In May this year, fintech start-up R3 raised $107 million from a consortium of the world’s top banks. The New York-based blockchain company that works in collaboration with more than 90 banks and other financial organizations world-wide, plans to use the money to invest in further developing the Corda platform (see my blog: Corda: distributed ledger ….. not blockchain! April 6, 2016) as well as “encouraging entrepreneurs to start building on the platform though training videos and hackathons”.   

Fundraising

R3 gained momentum when it achieved this record distributed ledger technology funding in its last funding round. This figure that was raised by 40 institutions from more than 15 countries across the world (including names like Barclays, SBI, UBS, Bank of America Merrill Lynch, HSBC, ING, and Wells Fargo), is known as the largest single investment in a blockchain company to date. This is also seen as a signal that R3, with their Corda Platform, is moving in a right direction, according to many in the banking industry. This notwithstanding some of the early members left.

“R3 will use the funding to: [A]ccelerate technology development and expand strategic partnerships for product deployment. The company’s efforts will be focused on Corda, R3’s DLT platform for regulated financial institutions, and its infrastructure network, which will support a vast range of partner-built financial applications that interoperate seamlessly with each other, existing systems and networks.” R3’s press release

New members

Notwithstanding a number of early partners left the R3 consortium including JP Morgan, Goldman Sachs and Santander, it still attracts new members showing their viability in the blockchain arena. Like the Bahrain based Bank ABC (Arab Banking Corporation), Abu Dhabi Global Market and the International Trade and Forfaiting Association (IFTA). The latter will be involved in the various trade finance projects. Recently also the Banco de la Republico Colombia, the Colombian central bank, joined the R3 consortium. The partnership with various central banks is part of R3’s plan to diversify its consortium membership by the addition of financial regulators and government agencies.

Corda Platform

Corda platform: not a blockchain
The consortium, led by R3, developed its own distributed ledger technology called Corda over several years of research and development. Corda is described by the company as the world’s “only distributed ledger platform designed and built from the ground up to record, manage and synchronise contracts and other shared data between trading partners”.  

Similar to other blockchains like Bitcoin and Ethereum, Corda allows for the creation of immutable recording of financial events. However, unlike other blockchains, Corda was designed specifically for financial institutions and the unique problems they face. Namely the requirement for privacy in transactions. Corda’s distributed ledger allows for financial institutions to transact privately but with immutable recording

The Corda platform however is not a blockchain according to R3. The company does not want to characterize Corda as a blockchain even though it does share some of blockchain’s key attributes, but R3 lists the differences as “fundamentally coming down to its lean-size, plug-ability and proposed use cases”.

“There is no blockchain. Transaction races are deconflicted using pluggable notaries. A single Corda network may contain multiple notaries that provide their guarantees using a variety of different algorithms. Thus Corda is not tied to any particular consensus algorithm.” Corda, lead platform engineer Matt Hearn

Corda as a blockchain app store
R3 does not actually build software to tackle the various problems to be solved. Instead it builds a platform for these solutions to be built on. Corda is a blockchain-based platform that can be used by developers to build apps for banks using their own bespoke or third party software. The Corda Platform is described as “the operating system for finance” compared to a platform like Apple’s App Store.

As an open source platform, Corda can be built on by third party providers who can then operate and earn revenue from distributed ledger applications using the platform's common code and protocols to enable interoperability.

"Corda is a completely open system that is going to empower entrepreneurs to be able to build Corda apps, roll them out, and actually have them be adopted because they will work with the current financial rails, in a way that is cognizant of and compliant with the regulatory regime." David Rutter, CEO of R3

R3 launches version 1.0 of the Corda Platform
R3 has taken a step forward with its Corda distributed ledger platform, with the launch of a new blockchain version targeting easy implementation of the technology. R3 released version 1.0 of its Corda distributed ledger platform early September. This codebase, known as CorDapps was developed as part of the collaboration between R3’s consortium partnered financial services and technology institutions, and will be an open source release. It is made for the development and implementation of applications on the platform.

