Decentralized Oracle provider Chainlink will introduce a new blockchain payment solution for financial institutions.
In collaboration with Swift, a global messaging network used by banks and institutions, Chainlink revealed a new integration enabling institutions to use Swift messages to interact with blockchain technology.
The integration will enable digital asset settlement with minimal adjustments to existing infrastructure while establishing a bridge between decentralized finance (DeFi) and traditional finance (TradFi).
Source: Chainlink
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Swift-er blockchain payments
Sergey Nazarov, co-founder of Chainlink, highlighted the practical benefits of the integration in a speech given at the Swift-organized Sibos conference in Beijing, China:
“We are in a pre-production stage where we can start offering you something that you can actually start using with your existing institutional systems.”
He said the solution will enable pre-settlement and transaction confirmation through Swift’s established messaging standards, which are already widely used in TradFi.
After confirmation, Chainlink’s infrastructure would convert these messages into blockchain events, enabling institutions to lock assets and execute payments onchain.
Infographic depicting Chainlink’s CCIP integration with Swift for new blockchain-based payments. Source: Chainlink
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Institutional privacy implications
Nasarov also discussed the new Blockchain Privacy Manager (BPM), a privacy-preserving feature that enables private chain integration with the public Chainlink platform.
He said privacy has been “deeply lacking quality in the blockchain industry” and that it has “kept the capital markets from adopting digital assets and blockchains.”
“The Blockchain Privacy Manager […] can allow you to manage the privacy assumptions of everything related to your chain […] allows the data from your bank to be selectively placed into certain chains, but not others, and allows you to authoritatively manage what information can and can’t reach chains from your bank.”
BPM targets financial institutions that want end-to-end privacy when using blockchain applications and is encrypted by Chainlink Cross-Chain Interoperability Protocol (CCIP) Private Transactions.
This functionality, paired with the new Swift integration, will allow institutions to conduct sensitive transactions, including private tokenized asset trading or cross-border payments.
Infographic depicting the functionality of Chainlink’s Blockchain Privacy Manager. Source: Chainlink
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Regulatory and centralization concerns
While this development provides institutional-grade security measures, it also calls into question regulatory concerns and centralization implications.
Regulators may raise concerns regarding Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations due to the increased privacy and potential lack of transparency.
The centralization of privacy controls within Chainlink’s ecosystem could also contradict the principles of decentralization.
By allowing the concentration of power in the hands of institutions, private transactions by these entities may potentially not be open to public consideration or scrutiny.
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