Blockchain in Financial Services

How the benefits of open source blockchain can benefit credit markets

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FinTech companies everywhere are building blockchain solutions. We think ours is unique not only for what it does, but for the open source blockchain technology we’re using as well.

Our company is Global Debt Registry, and we help institutional investors and warehouse lenders better manage risk, improve efficiency and pricing in the credit markets by providing solutions that ensure the integrity of a loan asset.

The opportunity for lower risk, better priced transactions for the credit market

Contracts to fund or buy loans have multiple levels of protection: application and underwriting processes, access to borrower data and documentation, debt servicing contracts and more. Yet when reviewing an extrinsic list of assets, it’s considered impractical to ensure each asset in that list is accurately represented and not pledged as collateral elsewhere.

See how to drive innovation to financial transactions

The potential threat of “double-pledged” assets leads to additional frictional costs and time delays. We’re working to remedy that. Our Collateral Registry application — the first of its kind in the structured credit space — is a private blockchain built to ensure the integrity of loan assets and protect pledged assets on the network from errors or misrepresentation in the future. In the 2008 financial crisis, loan asset integrity issues were a key problem, ultimately leading to the collapse of major financial institutions and widespread job loss.

Permissioned network participants can place pledged assets on the distributed, decentralized ledger. This will generate an immutable record of each asset’s attributes, so anyone participating in the lending ecosystem — including senior lenders, investors, servicers, back up servicers, auditors, analytics firms and ratings agencies — will be able to rely on a single, permissioned view of the asset. Trust is thus built into the asset. All parties involved in the transaction have increased certainty they are looking at the same loan data.

And with this added trust, the various members of a loan trading network find themselves able to transact with one another more effectively than they could before. Parties can work directly with one another, with fewer third-party middleman, to execute the loan process with greater integrity and transparency.

Transparency in credit markets; collaboration in blockchain development

We expect that this level of asset certainty will usher in a new era of transparency, innovation and trust among credit market participants. That sense of openness isn’t coincidental considering the way we’re building our solution with IBM.

In addition to its superior data privacy capabilities (which are crucial to our use case), we found its open source framework to be ideal for us. Phase one of our proof of concept(PoC) tested a simple collateral pledge assignment and release on three separate platforms, including The Linux Foundation’s Hyperledger Fabric. In phase two — writing our complete blockchain application — we used both Hyperledger Composer, which let us write code in a language native to us and while keeping our business goals front of mind, and Hyperledger Fabric for implementation, as well as Fabric to replace server side business logic and backend data services.

We worked with IBM last year as part of their Digital Mentorship Program, and on successful graduation, we are delighted to now be participating in the Entrepreneur Program to help scale the company. IBM echoes our understanding of the primary advantage of blockchain: they, like us, know it’s going to take a new kind of collaboration among many companies to build solutions like this. As participants in the Digital Mentorship Program, we not only had the opportunity to see the roadmap to production, access tools like Hyperledger Composer and learn from the expertise of IBM Blockchain experts. We’re also sharing experiences with other blockchain innovators and engaging extensively with IBM.

This open, collaborative spirit among disparate organizations is unique to the world of blockchain — and after years of working in the ultra-competitive financial services industry, unique to us. But it’s going to take exactly that mindset to build the future risk management infrastructure for capital markets.

From time to time, we invite industry thought leaders and academic experts to share their opinions and insights on current trends in blockchain to the Blockchain Unleashed blog. The opinions in these blog posts are their own, and do not necessarily reflect the views of IBM.

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CEO, Global Debt Registry

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