public or private blockchain network.

8 Swift’s blockchain interoperability experiments – Results report

 Workstream 2: Non-technical For example, focus was given to topics
considerations such as data privacy and governance,
operational risk, and legal liability based on
The second workstream encompassed
prioritisation results from the participating
working group discussions to identify and
institutions (see Figure 2 for the areas of
discuss non-technical considerations that
focus for Workstream 2 in priority order).
would need to be addressed to make a
Discussions related to regulatory and policy
proposed solution commercially feasible.
considerations were deferred as they were
outside the control of participants and the
scope of the experiment.

Figure 2: The non-technical areas of focus in order of priority

Top Focus Areas

1 Data (privacy, interoperability, & governance)

2 Business process & operational risk

3 Legal liability & recourse

Regulatory clarity

Security

Issuer control & rights

KYC compliance

Market liquidity

Private key management

Set-up and preparation In combination with Chainlink CCIP, the

To execute the experiment, Swift and EIP-712 standard was also used to simplify
Chainlink simulated the technical integration with various blockchain
environments for financial institutions technologies. This enabled institutions
and Swift itself, as well as for a wallet to create and sign a blockchain message
infrastructure with various addresses. In using their existing infrastructure and
doing so, we simulated various processes rely on a ‘trusted forwarder’ to process
on behalf of financial institutions, including messages on-chain without incurring
but not limited to, the following activities: ‘gas fees’ (the amount paid to reward the
computational effort required to execute
– Generating MT files a transaction).
– Integrating and enriching data for Swift and CCIP acted as the ‘trusted
blockchain transactions forwarder’ that managed these gas
– Integrating with blockchain wallets fees, and CCIP was responsible for
(held within simulated bank digital adding the gas fees when creating the
custody platforms) blockchain transaction.
Tokens also needed to be minted and
issued to one of the wallet addresses
hosted and managed by Swift. DTCC
performed the minting and issuance
operations, creating the ‘BondTokens’ and
distributing them to Swift’s designated test
wallets. To ensure the tokens’ compatibility
with Chainlink CCIP, an extension was
included in the token contract.

9 Swift’s blockchain interoperability experiments – Results report

5. Our solution The proposed solution for this experiment aimed to
minimise the level of investment and change required
for financial institutions to be able to instruct the
transfer of tokenised assets. It also sought to sustain
the key roles and functions that need to be performed
in post-trade settlement as required by regulators.
Throughout the course of the experiment, The solution process flow
we executed approximately 50 token The process steps below describe the
transfers across the three use cases using solution that was conceived by Swift in
the described solution. This involved the collaboration with the project participants.
single leg delivery of BondTokens across
six unique wallet-private-key pairs for both In line with Swift’s aim to sustain the roles
the sender (BondToken seller) and receiver and functions as required by regulation, it
(BondToken buyer). We also included was important to introduce the concept
around 20 unhappy path scenarios that of the ‘Designated Depository’ (see our
primarily tested single incorrect inputs glossary here). It was also important to
to confirm expected transfer failures – ensure the role of a settlement system
these included the reuse of the same owner, and to have a single, clearly
nonce (see our glossary here), passing an identified legal institution performing the
incorrect token version, and insufficient role, irrespective of the technical construct
funds. Through CCIP, status updates were used to do so (i.e. public vs. private ledger)
securely passed back to institutions using or the programmability of the assets.
existing Swift infrastructure. Figure 3 provides a summarised view
of these steps in sequential order, with
By leveraging the existing Swift each step explained in more detail in
infrastructure in place today, our approach the following section.
minimises the need for substantial
additional investments, enabling financial
institutions to optimise their current
operations. As such, firms could reap the
benefits of Swift’s security and reliability, in
addition to the existing network effects in
place across 11,500+ financial institutions.

