The Universal Digital Payments Network (UDPN) was launched yesterday at the World Economic Forum in Davos. It is a blockchain-based network to provide interoperability between regulated stablecoins and CBDCs. The three organizations behind the initiative are German digital consultancy GFT, Red Date Technology and DLA Piper’s TOKO digital asset initiative.

“The purpose of UDPN is to investigate a potential alternative to existing payment systems by enabling interoperability between fiat-backed stablecoin tokens and regulated protocols,” said Marika Lulay, CEO of GFT. “The decentralized approach and geographic breadth of the participating companies, combined with the advanced technological solution implemented for these tests, set this network apart.”

It plans to work with stablecoins and CBDCs in decentralized and centralized currency systems. It states that it will support fiat-backed regulated stablecoins, but “unregulated public chain cryptocurrencies such as Bitcoin will not be accepted.” Members of the UDPN Alliance vote on the addition of any new coins, and the DLT network is a permissioned network based on Hyperledger Besu.

We wrote about the concept two years ago when the idea for UDPN was first floated as part of the Blockchain-Based Service Network (BSN), a Chinese initiative to enable global interoperability between blockchain networks. Red Date Technology started the BSN, but we noticed that the BSN is not mentioned in the UDPN announcement or whitepaper, so the project now appears to be standalone.

The network has developed a sandbox and is starting with two proofs of concept (PoC). One is for cross-border transfers using digital currency and FX transactions with the participation of Standard Chartered and Deutsche Bank. Another involves implementing the travel rule for stablecoin transfers. This requires intermediaries to transmit payment, payer and recipient details for anti-money laundering purposes.

Several other use cases are envisioned, including enabling the use of stablecoins without consumers needing to hold crypto for gas prices. The company pays for the gas and transfers it denominated in stablecoins. Another use case is tokenization.

UPDN also mentioned three other banks that attended the Davos launch: HSBC, Bank of East Asia and Turkey’s Akbank. HSBC was also involved in the launch of the BSN Spartan Network last year.

The announcement refers to UDPN as a global payment messaging network. In particular, messaging networks generally do not need to comply with payment system regulations. SWIFT is also a payment messaging network, but it is only subject to regulatory oversight because it has become systemically important.