Citi (NYSE: C) and Swift announced a trial that seemingly confirms the feasibility of settling payments between fiat and digital currencies, in a Payment-versus-Payment workflow. The trial now reportedly demonstrates a hybrid model for interoperability between TradFi systems and DLT networks.
This was achieved by leveraging Swift infrastructure, which was augmented with blockchain connectors, orchestrators and smart contracts.
Ayesa Latif, Head of FX Products said that these trials with Swift represent a step forward in understanding and “developing infrastructure required to support digital currency transactions.”
Latif added that their collaboration has demonstrated how existing financial systems can be enhanced with blockchain tech to “unlock new levels of speed, transparency, and risk reduction in cross-currency settlements.”
Jonathan Ehrenfeld, Head of Strategy at Swift, said that Swift is positioned to be the “trusted single point of access for connection between the tokenized ecosystems and the global financial ecosystem.
This collab with Citi indicates that it is possible to leverage the reach of our existing network while introducing “capabilities required to orchestrate fiat-digital currency PvP.”
The initiative underscores Citi’s commitment to “delivering client-centric, and scalable solutions for the digital asset ecosystem.”
The trials mark a milestone towards the development of market-ready solutions that can be “scalable, standardized and integrated into global financial systems.”
The growth of digital currencies, such as tokenized deposits and stablecoins, presents an unprecedented opportunity to enhance cross-border payments and financial infrastructure.
For stablecoins, Citi GPS has projected that total issuance market could reach USD1.9 trillion by 2030, driven by “expanding use cases and increasing regulatory clarity.”
While stablecoin transaction volume is approaching USD1 trillion a month according to the report, they predominantly “serve as an intermediary. Consequently, recipients of stablecoins – which are primarily US dollar denominated – often choose to exchange them for local fiat currency.”
Despite this demand, settlement between fiat and digital currencies such as stablecoins remains “challenging as they are fundamentally different in nature.”
Unlike fiat currencies that are typically held within “accounts at correspondent banks, digital currencies are held by user wallets on various blockchains and generally do not allow for reversible transactions.”
While FX messaging standards, such as MT30X, have been “designed to identify digital assets and confirm FX deals on them, they are not meant to instruct synchronized settlement between fiat and digital currencies.”
The initiative between Citi and Swift aims to “address this issue.”
Citi and Swift designed a holistic messaging standard “capable of tracking the end-to-end process, from trade initiation to settlement confirmation.”
This standard accounts for the distinct data fields and “characteristics inherent in fiat-digital currency transactions.”
The solution incorporated an escrow mechanism to “overcome the challenge of irreversible blockchain transactions, while ensuring PvP settlement and eliminating settlement risk of both parties.”
A central orchestrator further managed the sequenced exchange of messages, coordinating between the fiat and DLT legs to “ensure synchronization and finality.”
In the trial, Citi also utilized test USDC tokens from Circle on the Ethereum Sepolia testnet, to “simulate a near-production environment.”
Citi and Swift will now continue to refine the approach in collaboration with the broader financial services sector and “establish the messaging and operational standards necessary for scalable, institutional-grade digital asset transactions.”