Figure 3: The solution process flow

1 7
Produce Receive
Custodians settlement confirmations
instructions from Swift

2 Builds blockchain 3 Requests 6 Orchestrates

Swift transaction and depository approval confirmations of
(on-premises or central) orchestrates signature for posting asset movement

5 Orchestrates
Chainlink asset movement
on chains

4 7
Approves Receives
Designated posting of confirmations
Depository transfer from Swift

10 Swift’s blockchain interoperability experiments – Results report

 The solution process flow: A step-by-step guide
1. Create the settlement instructions
The settlement posting process is triggered by producing two settlement
instructions: one from the buyer’s custodian, and one from the seller’s custodian.
These instructions are sent using common standards – expected to be ISO 15022,
but ISO 20022 is also possible – and are exchanged using the custodians’ existing
Swift infrastructure.

This activity is very similar to the existing process to issue instructions. However,
custodians need a digital custody solution to hold the investors’ private keys. They
also need the right set of data to target the corresponding token, wallet and smart
contract addresses, and blockchain network.

These message types are largely suitable for the task but would require some
additional blockchain data in a narrative field with custom codes. In a future
standards update, these elements could be formally captured in dedicated fields.

2. Build the blockchain transaction and orchestrate signature

This activity prepares the information required to post the settlement on one or two
ledgers, depending on the specific flow.

Swift’s experimental Software Development Kit (SDK) digests the settlement

instruction in the form of a Swift message, extracts the specific fields needed to post
on the blockchain ledger, and enhances the content with other potential specific
items derived from the destination chains (e.g. nonce to prevent replay attacks). The
SDK would be deployed within the banks’ secure Swift environment.

It then orchestrates the signature of the resulting payload with the relevant private
keys held by the custodian (defined by the target wallet of the instructing institution).

The outcome of this activity is a formed payload that can be captured by Swift’s
platform to process the settlement. By signing the blockchain message with private
keys, banks ensure no one can tamper with the message content, thereby achieving
non-repudiation.

3. Request depository approval for posting

In this step, Swift transports the two incoming instructions from custodians, which
we’ve assumed for this experiment to be matched, with a consistent Unique
Transaction Identifier (UTI) tracked by Swift. Detecting that these instructions are
blockchain-related, the Swift platform adds a request to trigger the settlement
posting confirmation recorded by the Designated Depository.

Although the DLT ledger allows banks to post directly on-chain, to ensure
compatibility and minimal disruption with existing back-end systems, certain
functions might be required in the settlement instruction processing. Assuming these
functions can be technically defined, a range of entities could look at fulfilling the
Designated Depository role to ensure better interoperability with existing systems.

4. Record settlement instruction validation

At this point, the Designated Depository has received the two settlement instructions
from Swift, with a consistent UTI flagged for posting confirmation in the technical
header of the instruction message. The Designated Depository ensures that the
required validation steps have been performed (e.g. business validation, pairing,
settlement eligibility), and confirms posting of the delivery settlement instruction.

There are multiple options for how these validation steps could be performed.
For example, it is conceivable that deterministic rules could be defined and
performed by a technical provider that is delegated by the legally accountable
market infrastructure.

11 Swift’s blockchain interoperability experiments – Results report

 5. Orchestrate asset movement on-chain
The Swift platform prepares the request to post the blockchain message onto the
chain and sends it to CCIP as a secure abstraction layer for all blockchain interactions
(see Figure 4 below depicting how the transaction is channelled from banks to CCIP
through the Swift platform).

CCIP validates the request, creates a matching blockchain transaction, and submits
it on-chain. CCIP then monitors the processing of the transaction on-chain and
provides secure status updates of the on-chain processing back to Swift via the
corresponding Swift API endpoint.

The resulting confirmations can cater for various statuses depending on the
chain type (a complete set of the potential status confirmations is provided in the
Appendix). These status updates are then mapped to ISO 15022 or ISO 20022 status
messages towards the financial institutions.

6. Producing confirmation of token movement

Using the received status updates from CCIP, the Swift platform prepares Swift
messaging-compliant confirmation of movement for the Designated Depository, and
signs it. The confirmation is built leveraging the instruction payload and using the ISO
15022 or ISO 20022 standard.

