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UDPN’s fiat-centric stability in cross-border payments

Posted:Jan 10, 2024 16:32 Category: Blockchain , Crypto , Forex , Posted by Lea Hogg

The Universal Digital Payments Network (UDPN) is set to introduce innovative commercial applications in 2024, with a primary focus on cross-border transfers and swaps, posing a potential challenge to the established Swift system.

The initiative was officially introduced at the World Economic Forum in Davos, Switzerland a year ago, in January 2023, where UDPN announced its initial proof of concepts (POCs) involving Deutsche Bank and SC Ventures.

Cross-border transfers and swaps

The first two POCs explored cross-border transfers, swaps, and Travel Rule compliance, with Deutsche Bank and SC Ventures successfully conducting real-time transactions using stablecoins such as USDC and EURS. The POC demonstrated the ability of UDPN to streamline cross-border transactions, completing them in “minutes instead of days” through a scalable architecture addressing interoperability challenges.

Among UDPN’s 12 official use cases, insider information suggests that cross-border transfers and swaps are likely to be the first to transition to commercial launch, followed by the introduction of an issuance service for tokenized deposits and bank stablecoins.

UDPN operates as a messaging backbone utilizing distributed ledger technology (DLT), fostering interoperability between regulated digital assets like stablecoins, central bank digital currencies (CBDCs), and tokenized deposits. In contrast to Swift, UDPN is designed to integrate with any business IT system, extending beyond traditional bank endpoints.

Expanding alliance members in 2024

Developed through a consortium collaboration involving GFT, Red Date Technology, and TOKO, UDPN aims to create a network of networks. Red Date Technology’s Nadav Kostiner explained that 2024 will witness the expansion of UDPN’s alliance, with 24 members—comprising banks, central banks, corporates, and tech companies—gaining influence through validator nodes.

UDPN’s infrastructure incorporates a two-tiered model, consisting of the UDPN blockchain layer (a Hyperledger Besu permissioned blockchain) and a business nodes layer connecting to validator nodes. The network has onboarded several central banks globally, testing its capabilities. Privacy and regulatory settings are managed off-chain through APIs within business nodes, while on-chain transactions are recorded.

Stablecoins take the lead

Despite the keen interest from central banks, Kostiner anticipates that stablecoins will take the lead in 2024 due to ongoing efforts to regulate them in jurisdictions such as the EU, UK, Singapore, and Japan. With up to 80 Tier 1 and Tier 2 banks in the West developing their fiat-backed stablecoins, UDPN is poised to play a crucial role in facilitating their integration.

Fiat-backed assets

Noteworthy partnerships with established entities like Circle’s USDC and newcomers like PayPal USD indicate UDPN’s influence in the stablecoin space. Major players, including PayPal and Stripe, are exploring stablecoin initiatives, leveraging the regulated framework to expand their reach in the business-to-business (B2B) context.

UDPN remains committed to fiat-backed assets, resisting pressures to include cryptocurrencies within its network. As the network evolves, Kostiner envisions a transformative shift toward regulated providers, stimulating increased usage of stablecoins in various business contexts.

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