“Corda is the most inclusive, open platform in the marketplace, and the launch of v1.0 signals to our rapidly growing ecosystem of partners that they can build on the platform with complete confidence.” David Rutter

The Corda platform is “selling” itself as a solution to a number of key problems in the present global commerce, that come from the huge multiplicity of data systems, recording techniques and storage techniques. The release of Corda 1.0 is seen as an important milestone because it means the platform has achieved API stability for the first time.

“This is a critical landmark on the industry’s path to widespread adoption of enterprise blockchain technology and DLT and it is a promise that no other competing platform has made.”  “This is a significant moment for the evolution of distributed ledger technology. Most other platform providers don’t commit to this. Their early adopters risk being trapped in evolutionary dead ends as the platform evolves in incompatible ways. With Corda v1.0 we are protecting CorDapp developers from this fate – this is the firing of the “starting gun” for real development and deployments to start in earnest.” Richard Gendal Brown, CTO of R3

With the launch of version 1.0, the implementation of applications will be enhanced. This is important because it means that developers can now build applications on the platform, and continue to upgrade as the platform matures with knowledge that the core APIs won’t change.

Projects
In his May 2017 strategy announcement, R3 chief executive officer (CEO), David Rutter, said that the plan is intended to expand the company’s pilot projects for Corda. R3 is thereby working closely with consortium members banks to understand what they want about the technology. There are several themes that banks are interested in when it comes to deploying distributed ledger technology ranging from trade finance to global digital identification, post trade processing and payments. That is also mirrored in the various pilot projects.

Open account trade finance business network
R3, trade finance technology firm TradeIX and twelve financial institutions (including Bangkok Bank, Barclays, BBVA, Bladex, BNP Paribas, Commerzbank, CTBC Bank, ING, Intesa Sanpaolo, Shinhan Bank, Royal Bank of Scotland and Wells Fargo) have announced an initiative focused on the overhaul of open account trade finance infrastructure

They are developing an end-to-end open account trade finance business network which will be powered by TradeIX and R3's Corda distributed ledger platform. The prototype will be customised to meet the needs of participants across multiple geographies. This initiative will provide open account trade solutions to include a suite of trade specific APIs and technology tools, a rules engine, and an open, standard core infrastructure for trade data, contracts, and transactions.

This will enable financial institutions to automate pre- and post-shipment financing and risk mitigation for corporate buyers and sellers around the world. In turn, corporate buyers and sellers gain access to API-driven technology solutions that can help simplify trade, improve visibility into trade flows, and provide access to much needed credit and risk mitigation services at critical points in the trade lifecycle.

Voltron prototype platform
Global banking blockchain consortium R3 is soon launching its first pilot commercial product to the market. R3 has worked over the past year with 11 of its member banking companies (including Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Intesa Sanpaolo, Mizuho, RBS, Scotiabank, SEB and US Bank Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Intesa Sanpaolo, Mizuho, RBS, Scotiabank, SEB and US Bank) and the technological partner, CGI Group) in developing Voltron, a prototype platform for the digitization of the documentation processes of trade finance, that puts exporters and importers in contact, in order to improve efficiency in trade finance.

The product is aiming to simplify the trade finance process, which still relies on letters of credit. The idea is to build a shared, up-to-date database of global transactions that could be made widely available in 2018. The application, developed on the R3 Corda Platform, has the potential to significantly reduce the inefficiencies and costs of these operations, by simplifying the processes involved in the documentation of letters of credit.

Still in the prototype phase, the tool functions as a marketplace in which importing and exporting companies can prepare/validate the details of shipments of goods on a shared and synchronized data base, even if they operate on different platforms. In this way, banks would avoid spending billions of dollars each year on writing APIs between trading and order management systems.