7. Delivering confirmation of token movement as Swift messages

The confirmation messages can then be shared with the Designated Depositories
and custodians. As settlement finality remains a legal construct, the responsibility to
confirm as much would ultimately lie with the Designated Depository entity.

Once informed of the successful asset movement on-chain, custodians can then
record the transaction in their off-chain book of records and pass confirmations on
to their customers.

Translating on-chain events back into standardised message formats averts the
need for back offices to build another parallel status integration layer, and thus
represents a significant cost saving.

Key solution components – Constructing the blockchain message in

To execute our proposed solution in adherence to the EIP-712 standard.
a way that met the needs of the – Requesting the simulated wallet
participants, several key technical infrastructure to sign the blockchain
components were used: message. The application communicates
with the simulated wallet infrastructure
The Swift experimental SDK through an API to request the signing of
The experimental SDK was developed the blockchain message. The response
to serve several important functions received from the infrastructure is the
and to minimise the amount of change signature, which is integrated into the MT
required from sending institutions. A key field. Specifically, it is inserted under the
design decision was to deploy this SDK tag and Qualifier 70E /SIGN.
in the banks’ existing Swift connectivity In the future, the process for extracting
infrastructure (on-premise or in the Swift data and constructing a blockchain
cloud) to benefit from longstanding and message could be enabled by the Swift
trusted security features. Translator, a widely used Swift solution
that easily defines, maps, and validates
The key process steps performed by the messages from and to any format.
experimental SDK include:

– Intercepting the MT message generated

by the simulated back-office application
and extracting the information required
for generating a blockchain message.
A dedicated parsing mechanism
was developed.

12 Swift’s blockchain interoperability experiments – Results report

 The Chainlink Cross-Chain Depending on the specified configuration,
Interoperability Protocol (CCIP) the CCIP router will immobilise a certain
Upon receiving the request from Swift, quantity of tokens within a ‘token pool’
which contains both the metadata and (see our glossary here) on the source
the blockchain message signature, CCIP blockchain. Concurrently, wrapped tokens
is used as an abstraction layer to create will be generated on the destination
a blockchain transaction and securely blockchain. This process involves the
transmit the transaction to the inclusion of CCIP fees and the creation
Forwarder Contract. of a message that incorporates the
pre-existing information.
The Forwarder Contract address, which
was initially involved in creating the The inherent nature of blockchain
blockchain message, undertakes multiple transactions addresses the potential
verification and validation processes, issue of a race condition arising from
before forwarding the request to the insufficient tokens in the token pool.
designated token contract where the token Since all the instructions mentioned above
transfer is initiated. This transfer can either are contained within a single transaction,
occur within the same blockchain or use the transaction can only succeed if all
CCIP to securely reach the destination instructions are executed successfully.
blockchain’s wallet. Note that the detailed mechanics for
a cross-chain transfer can be found in
Throughout the cross-chain transfer the Appendix.
process, each step and any exception
returned by the smart contract while Messaging standards
processing the transaction are monitored To initiate the process of blockchain
by CCIP as events. CCIP sends a status message creation within the financial
update for each of these events to Swift, institution’s infrastructure, it is essential
which matches the received status update to gather a set of information in dedicated
to the relevant Swift message and informs fields of the MT 543 Deliver Against
the relevant institutions of its progress. Payment (detailed list described in
Middle and back-office systems rely on the Appendix).
these updates for internal teams to provide
transparency, manage risk and report The message standards used in
transaction progress to all relevant parties. the example largely meet the
requirements. However, a few new field
options should be created to capture
some blockchain-specific details formally,
instead of relying on a market practice
structure for a narrative field.

