Swiss Banking Giants Test Ethereum for Instant, Compliant Payments

Major Swiss financial institutions UBS, PostFinance, and Sygnum Bank have successfully conducted a groundbreaking trial, executing cross-bank payments on the Ethereum public blockchain. This proof-of-concept, facilitated under the Swiss Bankers Association, utilized digital representations of bank deposits, known as deposit tokens, to enable legally compliant and near-instantaneous transactions.

Key Takeaways

• UBS, PostFinance, and Sygnum Bank demonstrated the feasibility of using deposit tokens on Ethereum for interbank payments.

• The trial confirmed that blockchain technology can support legally compliant and programmable financial transactions.

• This initiative aligns with Switzerland's broader strategy for digital currencies and modernizing financial infrastructure.

Revolutionizing Interbank Transfers

The collaboration between UBS, PostFinance, and Sygnum Bank marks a significant step in integrating blockchain technology into traditional banking systems. The pilot project showcased how deposit tokens, which represent actual bank deposits, can be transferred between institutions on a permissioned Ethereum network. This bypasses traditional payment systems, offering the potential for immediate settlement and the integration of automated conditions through smart contracts.

Programmable Payments and Use Cases

Traditional payment networks often lack the flexibility to handle programmable conditions or seamlessly integrate with blockchain-based markets. Deposit tokens address this by enabling transfers that can be tied to specific events, such as the instant settlement of a securities trade upon ownership transfer or the automatic release of an insurance payout once a claim is validated. The trial explored two primary use cases: direct peer-to-peer payments between customers of different banks and an escrow-like mechanism for swapping tokenized assets with deposit tokens.

Ensuring Compliance and Scalability

The transactions were conducted within a permissioned framework on Ethereum, ensuring that regulatory requirements such as Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), and sanctions checks were integrated. A single shared smart contract with role-based controls managed these compliance aspects, maintaining fungibility across multiple banks. While the pilot confirmed technical and legal viability, scaling the system will necessitate broader participation from other financial institutions, infrastructure providers, and regulatory bodies. The Swiss Bankers Association views this pilot as a foundational element for future advancements in digital currencies and institutional finance, though the immediate introduction of deposit tokens is not anticipated.

Future Outlook

This successful trial highlights the potential for public blockchains, when combined with private access layers, to support regulated financial activities. It reinforces Switzerland's commitment to exploring digital currency strategies and modernizing its financial infrastructure. Future developments may include native on-chain account structures and direct links to wholesale Central Bank Digital Currencies (CBDCs), further expanding the utility of deposit tokens in real-world financial processes.

Sources

• UBS, PostFinance and Sygnum Conduct Cross-Bank Payments on Ethereum, CoinDesk.

• UBS, PostFinance & Sygnum Pioneer Deposit Tokens on Ethereum, CoinCentral.