February 09, 2021
Igor and Parth are working towards the MVP of their product at the time of recording the interview. They are Interpreters in Residence at R3. Also, R3 and the University of Cambridge are their investors.
Who are you, and how did you start?
We are an early-stage start-up out of the University of Cambridge. We were part of the R3-sponsored project about how DLT could solve pain points in the investment industry. We had an idea that asset managers should drive their demand on the market. A big problem is that most asset managers have a scarcity of quality of assets they can source and invest in. And here Corda is the means of issuance and administration of debt assets.
Our initial prototype is a reverse and query engine — it’s a way for investment businesses to directly interact with the sell-side. We went to a lot of these institutions to offer their MVP in London. From their feedback, we realize that our proposition needs finessing. And we decided to participate in a couple of accelerators. One of them is outlier ventures — the blockchain accelerator in London. Then we went to join the f10 accelerator, which is supported by R3, and were part of the Singapore cohort. Both accelerators helped us to finesse their proposition, and now they are building towards MVP, which is due to be launched as a pilot.
What problems are you solving?
Our initial project in Cambridge had the aim to assess applications of DLT for debt capital markets. The way the investment industry functions in a broad sense is inefficient because there is an asymmetry of information. And most investment managers whose job is to source investment for their portfolios and generate return are unable to do so. One of the reasons is that they cannot easily access the full breadth of opportunities that are available in the market because of fragmentation and opaqueness, especially for private assets. The information asymmetry and inflexibility in the market towards assets can be addressed to the benefit of an investor’s portfolio. We are trying to build a product with better means of asset origination and asset sourcing and then ultimately execute investment businesses. Our target clients are prominent multi-mandate asset managers who have extensive portfolios of over a hundred billion pounds under management, who want to find a quality investment. We are designing a broad product to source assets and administer their lifecycle.
How does distributed ledger fit into this picture?
A distributed ledger is a profound technology — it enables the creation of a virtual trust. Corda specifically is a very powerful tool for allowing mutually distrusting parties to transact with trust privately. The ability to transact between two parties securely is fundamental for a financial workflow. And the administration of the lifecycle of investable assets. This is what we target with Corda and DLT in general. We are not looking to solve the problem of giving investors inside of all the opportunities. It’s all a traditional insights data analytics approach. But we are creating a legally binding contract between two parties, especially regarding private assets that are more flexible, and request some conditions on them. Suppose we are talking about doing them in an old-fashion way. In that case, we are talking about appointing a custody bag, registrar under a very sophisticated, and offering to do this differently. We are creating a digital assets capability to back it up. For example, suppose two parties agree to issue a debt, which is a fixed income asset. In that case, we can facilitate this on the ledger transparently. We guarantee that the asset should behave in a way that should behave without appointing many intermediaries to look after that. It brings down costs of transactions of those assets, which ultimately improves returns on the portfolios that this asset belongs to, which improves returns on pensions or returns on your savings, ultimately where these benefits come to everyday people.
What kind of transactions are you doing?
When a company borrows money from another company — this is what debt asset is security describing agreement to borrow money. There is typically a coupon payment that happens, for example, annually, which is a payment of interest that occurred on that debt. It is paid out from the company that borrowed money to the company that lent money.
At the end of the term for debt, the principal, which is a reminder amount, is paid back to the lender company. So, this is an essential lifecycle event. But things are getting interesting when we are considering complex transactions. Suppose the interest rate for the debt depends on the external conditions, like the country’s economic performance, linked to the inflation rate. You are not sending a fixed amount of money every year; you need to calculate this indisputably. Suppose the Bank of England published an official interest rate. This is one of your calculations’ indicators, which are incorporated in a trusted way, so companies don’t dispute whether they assume to receive a different amount. This is one example where the nature of distributed ledger allows to cut a lot of operational overhead, which are traditionally associated with ensuring these assets are executed correctly and timely. It’s where we think of the excellent potential for Corda, which was undoubtedly designed with these use cases in mind.
How is DLT beneficial here?
Imagine you base your calculations on an official rate published. Suppose this is needed to be calculated by a company independently, which are supposed to pay out, and another party needs to receive it. In that case, they do it alone, and they duplicate the same processes. They have different people, systems, and algorithms doing the same work twice — which means this transaction is twice as expensive to do. First, if we considering smart contracts that can have this algorithm embedded indisputably, it only happens once. The data that these calculations have done is only present once — it’s essentially a consistent record from both sides of the transaction what is supposed to happen, and there is no need to mirror the process. There is no need to double-check. I just described a tip of the iceberg of Corda’s benefits; other stages include transaction reconciliations — whether the payments are supposed to have been made. How do we deal with disputes if, for example, one party says that it received ten times less payment than expected, they have to run legal processes — all these things like workforce costs, payment delaying are accumulated into the cost of a transaction. That is a problem that we are trying to tackle with the use of distributed ledger technology.
Why you chose Corda, and have you considered different DLT?
Initially, it wasn’t a straightforward decision, and we considered several different options. We felt it has to be compatible with the way large institutions like asset managers think this. We ruled out all public blockchains because the privacy of transactions is not there — this is a critical aspect in capital markets. Because in a public blockchain, you provide information about all your transactions that happen, and people will take advantage of you. We also ruled out things that are not necessarily public but still based on a singular record in the form of a blockchain. For example, hyperledger wouldn’t be a good fit because it’s just a single list of records where all participants store their data. It has channels, but they are not as flexible as Corda. We realized it is what we need is transaction-level privacy. We want people who participate by default in a transaction to be aware of it, and we don’t want to do anything to hide this transaction from the rest — it has to be provided by design. It will be a lot of work to achieve those aspects using generic DLTs with no added benefit, just more work for us. Secondly, we wanted to work with a DLT with an open-source core and a community around that. We considered several proprietary technologies that have similar capabilities. And since we are a very small team, we didn’t feel that we get traction with a vendor of that platform. Corda hit both considerations pretty well; that’s why we stick to it. Additionally, R3 provides enough support from the very beginning.
We also discussed how they run Corda Nodes for clients, and they answered many questions from the audience. The full interview is here: https://www.youtube.com/watch?v=6_XYdUpRI5A.
— Dr. Iryna Tsimashenka is a Developer evangelist at R3, an enterprise blockchain software firm working with a global ecosystem of more than 350 participants across multiple industries from both the private and public sectors to develop on Corda, its open-source blockchain platform, and Corda Enterprise, a commercial version of Corda for enterprise usage.
Follow Iryna on Twitter here.
Live Conversations with Bond180 — Interview summary was originally published in Corda on Medium, where people are continuing the conversation by highlighting and responding to this story.
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