Figure 4: Overview of the architectural environments supporting end-to-end transaction flow

Financial MT Source Blockchain

Blockchain
Institutions MT with Signed Transaction Forwarder
Blockchain message

CCIP Router
Swift SDK

Signed blockchain Chainlink

message and
metadata
CCIP Chainlink
CCIP
Blockchain
Transaction Events
Status Update
Transaction
Status Update

MT
CCIP Router

Financial MT with Signed

Institutions Swift SDK Blockchain message Destination Blockchain

13 Swift’s blockchain interoperability experiments – Results report

6. Findings Overall, the results of the experiment give confidence
that existing Swift connectivity and messaging
standards can be enhanced, enabling financial
institutions to transfer tokens within and across
blockchain networks – all with minimal disruption
to operations.
Open questions remain around the overall for us to consider as we continue our
market readiness for tokenised assets. preparations to support the transfer of
Nevertheless, the level of agreement about tokenised value over the Swift network.
the market need for a secure and trusted The range and diversity of the feedback
cross-chain interoperability solution gives received will enable us to iterate our
us confidence that we are focused on the solution design, and thereby serve our
right area for the Swift community. customers.
The range and diversity Through the interactive collaboration The box below gives an overview of
of the feedback working group sessions focused on non- the key findings from the experiments
received will enable us technical considerations in Workstream 2,
participants provided valuable input
which are then detailed in the remainder
of this section.
to iterate our solution
design, and thereby
serve our customers. Overview of key findings
Commercial findings Technical findings
A ‘Designated Depository’ (or Token handling mechanisms may
‘central account keeper’) role vary by use case
is important to meet regulatory
obligations Nonce management is critical for
avoiding replay attacks
Regulatory clarity remains the
market’s largest need An abstraction layer is necessary
to manage the complexity of
Data privacy is fundamental to any blockchains
commercial solution

Liability and recourse must be

clearly addressed for cross-chain
transfers

Cross-chain use cases lack

maturity, but development is
expected to ramp up

14 Swift’s blockchain interoperability experiments – Results report

 A ‘Designated Depository’ (or Data privacy is fundamental to any
‘central account keeper’) role is commercial solution
important Participants noted that aside from
While the latest regulations – e.g. the EU’s legal and regulatory clarity, data privacy
Distributed Ledger Technology (DLT) Pilot was the top priority that needs to be
Regime – are relaxing the complexity of addressed in order to operate securely
trading in digital forms of regulated assets, in cross-chain processing.
the licensed DLT market infrastructure (MI)
performing settlement is still required to: There was general agreement that
data privacy is as important on private/
– Monitor the recorded quantity of permissioned chains as on public networks.
assets on the blockchain to ensure However, there was no consensus among
it matches the issued quantity of participants about which data should be
securities, and prevent their deletion stored on-chain vs. off-chain, as there
or improper creation. are competing motivations such as
– Ensure segregation capabilities and scalability and performance, or automated
manage participation to the settlement functionality of smart contracts with
ledger. Non-institutional investors transparent data.
All participants cited could be allowed to do this if they are
For data that would be stored on-chain,
legal and regulatory knowledgeable about the risks and
various solutions are being considered
operations, and have provided their
clarity as arguably explicit consent.
by participants. These include zero-
knowledge proofs and roll-ups, stealth
the largest pending – Prevent or address settlement fails, addresses, and layered pseudonymity,
hurdle for widespread and provide settlement finality in
near-real-time, intraday, and no later
among others.

adoption. than the second business day after It was also noted that many smart contract
the conclusion of a trade. logs, which log the usage history and
– Enable the clear and accurate store data off-chain, have higher levels of
confirmation of transaction details, visibility, and therefore should be reviewed
including payments that are by with greater scrutiny.
preference concluded in central bank
money or in commercial bank money Liability and recourse must be clearly
through the account of the DLT MI. addressed for cross-chain transfers
Participants agreed that decentralised
Regulatory clarity remains the blockchain networks should be treated
market’s largest need similarly to open-source technologies. In
All participants cited legal and regulatory other words, one cannot attribute liability to
clarity as arguably the largest pending decentralised public blockchain networks.
hurdle for widespread adoption. On the other hand, as soon as a token or
application is defined under a jurisdiction’s
Compounding the issue further is the legal or regulatory framework, those
broad diversity of legal and regulatory associated definitions could invoke liability.
frameworks across different jurisdictions,
which makes the environment even more In the case of cross-chain token bridge
challenging to operate in a compliant solutions – in which tokens on the source
manner for participants. As legislative chain are ‘locked’ in a smart contract
and regulatory decisions are outside token pool – many institutions felt that the
our control, we deliberately focused our responsibilities and related liabilities of the
discussions on other topics thought to be smart contract owner were unclear. Some
more directly within our collective control. participants suggested that liability might
change if the token bridge solution was
open-source code and had to be directly
incorporated by a token issuer. However,
most viewed the lack of control as the
determining factor.

