Universal Digital Payment Network targets interoperable stablecoins, CBDCs – Ledger Insights
The Universal Digital Payment Network (UDPN) was launched yesterday at the World Economic Forum in Davos. It’s a blockchain-based network to provide interoperability between regulated stablecoins and CBDC. The three organizations behind the initiative are German digital consultancy GFT, Red Date Technology and DLA Piper’s digital asset initiative TOKO.
“The purpose of UDPN is to investigate a potential alternative to existing payments systems by enabling interoperability between fiat-backed tokens of stablecoins and regulated protocols,” said Marika Lulay, CEO of GFT. “The decentralised approach and geographic breadth of participating firms, combined with the advanced technological solution deployed for these trials, set this network apart.”
It plans to work with stablecoins and CBDC across bother decentralized and centralized currency systems. It states it will support regulated fiat-backed stablecoins, but “no unregulated public-chain cryptocurrencies, such as Bitcoin, will be accepted.” The addition of any new currency is put to the vote by UDPN Alliance members, and the DLT network is a permissioned one based on Hyperledger Besu.
We wrote about the concept two years ago when the idea of the UDPN was first floated as part of the Blockchain-based Service Network (BSN), a Chinese initiative to enable global interoperability between blockchain networks. Red Date Technology initiated the BSN, but we note that the BSN is neither mentioned in the announcement nor the UDPN whitepaper, so the project now appears to be independent.
The network has developed a sandbox and is starting with two proofs of concept (PoCs). One is for cross border transfers using digital currency and FX transactions with Standard Chartered and Deutsche Bank participating. Another involves implementing the travel rule for stablecoin transfers. This requires intermediaries to pass along details of the payment, the payer and the recipient for anti-money laundering purposes.
Several other use cases are envisaged, including enabling the use of stablecoins without consumers needing to hold cryptocurrencies for gas fees. The business pays the gas and passes them on denominated in stablecoins. Another use case is tokenization.
UDPN also mentioned three other banks that attended the Davos launch: HSBC, the Bank of East Asia, and Turkey’s Akbank. HSBC was also involved in the launch of the BSN Spartan Network last year.
The announcement refers to UDPN as a global payment messaging network. Notably, messaging networks generally don’t need to comply with payment system regulations. SWIFT is also a payment messaging network but is only subject to regulatory oversight because it became systemically important.