Launch of Universal Digital Payments Network: what will change in the world of digital currencies?
For the first time since 2020, the World Economic Forum in Davos, Switzerland, was held in a regular offline format. Among the presentations of various innovations and tools for economic growth, the UDPN project should be highlighted. It is interesting not only because it is a universal digital payment system but also because it can become an analog of the SWIFT international system in the field of digital assets. This network has been prepared over the past few years, and testing of stablecoin transfers has been taking place in banks since last summer. Since not many banks in the world issue their own CBDCs, this project is currently operating in an experimental mode.
The SWIFT international network is the largest network for transferring funds between banks. Stablecoins, as an alternative payment method, can ensure that payments are made without using this system. In addition to the advantages of digital currencies, they are linked to real fiat money, which makes them more reliable and predictable than cryptocurrencies. In other words, the impact on the actual value of a particular CDBS directly depends on the economy of the country where it was issued.
The company developing UDPN, China’s Red Date, has already announced that several solid international banks will participate in the proof of concept in the next six months. Although the names of these financial institutions were not disclosed, Deutsche Bank, Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered, and Bank of East Asia were spotted at a panel discussion with the company. The system is expected to reduce the cost of digital payments and speed up their adoption by banks.
Transferring digital currencies is one of the main functions of UDPN, which allows you to link bank accounts and stablecoin wallets. Using a website or app, two identical coins can be transferred, even between customers of different banks. The critical aspect is that these digital currencies are interconnected and supported by the UDPN network. The system’s creators are currently working on adding new coins and future CBDCs.
The new network will have a monitoring system, as financial institutions involved in transactions will be required to receive and store user information. In addition, they will pass it on to regulatory agencies if necessary to detect and prevent suspicious transactions. In other words, banks with this system will have all the information about customers, just like regular money transfers. The data itself will remain encrypted in the system and associated with a specific transaction and decrypted by the bank or a third party if necessary.
The UDPN system has a different option if a bank wants to issue its stablecoin. Such a currency will be able to function among the clients of one bank or even among other members of the UDPN network, provided that the coin is backed by fiat money. It should be noted that, in this case, each bank will have to obtain a permit from the regulatory authority of its country.
Inter-institutional KYC verification (Know Your Customer) will allow two different businesses to verify customer data using the UDPN infrastructure. Of course, the user will have to agree to the validation. This shows how decentralized technologies can make already familiar technological processes more advanced because the proposed method can be used for any inter-institutional checks, including outside banks.
Of course, in addition to these options, UDPN customers can convert fiat money into digital currency, open online wallets, and access APIs, allowing them to use the network for payments on their websites. The new network also allows the tokenization of assets. This opens up access to smart contracts, which means that any financial institution can digitize its processes, from insurance to trade in goods and services.
The goal of the UDPN project to create an alternative to current payment systems through the interaction between stablecoins and fiat money is reasonably achievable. It is only necessary to wait for the results of the test run, but it is already predicted that the new system will be able to take the place of SWIFT in the digital world.