15 Swift’s blockchain interoperability experiments – Results report

 Cross-chain use cases lack Nonce management is critical for
maturity, but development is avoiding replay attacks
expected to ramp up Some participants suggested that
Participants broadly felt that cross-chain digital wallet infrastructure to create
transfer use cases are still maturing, and and sign blockchain transactions should
held a range of different views on the continue to be hosted and managed
prioritisation of suitable asset classes. by financial institutions..
But they did note that the need to support
cross-chain transfers is widely anticipated However, this increases the complexity of
over the next few years and is therefore devising a solution to mitigate the risk of
driving the preparatory work within replay attacks that is inherent in blockchain
their institutions. transactions. In a typical scenario, the
‘wallet nonce’ (see our glossary here) can
In the near-term, most participants expect be employed to prevent a transaction
there to be a greater focus on token from being executed multiple times within
transfers between private permissioned a single blockchain, or from being re-
chains, with a longer-term direction of travel executed on another compatible chain.
toward public blockchain networks.
In the near-term, To address this challenge, a potential
Token handling mechanisms may solution could involve the implementation
most participants vary by use case of a randomised nonce stored on the
expect there to be a Participants expressed contrasting views
blockchain. This randomised nonce is
checked during the processing of the
greater focus on token about the suitability of various token
blockchain message, thereby ensuring
handling mechanisms (see our glossary
transfers between here), e.g. burn-mint versus lock-mint.
the prevention of replay attacks.

private permissioned Some participants thought the lock-mint An abstraction layer is necessary
mechanism to be more favourable for
chains. cross-chain visibility of total issuance
to manage the complexity of
– however, questions remain about the
multiple blockchains
legal basis of wrapped tokens and the Participants recognised that an abstraction
vulnerabilities of collateral locked in layer and interoperability solution such as
bridging solutions. CCIP reduces the complexity of interacting
with various blockchains.
Other participants suggested that the
burn-mint mechanism may provide greater The ability to connect institutions to
levels of control, but potentially at the various blockchains through existing
expense of higher operational complexity. infrastructure saves significant time and
Another model to consider involves leaving effort as it shields banks from the variety of
the issued token on its native network and signing, transaction formatting, and other
orchestrating ownership changes within differences between blockchains. And
each chain. fragmentation will remain for some time as
various chains are being adopted by market
In any case, participants generally actors. Having the ability to keep internal
agreed that token handling mechanisms systems updated about the progress of
are likely to depend on specific use cases. blockchain transactions across multiple
As these mechanisms may introduce chains will remove risk and ease integration.
operational complexity, any solution should
be designed to support multiple token
handling mechanisms.

