SWIFT Plans to Explore Tokenized Assets in Q1 2022

The global provider of secure financial messaging services, SWIFT, is planning to launch an innovative pilot in the first quarter of 2022 that will see it explore interoperability in the nascent asset tokenization market.

SWIFT to Test Tokenized Assets

Aside from SWIFT, other participants in the initiative will include Clearstream, Northern Trust, Citi-backed enterprise blockchain firm SETL and other industry players, the company noted in a recent announcement.

Thomas Zschach, SWIFT’s Chief Innovation Officer, said with the organization being able to link more than 11,000 institutions across 200 countries, it is strategically positioned to engage closely with the future of tokenized securities.

“We look forward to this set of new experiments and innovating collaboratively with market participants on the emerging trend of tokenized assets,” Zschach said.

The experiments, according to SWIFT, will use both Central Bank Digital Currencies (CBDCs) as well as established forms of payment, which may include the United States Dollar, Euro, etc.

Interest in Tokenized Assets Surge

Although the market capitalization of tokenized assets seems small compared to that of cryptocurrencies, the market is expected to surge above $24 trillion by 2027, SWIFT added.

Based on this, interest in the asset class has been on the increase. In recent times, several financial instruments like stocks, bonds, and other illiquid assets, including commodities and real estate, have been tokenized.

Banks and securities firms are also not left out in the tokenization buzz, as these entities are responding to tokenization via fractionalization, a process whereby fractions of assets are sold as digital tokens in a bid to enhance liquidity and accessibility.

Per the announcement, the experiment will center on improving the exchange of information between the participants and systems that interact during the existence of tokenized assets.

“SWIFT plans a series of experiments in Q1 2022 leveraging its trusted role as a central platform to explore the issuance, delivery versus payment (DVP) and redemption processes to support a frictionless and seamless tokenized asset market,” excerpts of the report read.

SWIFT’s Position Threatened by Crypto

SWIFT is a communication platform that connects banks and other financial institutions for cross-border payments.

As interest in digital currencies such as cryptocurrencies, CBDCs, and stablecoins surges, there are suggestions that SWIFT’s relevance may decline in the near future.

In 2019, SWIFT’s chairman, Yawar Shah, said cryptocurrencies are causing extraordinary changes in the global financial space.