Trade finance and blockchain: now is the time for a network of networks

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A lack of regulation and standardization creates opportunities for businesses that can create a one-stop shop for all blockchain trade finance needs. So who is doing it?

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What if corporates could go to just one place to access all trade finance blockchain services, to pick the best one for their needs, at the best price? What if you could create a sort of Compare the Market for trade finance blockchain – a network of networks?

You’d be onto a winner. Here’s why.

Blockchain offers the hope of something that has escaped the world of trade finance for the last 150 years or so – efficiency.

It has become a familiar idea. Bankers have applauded the arrival of end-to-end trade finance products via blockchain for their own operations and those of their corporate clients for the past five years or so.

Barely a week goes by without headlines about how innovative banks and corporates have successfully leveraged blockchain technology to revolutionize their businesses.

The most enthusiastic would have you believe that blockchain in trade finance is about to take off. In reality, however, it is often more an elusive idea than the new normal. There are a couple of reasons.

Partly it is to do with regulation not keeping pace. In the US, for example, the law recognises negotiable instruments in trade finance only if they are on paper and signed. So where does that leave smart contracts? Not legally binding in the US, that’s where.


We saw very early on that there probably can’t be a single blockchain or cloud solution because … banks probably don’t want to work together 
 - Jonathan Levi, Hacera

And how do you regulate disruptive technology in the first place? For now, it seems regulators can do little more than continue an unrelenting game of cat and mouse: many regulatory moves are already out-dated by the time they come into effect because the tech evolution is just too quick.

Next there’s the question of standardization, or the lack of it.

If you are a business hoping to use blockchain to streamline trade, you might turn your attention to one of the many consortia out there.

As Euromoney has already reported, there are around 30 consortia all working towards using distributed ledger technology (DLT) in trade finance. There’s the Trade Finance Distribution Initiative (TFD Initiative), Corda, Marco Polo, Voltron, we.trade, eTradeConnect – the list goes on.

However, each consortium is made up of a number of different banks using a different platform, and all offering something slightly different. This raises the question of how many applications an organization needs to engage with for one deal.

And more solutions will doubtless become available, complicating the process even further. DIY trade finance over blockchain is not easy.

Opportunity

This might be where the real opportunity lies, back with those corporates navigating the maze of trade finance blockchain, and back to the network of networks.

Unbounded is a platform aiming to do just that. It offers a one-stop shop for individuals and companies that want to use blockchain technology for trade finance and a number of other financial services.

Companies using the platform can find and participate in networks and solutions built on a variety of blockchain frameworks, including Hyperledger Fabric, Hyperledger Sawtooth, R3 Corda, EEA Quorum and Stellar.

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Jonathan Levi,
Hacera

In the words of Jonathan Levi, CEO of Hacera, which developed the platform, Unbounded is a “disrupter of disrupters” – a place where regulatory requirements around blockchain are upheld in a decentralized system.

“We saw very early on that there probably can’t be a single blockchain or cloud solution because, at the end of the day, banks probably don’t want to work together – no matter what messages they are sending at the moment with all the consortia that are popping up,” says Levi.

“They just don’t trust one another.”

What Unbounded has done is to turn the lack of standardization across solutions into an opportunity.

“The best thing to do here is to create something that works across them,” adds Levi. “This has been our thinking from day one.”

More and more people will cotton on to this approach, and so this is where the next level of competition will likely come from. And that’s just as well, since common regulation and standards will elude the sector for much, much longer.