The UDPN is an interoperability bridge between blockchains and applies proven decentralized digital identity standards to participants, allowing transactions to take place in a bank-friendly and regulated environment.
The UDPN currently includes approximately 25 organizations, including banks from the US, Australia, Latin America and Europe, conducting approximately ten proof-of-concept tests in parallel.
Deutsche Bank’s SC Ventures and Standard Chartered are testing a system that allows blockchain-based transactions, stablecoins and central bank digital currencies (CBDCs) to talk to each other, taking an approach similar to the SWIFT messaging layer in existing banking infrastructure .
The banks are running a series of test cases, including transferring and exchanging USDC stablecoins, on the Universal Digital Payments Network (UDPN), a permissioned blockchain system consisting of validator nodes operated by an alliance of banks, financial institutions and consulting firms .
The system, created by tech consultancy GFT Group and Red Date Technology, co-founder of China’s Blockchain-Based Service Network (BSN), instructs and enables transactions to take place across a spectrum of networks, ranging from stablecoins on public blockchains to CBDCs.
There is a relatively long history in the crypto world of banks and institutions joining together in consortia to try to agree on the best way to manage blockchain-based transactions in private environments. After some hype, these enterprise blockchains have received limited interest so far.
Digital currencies provide both medium and message, calling into question the need to parallelize something like SWIFT messaging. The answer, say its creators, is that UDPN acts both as an interoperability bridge between different types of blockchain networks, while also applying proven decentralized digital identity standards (DIDs) to participants, enabling a bank-friendly and regulated environment.
“The UDPN is a network where the connection of members is permitted. But the important thing here is that the transactions themselves are placed on the underlying infrastructure, including permissionless networks,” said Thorsten Neumann, CTO of SC Ventures, in an interview.
For example, when a cross-border currency transfer is made, the sending institution takes the tokenized value and transfers it into a smart contract managed by the UDPN, which will then release the intended target currency from that smart contract, Neumann said.
“There is almost a DeFi-like opportunity within a permissioned network. It is important to note that this is happening without a central organization having established something like a SWIFT message format,” he said.
According to Steffen Schacher, UDPN leader at GFT Group, the UDPN currently consists of approximately 25 organizations running approximately ten proof-of-concept tests in parallel. That group includes banks from the U.S., Australia, Latin America and Europe, he said.
The UDPN transaction nodes are where the magic happens because they are connected to currency systems and currency pools,” Schacher said in an interview. “The way to imagine it is that each currency needs its own transaction, so to speak. In the future, this could be central banks that own transactions and operate CBDCs, or other financial institutions, or any other organization that processes digital currencies, bringing it all into a regulated environment.”