At last week’s Smarter Securities hosted by SWIFT, the world’s leading provider of secure financial messaging services, Chainlink Co-founder Sergey Nazarov sat down with SWIFT’s Director of Capital Markets Strategy, Matthieu de Heering, for a one-on-one conversation about the post-trade industry’s future and how firms can embrace digital transformation in a shared approach to delivering smarter securities solutions.
As secure blockchain middleware, Chainlink provides access to various chains from one simple integration. “It’s actually an abstraction layer that validates data and commands so that they can be considered reliable enough to trigger billions and trillions of dollars in value,” Nazarov said. Nazarov’s work with SWIFT extends back to when he presented a proof-of-concept (PoC) illustrating how smart contracts can simplify the buying, selling and payment of dividends from bonds at SWIFT’s Sibos conference.
Nazarov said that the ability to send SWIFT ISO 20022-compliant messages from smart contracts and return outcomes from the SWIFT network back into a smart contract demonstrates how the infrastructure of existing messaging standards like SWIFT can be used to trigger blockchain transactions and how blockchain events can affect important enterprise events. “Since then, there’s been a lot of progress made on how the technology works and what it’s capable of in various chains,” he said.
Nazarov described his vision for the short-term and long-term evolution of global finance amid the growing decentralized finance (DeFi) industry’s spectrum of blockchains offering increased reliability, transparency and efficiency. “The way this interacts with existing systems is very straightforward, because the existing systems use private keys to sign various transactions, such as SWIFT messages, and that same private key infrastructure can be used to sign transactions and events and messages into various blockchains,” he said.
“Reliability, transparency, efficiency, easy access – obviously this is music to the ears of someone working at SWIFT and something that we’ve been striving for since our birth around 40 years ago,” de Heering said.
de Heering described the current economy, where “not a week goes by” without a new financial institution talking about opening up a division for custody of cryptocurrencies or other non-traditionally represented assets. Nazarov said that these assets’ ability to resist inflation, provide greater user control and force transparency to manage counterparty risk is driving demand for custody, which will inevitably drive demand for DeFi products.
In Nazarov’s view, financial institutions should prepare for a DeFi ecosystem containing many public, semi-public and private blockchains where counterparties in different countries have assets on different chains. “There will be counterparties in all of these environments that banks and institutions will want to transact with,” Nazarov said. “The real way I see this evolving is that banks and institutions become capable of interacting with many different chains.”
“So the real challenge is how do you interface with this multiplicity of different blockchain environments where you’ll find your counterparties in a secure and efficient way? The fundamental answer to that is you take your existing infrastructure, which you already have trained tens of thousands of people on, and you enable that infrastructure to send commands to various blockchains.”
With this approach, organizations can integrate secure middleware like Chainlink into their existing infrastructure to interact with various blockchains. One could generate an internal SWIFT message using existing routing infrastructure and secure signing appliances, then convert that message to execute a transaction on a specific blockchain.
“Then there should be a return from the blockchain proving that the event happened, back into the existing enterprise system and vice versa – if you have a smart contract that wants to trigger a SWIFT payment, it should be able to do that from whatever chain it’s on, because there’s a system that enables the reading of that chain’s transactions and the triggering of those transactions into the SWIFT network into an existing enterprise backend,” Nazarov said.
Because the existing private key infrastructure implemented by SWIFT is already “very well ingrained in the operational security of many banks and institutions,” Nazarov said he sees using that infrastructure to sign various blockchain transactions as a “very natural step” in how these transactions would make their way onto various chains.
“You don’t actually need to pull out a ton of things in order to make this work.”
In Nazarov’s long-term view, SWIFT’s democratized member voting structure enables it to be a democratized industry-shared resource for these types of blockchain transactions. “It’s very compatible with where I think things are going in terms of the overall global financial system running on various blockchains,” he said.
de Heering agreed: “Once you have the mass of 11,000 users moving in a single direction after a democratic and transparent approach to making any changes, well then we all move together and we can go far.”
Watch Sergey Nazarov’s full discussion with Matthieu de Heering.