“Corda is a completely open system that is going to empower entrepreneurs to be able to build Corda apps, roll them out, and actually have them be adopted because they will work with the current financial rails, in a way that is cognizant of and compliant with the regulatory regime.” David Rutter

Fusion LenderComm platform
R3, Finastra (a fintech firm formed this year by the merger of Misys and D+H) and seven major banks (including BNP Paribas, BNY Mellon, HSBC, and ING) are working together to create a distributed ledger technology (DLT) based platform for the syndicated loan market. This platform  called Fusion LenderComm, is scheduled to be commercially launched next year. The Fusion LenderComm platform is designed to improve the data sharing activities between agents and lenders, with the ultimate goal of bolstering efficiency and transparency in the syndicated loan market.

“They already successfully concluded the first set of pilot runs on the prototype system in August 2017” “More pilots are planned in the coming month. Development sprints continue towards the final objective of go-live next year.” Ian Morris, Finastra head of product management, corporate and syndicated lending

Fusion LenderComm aims to reduce the operational cost and burden of agent (bank) to lender administration and deliver self-service capabilities to lenders, providing information on demand to optimize loan portfolios. The solution will show real-time credit agreement, accrual balances, position information and detailed transaction data to lenders, directly from agent bank loan servicing platforms such as Finastra’s Fusion Banking Loan IQ.

The solution is underpinned by R3’s DLT platform Corda. Corda is thereby used to create workflows and rules for the dissemination of deal information via the Fusion LenderComm agent portal. Through their own portal, agents can define and then publish lender-specific deal position data to Fusion LenderComm, “so individual lenders can drill down into the data without needing to query positions on the phone or via email, as is typical today”. Highly secure nodes on the network maintain all transaction history, giving every lender a personal view of deals they participate in and a time-stamped audit trail.

Blockchain Prototype app for regulatory mortgage reporting
R3CEV, The UK’s Financial Conduct Authority (FCA) and two banks including RBS (the other declined to be named) have joined forces to develop a blockchain-based prototype application for the regulatory reporting of mortgage transactions.

“Our members are some of the most heavily regulated institutions in the world, and so streamlining and improving regulatory reporting has been a key consideration as we develop Corda. Bringing regulators and banks together in projects like this is the only way to develop effective, futureproof solutions that meet the needs of all parties involved.” David Rutter

“[This area] is an opportunity for us to understand how we can best support developments and potentially adopt some RegTech solutions ourselves.” FCA head of strategy Chris Woodward

The prototype is built using R3’s Corda DLT platform. Corda’s technology allows the application to provide a single, immutable record of mortgage transactions and interpret regulator rules on a distributed ledger. The prototype enables banks to generate automated delivery receipts for the FCA each time a mortgage is booked. This may reduce the cost of the process and the risk of error.

“The FCA prototype can give the regulator a new tool capable of overseeing mortgage activity much more quickly and efficiently than before whilst greatly reducing data inconsistencies.” “Another key benefit for the regulator is an anticipated reduction in the amount of work required when processing reports, which are usually sent out in a wide variety of formats.” RBS head of emerging technology, Richard Crook

The project participants expressed their intention to continue working with R3 to move towards a live pilot of the solution. For that purpose they will engage with other UK mortgage lenders, the academic community, and other regulatory bodies to receive feedback for shaping a production-ready version.

LEIA2 – KYC project
Synechron, a New-York based financial services consulting/technology services provider, has announced a distributed ledger technology (DLT) collaboration with R3 to develop a KYC solution built on  Corda. The solution will build upon a point-to-point, secure and self-sovereign vision toward digital identity and verifiable corporate data.

The project, that includes 12 banks located across 4 continents, started in July using a three-month period to identify objectives and business requirements, define a roadmap, and develop a functional prototype on top of the Corda platform.

Known as LEIA 2, the project aims to reduce the cost of KYC processes and achieve the long-term vision of digital identity, by solving the problems around data collection, data validation, customer experience and data privacy in current KYC processes in corporate banking.

