A number of Switzerland’s major banks have successfully conducted a proof-of-concept (PoC) to assess blockchain technology and smart contracts for interbank payments, claiming it to be the first legally binding bank transaction via a public blockchain.
As part of the Swiss Bankers Association (SBA), UBS, PostFinance, and Sygnum Bank undertook a feasibility study centered on blockchain-based deposit tokens and payments infrastructure, as announced by the SBA on Tuesday.
The initiative involved an offchain fiat money transfer activated by payment instructions tokenized on the blockchain as a “deposit token.” The initial use case executed a payment between bank clients of the participating institutions, while the second assessed an escrow-like process that swapped deposit tokens for tokenized real-world assets (RWAs) with transactions processed automatically.
This announcement highlights the experiment as the first instance where banks have executed a legally binding payment between institutions using bank deposits and a public blockchain.
Scalability challenges remain
The smart contracts supporting the system allow for “verifiable processes, technical security, and compliance with regulatory standards,” stated the SBA, noting that public blockchains with permissioned applications can facilitate “legally binding” payments.
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While the findings affirm the “feasibility” of institutional payments using blockchain technology, achieving scalability will necessitate “additional design modifications and greater collaboration with other banks, infrastructure providers, and authorities,” the SBA added.
The successful study could indicate increased interest from large financial institutions in blockchain-based payment systems, potentially accelerating the merger of traditional and decentralized finance (DeFi).
Founded in Basel in 1912, the SBA represents an umbrella in which around 265 organizations and over 12,000 individuals are members.
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UBS says interoperability possible
The study suggests that interoperability between traditional bank deposits and public blockchains is becoming a “reality,” according to Christoph Puhr, digital assets lead at UBS Group.
“The PoC shows that the interoperability of bank money via public blockchains can be realized, fostering innovation around tokenized assets.”
“This accelerates innovation in tokenized assets and enables proactive shaping of the future of financial systems—both nationally and globally,” he added.
In the US, central banks are similarly exploring smart contracts and blockchain infrastructure.
A joint research study published in May by the US Federal Reserve Bank of New York’s Innovation Center and the Bank for International Settlements (BIS) Innovation Hub Swiss Centre found that smart contracts could provide central banks with flexible and rapid-response tools in a tokenized financial landscape.
“The smart contract toolkit was swift and adaptable,” the BIS reported. “In hypothetical situations, the central bank was capable of adding and modifying tools instantaneously.”
The BIS report also acknowledged that central banks will likely encounter infrastructure challenges, as most current systems do not support advanced use cases.
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