16 Swift’s blockchain interoperability experiments – Results report

7. Conclusions and With interest in tokenised assets growing, institutional
next steps investors – and the financial institutions serving them
– require secure, scalable, and cost-effective ways of
interacting with networks for post-trade processing
and settlement.
The collaboration between Swift, Chainlink, and Swift’s strategy, we will invest in determining
the financial community represents significant an appropriate set of capabilities to support
progress towards enabling interoperability the transfer of tokenised assets over the Swift
between traditional financial systems and network globally.
emerging blockchain networks as next
generation places of settlement. However, Areas for development
there is work to do to enable the broader To tackle these challenges, Swift will continue
tokenisation of capital markets. working with the community to understand the
most concrete use cases for tokenised asset
The collaboration Demonstrating the value of adoption. We anticipate the most compelling
demonstrated the collaborative innovation business case for tokenisation in the near-term
By bringing together a range of industry to be for the secondary trading of non-listed
ability to transfer participants from multiple jurisdictions, assets and private markets, given the potential
tokenised value and serving different parts of the value chain, for improvement in this area. We will therefore
we were able to design a potential solution prioritise our efforts accordingly.
efficiently and securely that could work for a larger portion of the
across public and capital markets ecosystem. Participants We remain focused on enabling the financial
community to interact with tokenised
benefitted from the richness of experience
private blockchains. and expertise across the group, highlighting assets by providing standardised channels,
the importance of our collaborative market guidelines, and orchestration of
approach to industry innovation. flows across networks. This will encompass
DvP orchestration across the spectrum of
By leveraging existing Swift infrastructure payment leg types, including existing off-
and Chainlink CCIP, the collaboration chain payments (e.g. correspondent banking
demonstrated the ability to transfer tokenised and RTGS payment rails). To support market
value efficiently and securely across public demand in the near-term, we will also explore
and private blockchains, using standardised on-chain payment methods (such as CBDCs
messaging formats and proven business and deposit tokens) to facilitate instant atomic
processes. These industry-wide trials have settlement, as these channels become
resulted in a greater understanding of the commercially available in the market.
relevant technical and business requirements.
They have also highlighted the potential value Charting the future
of a blockchain interoperability protocol in Future work will require a heightened
securely transferring data and value across focus on the institutional requirements
different blockchains. that were identified in our experiment, such
as data privacy. To that end, we will continue
Open questions remain our exploration of various types of
While the successful completion of blockchain implementations, with a greater
these experiments represents progress focus on public permissioned ledgers
for the industry, a number of questions that could provide the benefits of an open
remain open. Putting regulatory clarity ecosystem, while ensuring adequate levels of
to one side, there are numerous areas transactional privacy.
that the private sector can work on
together to advance the development We will also explore alternative possibilities,
of the tokenised asset ecosystem. such as the provision of a private transactional
data repository or the use of privacy-enhancing
Solutions will be needed to address technologies like zero-knowledge proofs.
institutional requirements for adequate
Want to learn more? Moving forward, Swift is committed
transactional privacy, and clearly defined
To provide feedback, or if you would liability within the tokenised asset value chain. to remaining a key player in enabling
like to learn more about our blockchain The clear articulation of relevant use cases blockchain interoperability, and enabling
interoperability experiments and solutions, will be key in driving such solutions forward. the widespread adoption of tokenised
please reach out to your Swift account assets in financial services.
manager or contact [email protected]. Based on the perceived market potential of
tokenisation, and the broader alignment with

17 Swift’s blockchain interoperability experiments – Results report

 Glossary of terms Nonce (wallet nonce): This is introduced
8. Appendix to protect against the security risk of
Blockchain wallet: This is a piece of
software that manages one or multiple replay attacks. Via the bank wallet nonce,
blockchain-specific public-private key a blockchain message signed by the
pairs. The software typically includes bank cannot be processed twice on the
functionality to generate and sign valid blockchain, whether submitted by Chainlink
transactions for a supported blockchain or by an adversary. The second time a
network, or receive tokens at a valid signed blockchain message is submitted,
address that is cryptographically linked to the nonce validation in the smart contract
the public-private key pair. fails and the transaction is rejected. The
bank wallet nonce is validated by smart
EIP-712: This is an Ethereum standard contract logic.
(Ethereum Improvement Proposal) for the
hashing and signing of typed structured Token handling mechanism: Transferring
data as opposed to just byte strings. It a tokenised asset typically involves sending
aims to improve the usability of off-chain funds from sender to receiver. For token
message signing for use on-chain. transfers across blockchains, there are
two common mechanisms: (1) locking
Designated Depository: This can be seen the transferred (native) tokens on the
as the operational sponsor for a given source chain and minting a representation
asset on a blockchain-powered Settlement of them on the destination chain, or (2)
System, similar to the operational sponsor burning the (native) tokens on the source
role performed by T2S (TARGET 2 chain and minting them natively on the
Securities) before committing settlement destination chain.
on the T2S Securities Settlement
ledger. Whilst we have classified it as Wrapped token: This is a program or
the ‘Designated Depository’, this role protocol that ‘wraps’ or encapsulates
could have various names depending digital assets, such as cryptocurrencies
on the jurisdiction and settlement flows or tokens, in a new format that makes
encompassed, including ‘central securities them compatible with different blockchain
depository’, ‘central account keeper’ and networks. This enables easier transfer and
‘registrar’, or ‘master bookkeeper’. interoperability between different platforms
and networks. The token wrapper typically
Token pool: An essential component adds metadata and functionality to the
in the process of minting and burning wrapped tokens, such as smart contract
wrapped tokens, this is a smart contract capabilities or access control features. This
that keeps track of the assets deposited allows the wrapped tokens to be used in
by users for creating wrapped tokens, and decentralised applications (dApps) and
ensures the proper allocation of these other blockchain-based systems that may
tokens. The token pool also enables a require additional functionality beyond
secure and transparent auditing process basic currency transactions.
for the wrapped token supply, which
helps to maintain the peg of the token
to its underlying asset. Overall, the token
pool is a crucial aspect of the wrapped
token ecosystem as it ensures proper
collateralisation and the stability of the
token value.