“This project builds on the success of LEIA1 with a use case that will be foundational in many other financial services use cases that rely on identity. Corda's handling of identity is unique for a DLT platform and was designed to meet the specific needs of the financial services industry." Todd McDonald, Co-Founder of R3

ECP platform
ABN Amro, Commerzbank, ING and KBC are collaborating with R3 to develop an operating model for an ECP issuance and trading marketplace on Corda distributed ledger technology platform. The project demonstrated the ability to issue and sell ECP on a distributed ledger showing reduced costs of market intermediaries, reduced operational risk and inefficiency, and enhanced transparency of the ECP market for regulators. The four project participants will continue working with R3 to move from experiment to possible production. This will involve engaging with software vendors, thought leaders in the short term debt instrument ecosystem, as well as the regulatory community to showcase the prototype solution and receive feedback for a possible production ready platform.

"Collaboration in pursuit of overcoming a shared industry challenge is the ethos that R3 was built on. As we continue to develop Corda the learnings from these proof of concepts allow us to ensure the platform can be applied to a vast array of different scenarios, processes and asset classes." David Rutter

Collaborations

Thomson Reuters
Thomson Reuters is opening up its data to smart contract authors building on private versions of the Ethereum blockchain and R3's Corda distributed ledger platform. A 'smart oracle' called BlockOne IQ (B1IQ) is designed to power smart contracts with the kind of reliable financial information required to let counterparties transact without a middleman. Oracles are adapter-like mechanisms that bridge the gap between web-based APIs and the blockchain. This launch opens up access to the growing decentralized application market for the data needed to facilitate more sophisticated transactions.

The data being made available is useful for actions including the payment of dividends, stock splits "and anything where the company’s equity is impacted by some sort of action. Organizations are now able to represent real market conditions more accurately in their proof of concepts by using the smart oracle, BlockOne IQ, to include current and historical market data within their applications, with cryptographic proof that Thomson Reuters is the source.

“Bringing trusted and secure external data to the blockchain ecosystem will be hugely beneficial,” “This move is coinciding with rapid expansion of new alternative data sets in capital markets and an extraordinary level of innovation across both public and private blockchains.” John Dwyer, Senior Research Analyst Celent.

Currently, the smart oracle is only experimental. While Thomson Reuters is targeting the larger members of R3 and the Enterprise Ethereum Alliance, the oracle can only be used as part of any organization's proofs-of-concept, just not in live applications. Thomson Reuters plans on opening up access to data to additional blockchain consortia, including the Linux-led Hyperledger project. (The company is part of both Hyperledger, R3 and the Enterprise Ethereum Alliance.)

Hewlett Packard Enterprise
R3 has partnered with Hewlett Packard Enterprise to run Corda on HPE's Mission Critical Systems platform. HPE and R3 will bring Distributed Ledger Technology (DLT), including blockchain, to workloads that need to run at enterprise scale. A proof of concept created in collaboration with HPE Labs, HPE Mission Critical Systems and R3 demonstrates Corda running on the HPE Integrity NonStop Platform, delivering the resiliency and scalability enterprise customers demand as they bring their DLT applications into production.

Microsoft
R3 is one of the initial adopters of the Microsoft CoCo Framework (see my Blog: Microsoft CoCo Framework: blockchain game changer? August 28, 2017) next to Intel Sawtooth Lake and J.P. Morgan Quorum. They have agreed to integrate their blockchain ledger platforms with the Coco Framework.

The Coco Framework is intended to advance enterprise adoption of blockchain technology. Current blockchain protocol technology requires complicated development techniques to meet the operational and security needs of enterprises. The Coco Framework aims to reduce this complexity, and when integrated with blockchain networks addresses critical needs for commercial adoption like high-transaction speed, distributed governance and confidentiality.

The Coco Framework will be compatible with any ledger protocol and can operate in the cloud and on premises, on any operating system and hypervisor that supports a compatible TEE.

Corda as the blockchain app store

Apple has proven its flexibility and viability with its App Store. That could also become the case with the Corda Framework described as the operating system for finance.  The various projects that are now running to develop these blockchain-based applications and the collaborations with the likes such as Thomson Reuters, Hewlett Packard and Microsoft are at least the first indications.

"You should really think about us being the operating system, the platform, the app store, a bit of the distributed ledger technology, the foundational pieces that allow you to utilise all of the infrastructures and really build an application that means something to you and your business and to you and your customers." David Rutter