China’s State-Launched Project Aims to Be the SWIFT of Stablecoins and CBDCs
Byline: Hannah Parker
Hong Kong-based Red Date Technology, one of China’s leading blockchain companies, has launched a digital payments system initiative to bridge the gap between stablecoins and central bank digital currencies (CBDCs) to facilitate cross-border payments. The SWIFT-style system for bank-issued and regulated digital currencies was launched by a company involved in building China’s national blockchain project. The launched project aims to serve society globally.
On January 19 2023, during the World Economic Forum (WEF) meeting in Davos, Switzerland, the technical architect for China’s state-backed Blockchain-based Service Network (BSN) Red Date Technology published the launch of the new project named Universal Digital Payments Network (UDPN). According to a UDPN white paper, the goal is to let enterprises from different states transact and settle in other regulated digital currencies.
The white paper noted, “Just as the SWIFT network created the original common standard for messaging between financial institutions across different settlement systems, the UDPN will serve the same purpose for the emerging generation of CBDCs and stablecoins.” The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the most widely used system for transferring funds between banks worldwide. Stablecoins are a convenient way of bypassing SWIFT, as they are pegged to a specific currency or a basket of currencies.
According to Red Date, several global tier 1 banks will engage in proof-of-concept (POC) trials from January to June 2023. They will explore how UDPN addresses the tests of combining digital currency into daily business, banking, and payment scenarios. The UDPN is a distributed ledger technology (DLT) platform that would serve a similar purpose to what the SWIFT network does for banks, except for stablecoins and CBDCs. According to the white paper, the digital asset creation engine TOKO from law firm DLA Piper and tech engineering company GFT Technologies also contribute to UDPN development.
Red Date’s white paper did not disclose the names of the banks taking part in the POCs. Still, representatives from international banks, including Deutsche Bank, Standard Chartered, HSBC and the Bank of East Asia, cooperated in a panel discussion with Red Date at the UDPN launch in Davos. The white paper stated that stablecoins to be used in the POC are also undisclosed; however, it does mention how it only assists CBDCs and regulated fiat-backed stablecoin currency systems as payment methods. “No unregulated public-chain crypto-currencies, such as Bitcoin, will be accepted”, the white paper outlined.
According to the project’s official website, crypto site Bitcoineer mentioned that one of UDPN’s proof-of-concept tests targets CBDCs and how involved commercial banks using the UDPN infrastructure can exchange and circulate a CBDC, and According to the firm’s website, UDPN has been in development by Red Date for nearly two years. Still, because there are few CBDC examples in production worldwide, this use case is more experimental than the others. The paper does not mention Red Date’s involvement in steering China’s blockchain project or the country’s own CBDC, the eCNY or digital yuan. According to the project’s spokesperson, there is no connection between BSN and UDPN, as the latter is managed and governed in a decentralised manner.
Blockchain-based Service Network (BSN) was legitimately established in 2020 by Red Date, state-owned telecommunications giant China Mobile, State Information Centre, and the bank-card clearing service UnionPay. It is a government think tank under the National Development and Reform Commission to push the adoption of blockchain in IT company systems without the engagement of cryptocurrencies. Red Date’s CEO, Yifan He, expressed strong opposition to cryptocurrencies and called them the “biggest Ponzi scheme in human history.” BSN lets companies mint non-fungible tokens on adapted versions of public blockchains without depending on cryptocurrencies.
BSN launched a public blockchain project called Spartan Network, which targets businesses outside mainland China. The network established three open blockchains as forks of Ethereum, Polygon Edge, and Cosmos, with more than ten companies in Hong Kong becoming the service’s first batch of users. However, the government regards cryptocurrencies, including stablecoins, as threats to financial stability and has banned their use.
While China has expanded trials to several cities, the eCNY is becoming the most widely used CBDC in a significant economy. The white paper noted, “Eight other proof-of-concept tests are scheduled for the network, including issuing and circulating a CBDC and bank-issued stablecoin and using UDPN as a payment gateway for e-commerce.” Red Date Technology hopes its new Universal Digital Payments Network will serve the same role as the Society for Worldwide Interbank Financial Telecommunication for stablecoins and central bank digital currencies.