18 Swift’s blockchain interoperability experiments – Results report

 Cross-Chain Interoperability 4. Token Handling: For each token included
Protocol (CCIP) mechanics in the message (could be a single transfer
or batch), the token handling mechanisms
In the event of a cross-chain transfer, the
set by the issuer are applied. This can
request is directed to the CCIP router. The
involve actions like lock-mint or burn-mint.
below steps are taken to ensure tokens are
sent securely to the destination blockchain: 5. Oracle Network Processing: The
OnRamp emits an event that triggers CCIP
1. Interface Interaction: The CCIP Router
to process the message securely. CCIP
provides a user-friendly interface
works together with the additional Risk
to interact securely with the cross-
Management Network — an independent,
chain messaging system from existing
secondary validation network — to ensure
institutional infrastructure.
a robust and risk-mitigated approach to
2. Source Chain Validation: The CCIP value movement across blockchains.
Router validates the cross-chain message,
6. Destination Chain Validation: After
ensuring that the destination blockchain
CCIP processing, the token undergoes
is supported.
rigorous security and validation rules on the
3. OnRamp Validation: If validation destination chain.
passes in the CCIP Router, the message
7. Token Minting: Once all validations
is forwarded to the OnRamp, which
are completed successfully, the token is
performs further validation. Each institution
minted and sent to the desired recipient on
can configure its preferred validation
the destination chain.
criteria, such as value and rate limits
on specific tokens.

Figure 5: The Cross-Chain

Interoperability Protocol

Risk Management
Network
Chainlink CCIP Commit
Store

Sender OnRamp OffRamp Receiver

Committing DON
Data+Tokens Router Router Data+Tokens
Lock/Burn Unlock/Mint

Source Blockchain Token Pool Executing DON Token Pool Destination Blockchain

Off-Chain

19 Swift’s blockchain interoperability experiments – Results report

 Test scenarios – This data can be captured in the
During this experiment we also message with a structure for :70E:
tested several unhappy scenarios Processing Instruction
(non-exhaustive): – Destination chain ID: ID of the
blockchain to which the tokens
– Reuse same Nonce will be sent
– Expired ValidUntilTime – This data can be captured in the
– Mismatch public address (From) message with a structure for :95Q::PSET
and private address – Valid until time: Timestamp after which
– Send more token than available the transfer would no longer
on the Wallet be valid

– Wrong token name – This data can be captured in the

message with a structure for :70E:
– Wrong token version Processing Instruction
– Wrong chain ID – Nonce: Random value (non-sequential)
– Wrong Forwarder Address stored on chain to avoid replay attacks

