R3 releases Corda as blockchain strains start to show
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R3 releases Corda as blockchain strains start to show

Even as some original founders withdraw from the R3 consortium of banks developing blockchain proofs of concept, it opens up what could become a key piece of infrastructure for the future of wholesale financial services.

Chain break-600

R3, the financial innovation firm attempting to coordinate a multitude of efforts among a 70-strong consortium of banks and buy-side firms to develop blockchain-based wholesale financial services, released Corda on Wednesday.

This is the distributed ledger platform, jointly developed by leading IT system architects at many of the world’s largest banks, which they hope will be a key underpinning in future for much cheaper and more secure transfer of all manner of financial and other assets.

A key aspect of Corda’s release is that R3 grants the global developer community universal access to its source code so as to encourage collaboration, review and contribution to the platform.


Richard Gendal
Brown, R3

Richard Gendal Brown, chief technology officer at R3, whose hire last year from IBM was pivotal in the consortium quickly gaining credibility, discussed some of the key differences between the bitcoin blockchain that first seized the imagination of bankers in 2015 and the Corda distributed ledger they have now helped to build.

He told a DTCC-sponsored London forum on disruptive technologies on Tuesday: “I call Corda not a blockchain but a distributed ledger or sometimes a decentralized database because it allows counterparties who know each other and who trust each other enough to trade – but perhaps not enough to have the other side manage their own internal books and records – to come to consensus about certain shared facts that are important to them, such as details of a transaction, say, or margin requirements on a deal, very quickly and efficiently.”

Corda is, therefore, very different from the bitcoin blockchain that first inspired it. That operates in an unregulated marketplace where no one trusts anyone, identities are hidden behind pseudonyms and proof of work is required to achieve broad consensus to validate each transfer of tokens and agree who owns what.

By contrast, Corda has been developed for a regulated wholesale financial market and is designed to allow different approaches to consensus for different asset classes.

Crucially, financial agreements on Corda take the form of smart contracts, linking business logic and data to associated legal prose to ensure the trades on the platform are rooted firmly in law.

Not everyone needs to see everything and the design is such that details might be confirmed only between nodes on a network that are the actual counterparties to a particular transaction and perhaps to regulators as well, or central market authorities that require trade confirmation.

David Rutter, chief executive of R3

David Rutter, R3

David Rutter, CEO of R3, comments: “The applications being built therefore need to be based on common, open, interoperable platforms – much like the common protocols on which the internet operates today. Open sourcing Corda is the next step in making Corda one of these platforms.”

R3’s Brown says, in the early stages of technology development: “I agree that premature standardization is almost always a mistake, but we have tried to standardize where we can.” Where for example? “Corda is open source, but with agreed standards for licensing the underlying code.”

This is part of the effort to open up Corda as a platform on which vendors’ and banks’ own coders might in future develop different protocols for transferring, confirming and settling flows not just in financial assets but also in hard assets and in data, such as know-your-customer identity checks.

The release of Corda comes after a torrid few weeks for R3 in which a number of the first wave of banks that founded the consortium decided not to renew their $100,000 annual membership fees. The biggest intrigue centres on the decision of Goldman Sachs not to renew, while it appears Santander has also decided not to, as well as later joiners including Morgan Stanley and National Australia Bank.


These decisions come as sources tell Euromoney R3 is in the midst of restructuring an institutional funding round in which it hopes to raise $150 million mainly from consortium members. The target size has been cut from the $200 million first mooted in the summer, with the ownership percentage to be divided between consortium banks also cut, reportedly from 90% to 60%.

These sources see two different forces at work behind the recent high-profile departures from R3.

The first is the traditional power struggle familiar to any consortium of banks that want to work together on a particular market structure project while still competing ruthlessly in the same business line.

One source recently departed from a member bank says: “Seventy banks is a lot, even though R3 has been smart about splitting members into smaller working groups to develop proofs of concept for blockchain in many different markets.

“That rapid growth in membership raises issues of control and governance when banks start to ponder a $5 million to $10 million venture capital investment instead of a token annual membership fee. You can just imagine the machinations over how much financial ownership each bank will have and how much control.”

Another source at a technology firm adds: “It amuses me that some people are now saying that the blockchain bubble has burst and that it won’t really change markets very much. This is still early days, but it will transform them. And that’s what I think this may be about.

“As banks come close to moving beyond collaboration to share the initial cost of proofs of concept towards actual production, the instinct to try to steal a march returns with a vengeance. Yes, blockchain needs networks of users coming together, but there is also a sense that it is the lead innovators that will make most, not the fast followers. There was some considerable debate, I believe, about this whole question of open sourcing Corda.”

For those banks that remain in R3, that debate is over. Brown has said in the run up to the open launch of Corda: “Distributed ledger technologies will have such phenomenally powerful network effects that it is unthinkable that serious institutions would deploy base-layer ledger software that is anything other than fully and wholeheartedly open.”


Robert Palatnick,

The rivalries and controversies bubbling beneath the surface of joint collaborative development in the past 18 months and now coming to the surface might be a sign not that the blockchain is broken but that it is about to envelop wholesale financial services. 

Robert Palatnick, chief technology architect at DTCC, told the disruptive technologies symposium in London on the day before Corda’s launch: “The distributed ledger technology we are working with today if very different from one year ago. It considers privacy, resiliency, scalability. It is much more designed for the wholesale financial industry.”

Michael Bodson, president and chief executive of DTCC, argues that while the infrastructure underpinning the global markets today is mostly reliable, efficient and cost effective, it was developed over the course of decades, often piecemeal, and as a result it is overly complex and siloed.


Michael Bodson,

Distributed ledgers now “create a unique opportunity to re-imagine and modernize the industry’s infrastructure to address long-standing operational challenges”, Bodson says.

However, R3 and Corda are not the only games in town.

“The need to avoid duplicative approaches to similar industry challenges and the importance of collaboration was also crucial in forming the Hyperledger project, a consortium promoting open-source development for stakeholders looking to advance blockchain technology,” Bodson says.

“As an active participant, we believe that the basic building blocks of this technology should be open source and not individually owned, which is the core mission of the Hyperledger project.”

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