Swiss banks claim first binding payment using public blockchain

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(Reuters) – Three Swiss banks, including UBS, have carried out a binding payment using bank deposits and a public blockchain for the first time, the Swiss Bankers Association said on Tuesday.

The payment was carried out as part of a feasibility study on use of deposit tokens by PostFinance, Sygnum Bank and UBS.

“This is something really new,” said Thomas Frei, head of product innovation at Sygnum Bank.

Deposit tokens refer to bank deposits that have been made usable on the blockchain by “tokenizing” them. During the study clients sent tokens on the blockchain that represented bank deposits, settling their respective transactions.

“Our tokenized deposits can be used across different banks, which is something that was not there yet,” Frei said.

He said the study showed the banks could cover their counterparty risk. Frei added that while JPMorgan had tokenized deposits too, they could only be used within JPMorgan.

“Basically, what we did is we launched a kind of new form of payments on the blockchain, which is an alternative to stablecoins,” Frei said. Stablecoins are cryptocurrencies whose value is pegged to that of another currency, commodity, or financial instrument.

In future, payments could not only be processed immediately and definitively on shared infrastructure but also be integrated directly into automated business processes, the SBA said.

More work still needs to be done before the banks would be ready to roll the product out, Frei said.

(Reporting by Marleen Kaesebier. Editing by Dave Graham and Mark Potter)