Swift: solutions to connect fiat currencies with tokenized assets

Swift, the global financial messaging network, is developing innovative solutions to facilitate the integration between fiat currencies and various forms of tokenized assets, with the goal of accelerating financial transactions and improving the efficiency of the system.

The importance of asset tokenization and the connection of fiat currencies: Swift’s idea

The tokenizzazione is one of the most revolutionary trends in the financial world. It consists of digitally representing physical or financial assets on a blockchain or a distributed ledger (DLT). 

This technology allows the fractionation of high-value assets, such as real estate or shares, into smaller digital units, making them more accessible and liquid. Tokenization does not only concern traditional financial assets, but can also include assets such as art, luxury cars, and commodities.

One of the main obstacles to the widespread adoption of tokenization is the lack of adequate infrastructure to connect fiat currencies with these new digital assets. And this is where Swift comes into play, working on solutions that can seamlessly integrate the fiat world with the future of tokens.

In July 2023, Swift began exploring new ways to connect traditional fiat currencies with tokenized assets. 

The objective is to create a bridge between the conventional banking system and the emerging world of decentralized finance (DeFi). Thanks to its extensive global network, Swift is in the ideal position to facilitate this transition, allowing bull and bear buyers of securities to pay and trade tokenized assets in real-time through its platform.

In particular, Swift is working on the development of a series of solutions to enable simultaneous transactions between fiat and tokenized assets. This approach aims to solve one of the main problems of transactions with tokenized assets: the lack of trust and synchronization between the different payment systems. 

Currently, traditional payments via fiat and the exchange of tokenized assets often operate on separate platforms, resulting in delays and operational risks. Swift, through its network, is seeking to eliminate these inefficiencies.

Delivery-versus-payment (DvP) and payment-versus-payment (PvP): the new frontier

Swift has also announced ambitious plans to conduct tests on multi-ledger transactions based on the delivery-versus-payment (DvP) and payment-versus-payment (PvP) models.

These two modes are crucial for the success of tokenized transactions and represent a significant breakthrough in the world of digital finance.

• Delivery-versus-payment (DvP): The DvP is a mechanism that ensures that the transfer of an asset occurs only when the payment has been made. This type of transaction is widely used in traditional financial markets to reduce counterparty risks.

  In the context of tokenized assets, the DvP represents a promising solution to ensure that tokenized securities are delivered only once the fiat payment has been completed, thus reducing the risks of non-delivery or late payment.

• Payment-versus-payment (PvP): PvP is a mode that ensures payments in two different currencies occur simultaneously, reducing exchange risk. This solution is particularly relevant for international transactions, where settlement times can vary significantly.

  Enabling PvP for transactions with tokenized assets will allow banks and investors to exchange tokens and fiat currencies in a simultaneous and secure manner, greatly improving market efficiency.

The advantages of the Swift solution: a bridge between fiat currencies and tokenized assets

With the support of Swift, tokenized assets could enter traditional finance with greater fluidity, bringing numerous advantages:

1. Risk reduction: The integration between fiat and tokenized assets will reduce operational risks associated with timing differences between the delivery of assets and payments. Thanks to solutions like DvP and PvP, it will be possible to eliminate discrepancies and ensure that all parties comply with the terms of the transaction.
2. Efficiency and transparency: The Swift platform will enable real-time transactions, eliminating delays due to clearing or adjustments between different systems. The blockchain and distributed ledgers offer intrinsic transparency that, combined with the Swift infrastructure, will lead to a clearer and verifiable workflow.
3. Global access: By connecting fiat currencies from over 200 countries and territories with the emerging world of tokenized assets, Swift is opening the doors to unprecedented global investment opportunities. Small investors will be able to participate in markets previously reserved for large institutions, increasing liquidity and accessibility.
4. Integration with existing systems: One of the major challenges in the tokenization of assets is the integration with existing financial infrastructures. Swift, with its vast network of banks and financial institutions, is in a unique position to facilitate this transition, seamlessly integrating the new digital world with traditional practices.

The future of Swift and tokenization

With the advent of tokenization, the financial landscape is changing rapidly. The solutions that Swift is developing to connect fiat currencies with tokenized assets could revolutionize the way financial transactions are conducted. In a not too distant future, the ability to exchange tokenized assets in real-time via the Swift network could become the norm, marking a significant turning point in the world of global finance.

The adoption of models such as DvP and PvP on multi-ledger distributed registers represents a fundamental step towards the creation of a more secure, transparent, and efficient financial system, where fiat and token can coexist without friction.