Archive
8 minutes

The influence of Fintech on financial services has been growing for several years. At Softjourn, we believe that staying aware of where fintech is going is absolutely critical and therefore we follow the latest financial trends. As a result, we’ve developed many innovative solutions for retail banking. According to the research1, 77% of Financial Institutions are expected to adopt blockchain as part of an in-production system or process by 2020.  We are not waiting — we are already building blockchain-based applications.

A Blockchain Hackathon

The European Investment Bank (EIB) Blockchain Challenge, the first competition of this kind organized at the EU bank, took place in Luxembourg between the 13th and 15th of June, 2018. This two-day (and two nights!) event was aimed at stimulating the creation of a financial instrument based on the blockchain technology.  

During this EIB Challenge,  Anatoliy Okhotnikov, Head of Engineering at Softjourn, and Valeriy Sukhotskyi, Softjourn Java developer created and presented a solution that demonstrates the streamlined “Commercial Paper” flow using Quorum blockchain. The Softjourn pair proposed to use some of the existing proven elements with blockchain (evolutionary architecture) which make it possible to create a Smart Commercial Paper. The goal was to streamline and process quicker, all at a lower cost.

Softjourners and the European Investment Bank Blockchain Challenge

The Bank’s Need

EIB issues short-term debt issuance through the EIB Global Commercial Paper programme (CP). Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. It is usually cheaper than bank loans. The EBI borrows the short-term funds necessary for the performance of its tasks on the international money markets mainly under its CP.

The goal of the Blockchain Challenge was to develop a solution that makes it possible to create commercial papers according to the given assumptions.

Why blockchain?

Blockchain is a distributed ledger recording technology. Participants of the blockchain system are interconnected via a peer-to-peer network. The main element of the blockchain technology is a distributed database that maintains a continuously-growing list of records called blocks. Blocks are the containers including transactions. A transaction represents any change in the database. The integrity of the transactions is ensured by cryptographic techniques.  One of the greatest advantages of blockchain is that once a transaction is completed, it is automatically recorded and no one can change it. Among the many advantages of this technology, the most important in this case are:

Security

  • Decentralization (consensus mechanism)
  • Transparency and trust (control over information)
  • Immutability (data modification is not possible)

Optimization

  • High availability (P2P network)
  • Simplification and unification (single shared ledger)
  • Speed (one single attribute needed to identify a person)
  • Cost saving (no clearing houses needed)

The Softjourn Solution

The streamlined flow is focused on the Smart Commercial Paper creation which is based on interactions between the EIB Front Office Liquidity Management, EIB Middle Office, EIB Back Office Treasury, Issuing and Paying Agent, International Central Securities Depository and Investors. The Smart Commercial Paper is going through a stream of evolutionary changes from published rates through to the settlement. We guaranteed separate roles for each stakeholder to work on the paper at each moment in reference to its current state. The smart-contract is self governed and checks permissions in real-time. When we issue a new Commercial Paper, the system deploys a new smart contract template automatically. Then it goes through the number of stages following the straight value flow.

Why smart contracts?

Instead of manual paper work, smart contracts as computer programs automate tasks, reducing time and money. Being a part of a decentralized system, they don’t require human intermediaries. A smart contract not only defines the rules and penalties around an agreement in the same way that a traditional contract does, but it can also automatically enforce those obligations.

Why Quorum?

The solution is based on the Quorum™ blockchain platform, which is an enterprise-focused version of Ethereum. Quorum is ideal for any application requiring high speed and high throughput processing of private transactions within a permissioned group of known participants. Quorum addresses specific challenges to blockchain technology adoption within the financial industry and beyond. The platform is actively developed by JP Morgan ChaseBNY Mellon and a number of other major banking players.

What is next?

In the proposed design, the existing tooling should be integrated as the means of the external oracles (bridges between the blockchain application and external non-blockchain application or data source), based on the proposed evolutionary architecture. For example, Bloomberg terminal functionality could be integrated by the means of a blockchain bridge into the EIB smart commercial paper blockchain or Bloomberg can join the new platform as a member participant. The same approach could be applied to the other parts of the system, like SWIFT messaging which could be replaced or integrated in the future. Flexible architecture with the self-governing smart contract allows for the creation of other types of instruments, like smart bonds and so on.

The Benefits

Ultimately, we believe that Blockchain solutions will be implemented in future use cases and will support the technological growth of a country or remote area.  

“IB is responsible for investors’, and EU taxpayers’ money, so our solution will make sure that the process is as fast and as cheap as possible and blockchain will make sure the Commercial Paper is processed clearly, fast & securely and investor gets its value

Anatoliy Okhotnikov, Head of Engineering at Softjourn

1PWC (2017). Redrawing the lines: FinTech’s growing influence on Financial Services. Global FinTech Report.