.svg)
The Universal Digital Payments Network (UDPN) is aiming to roll out commercial use cases in 2024, starting with cross-border transfers and swaps.
In January 2023, UDPN was officially unveiled in Davos, Switzerland, at the annual meeting of the World Economic Forum (WEF).
It was there that UDPN announced the launch of 12 proofs of concept (POCs), the first two of which featured Deutsche Bank and SC Ventures, an arm of Standard Chartered.
These first two POCs tested UDPN for both domestic and cross-border transfers and swaps.
The , which was completed in October 2023, saw Deutsche Bank and SC Ventures transact in real-time using the USDC and EURS stablecoins.
The POC demonstrated that UDPN can execute cross-border transactions in minutes instead of days, based on a highly scalable architecture that overcomes the challenges of interoperability between different technologies.
Of UDPNs 12 , 蹤獲鱉鱉 has learned that cross-border transfers and swaps are likely to be the first to proceed to commercial launch.
This is likely to be followed by the launch of an issuance service for tokenised deposits and bank stablecoins.
UDPNs network of networks
UDPN is a messaging backbone built on distributed ledger technology (DLT). It aims to provide interoperability between regulated digital assets such as stablecoins, central bank digital currencies (CBDCs) and tokenised deposits.
In contrast to Swift, UPDN is designed to connect to any business IT system, rather than limiting the network to bank end-points.
As such, UDPN does not serve end-users directly, but rather allows IT systems to create UDPN Decentralised IDs (DIDs). These can be used to link and unlink wallets and initiate transfers and swaps.
UDPN was developed on a consortium basis by GFT, a German IT engineering firm, Red Date Technology, a Hong Kong-based decentralised cloud infrastructure firm, and TOKO, a digital asset creation engine.
TOKO is advised by DLA Piper, a US-based global law firm that has a specialist blockchain and digital asset division.
Nadav Kostiner, regional director for UK and EU business development at Red Date Technology, spoke with 蹤獲鱉鱉 about UDPNs plans over the next few years.
Growing the alliance
In 2024, Kostiner said more firms will join UDPN as alliance members, giving them influence, but not control, over the direction of the network.
There are going to be 24 alliance members from different countries they will all be banks, central banks, corporates and tech companies, he said. The first six are going to be announced in early 2024.
While GFT and Red Date Technology are founding members of UDPN, alliance members gain influence in the network by managing validator nodes.
Validator nodes basically give the power to each alliance member to vote on which stablecoin or CDBC is going to be joining the network, which bank is going to be joining and so on, said Kostiner.
Transactions on-chain, compliance off-chain
UDPNs network is based on a two-tiered infrastructure model, starting with the UDPN blockchain layer, which is a Hyperledger Besu permissioned blockchain.
This layer is also blockchain-agnostic, meaning it can connect to any blockchain-based currency system (as shown on the right-hand side of the diagram).
On the left-hand side, as shown, any IT system can connect to validator nodes via business nodes to communicate with the network.
Commercial banks, tech companies, fintechs, neobanks and so on will operate the business nodes, said Kostiner. While on the right-hand side, central banks and stablecoin operators will operate the currency systems.
UDPN has already onboarded several liquidity-backed stablecoins and CBDC platforms to test the network.
Privacy and other regulatory settings are handled off-chain by APIs within the business nodes, while encrypted transaction data is handled on-chain.
As can be seen from the smart contract layer, third parties can introduce added functionality to the network, including processes for Travel Rule, sanctions screening or know your customer (KYC) compliance.
Stablecoins will lead the way
Despite a high level of interest from central banks, Kostiner said that most countries are a few years away from introducing regulated frameworks for central bank digital currencies (CBDCs).
As such, Kostiner said stablecoins will be the most promising area for UDPN in 2024, thanks to swift efforts to bring stablecoins into regulation in jurisdictions such as the EU, UK, Singapore and Japan.
According to UDPNs market intelligence, multipleTier 1 and Tier 2 banks in the West are currently exploring their own fiat- backed stablecoins, while multiple neobanks are considering the same.
When launched, these bank stablecoins will compete with incumbents such as Circles USDC and newcomers such as PayPal USD, both of whom are currently working with UDPN.
Moreover, stablecoin issuers will expand into new currencies and will open up new partnerships with other fintechs and payment firms.
For example, Stripe plans to expand its global that was launched in partnership with X (formerly Twitter) in 2022.
Stripe and others are looking to take advantage of new regulated frameworks for stablecoins to increase their circulation, said Kostiner.
There is a big shift taking place in the crypto world towards regulated providers, and this will stimulate the use of stablecoins in business to business (B2B) contexts.
In addition to onboarding USDC and PayPal USD, UDPN is also working on a stablecoin management system specifically for banks.
Lastly, Kostiner said UDPN will continue to resist calls to open up the network to crypto-assets.
We dont touch any crypto, even though its what banks want, said Kostiner. Were not going to implement anything that isnt fiat-backed.