– Mismatch API request payload with – This data can be captured in the
blockchain message data message with a structure for :70E:
Processing Instruction
– Signature: EIP-712 signature of the
Message standards: MT 543 blockchain message
– Quantity of the tokens which
will be transferred – This data can be captured in the
message with a structure for :70E:
– This data can be captured in the Processing Instruction
message with a dedicated field option
:36D::SETT//DITU/
Status confirmation codes
– From: Wallet address the tokens will be
sent from When queried, the Chainlink API provides
detailed information regarding the current
– This data can be captured in the state of transactions. An initial response is
message with a dedicated field option provided as soon as a transaction has been
:97D::BCAW// submitted to Chainlink. The information
returned includes:
– Receiver: Wallet address the tokens will
be sent to chainlink_request_id: UUID. This is same
– This data can be captured in the as request_id returned by Chainlink for
message with a dedicated field option send_transaction API
:97D::BCAW//
status: status of meta-transaction. Can be
– Target: Address of the tokens which will one of the following:
be transferred
– CONFIRMED: blockchain tx has 1 block
– The message can currently formally confirmation on source chain
handle the DTI identifier. This data can
be captured in the message in :70E: – SOURCE_FINALISED: blockchain tx on
Processing Instruction as ADDR/ source chain is finalised (for cross-chain
transfers only)
– Target name: Name of the tokens which – FINALISED: blockchain tx finalised
will be transferred (on destination chain, for cross-chain
– This data can be captured in the transfers)
message with the /NM/ tag for :35B: – FAILURE: failure
identification of the financial instrument – tx_hash: transaction hash on source
– Target version: Version of the tokens blockchain
which will be transferred – ccip_msg_id: CCIP Message ID (for
cross-chain token transfers only)
– This data can be captured in the
message with a /VRSN/ tag for :35B: – failure_reason: reasons for FAILURE
identification of the financial instrument status
The Chainlink status updates are mapped
– Chain ID: ID of the blockchain from
to the MT 548 message towards the
which the tokens will be sent
financial institution.

20 Swift’s blockchain interoperability experiments – Results report

9. Acknowledgements Swift team Chainlink team
Tom Zschach Sergey Nazarov
Chief Innovation Officer Co-founder

Nick Kerigan Thomas Trepanier

Managing Director, Head of Innovation Head of Capital Markets

Jonathan Ehrenfeld Ryan Lovell, Director

Head of Securities Strategy Capital Markets

Jack Pouderoyen Pieter Pauwels

Innovation Market Engagement CCIP Market Strategy Manager

Thomas Dugauquier
Tokenised Assets Product Lead

Charles Vinet
Senior Innovation Engineer

Fabrice Yans
Enterprise IT Architect

Tom Alaerts
Principal, Standards

Wes Harmon
Innovation Engineer

Swift would like to give a special thanks to our colleagues from over a dozen financial
institutions that participated in these blockchain interoperability experiments.

21 Swift’s blockchain interoperability experiments – Results report

About Swift

Swift is a global member-owned

cooperative and the world’s leading
provider of secure financial messaging
services. We provide our community with
a platform for messaging, standards for
communicating and we offer products
and services to facilitate access and
integration; identification, analysis and
financial crime compliance. Our messaging
platform, products and services connect
more than 11,000 banking and securities
organisations, market infrastructures and
corporate customers in more than 200
countries and territories, enabling them
to communicate securely and exchange
standardised financial messages in a
reliable way.

As their trusted provider, we facilitate global

and local financial flows, support trade
and commerce all around the world; we
relentlessly pursue operational excellence
and continually seek ways to lower costs,
reduce risks and eliminate operational
inefficiencies. Headquartered in Belgium,
Swift’s international governance and
oversight reinforces the neutral, global
character of its cooperative structure.
Swift’s global office network ensures an
active presence in all the major financial
centres.

For more information, visit

Web: www.swift.com
Twitter: @swiftcommunity
LinkedIn: Swift

Copyright

Copyright © Swift — all rights reserved.

Disclaimer

Swift supplies this publication for

information purposes only. The
information in this publication may
change from time to time. You must
always refer to the latest available
version.