R3’s fundraising largest ever for a blockchain / distributed ledger technology provider – yet people are talking about banks that didn’t invest.
The blockchain is what made Distributed Ledger Technology (DLT) famous, but now imitation platforms and services are springing up everywhere
The latest major force is R3, an independent group developing innovative DLT for finance services, such as trading, or international money transfers.
Last week, R3 announced that 40 companies, almost exclusively major banks, had invested more than $107 million into the platform.
The banks included SBI Group, Bank of America Merrill Lynch, HSBC, Intel, ING, Banco Bradesco, Barclays, UBS and others. 2 non-financial institutions also invested; Intel, and a Private Equity branch of the Singapore Government, Temasek Holdings.
DLT generates excitement because the technology can drive down the costs, and increase the speed of many financial transactions. The blockchain is essentially a digital ledger that keeps track of all transactions, chronologically and publicy, and encrypts them so that they can never be erased, manipulated or disputed.
3 rounds of investment to build Corda Enterprise
The investment into R3 is only the second tranche of a three-step funding process. The first round was open to all investors. The second required a larger investment, but conveyed certain responsibilities such as governance and the right to sit on committees.
The third and final round is likely to be raised later on this year.
R3 are using the funds to develop its in-house product, Corda. Corda is an “open source” distributed ledger platform. Open source? It means anybody can “plug into” the system, take advantage of its functionality and develop on top of it.
R3 hope that Corda will eventually be able to connect all the major banks and allow them to do business with one another seamlessly. Additionally, participating banks should be able to realise significant cost savings by using Corda.
Corda Enterprise, as the finished platform will be known, will be both independent, but built using funds from all the banks and financial firms that use it. That has always been the major advantage of blockchain style systems – that they are uniquely free from exploitation, corruption and fraud.
Or so the theory goes.
Can blockchain system survive fragmentation of its platforms?
Blockchain is undoubtedly an ingenious and valuable system, that could represent a huge step forward for every kind of financial transaction. Some people are even comparing the rise of the blockchain to the rise of the internet.
But it may not be quite as easy as that to disrupt a multi-trillion-dollar industry, and rewire it “from the ground up”, as R3 have pledged to do.
While R3 celebrated the conclusion of a record round for a blockchain based firm, questions were being asked.
Initially, R3 had wanted an even larger round, of $200m, according to several sources, including CNBC. But that became impossible when 2 founding members of the project, Goldman Sachs and Santander, pulled out.
Then, another founding member, JP Morgan, dropped out.
R3 founders’ response
R3’s founder and CEO, David Rutter, has spoken about the issue, saying:
“It’s been slightly annoying that we have such a massively successful, unprecedented group of investors and members that have come together to build something in a collaborative manner that hasn’t been done before and instead people have focused on one or two banks here and there.”
He also said, “”We’ve kind of proven to a degree that we’ve never seen before that the collaborative model works very well.”
But at the same time, the number of Distributed Ledger Technology and blockchain based software platforms is increasing all the time.
Too many blockchain cooks spoiling the broth?
For example, Ripple’s platform is making significant strides and testing its technology with groups of banks. Axoni is another platform creating custom solutions, and Hyperledger still another industry agnostic platform.
JP Morgan has even developed its own solution, whilst countries like Japan are bending over backwards to give opportunities to new fintech firms. Another competitor, Digital Asset, recently raised $60m in funding.
All of these new systems want to be the one platform that unites all of the world’s financial service providers. The irony is, although DLT was developed to unite the world of financial services and deliver cost savings and transparency, the different service providers are causing the industry to fragment.
Can distributed ledger technology work as it was designed to do when firms favour their own platforms over others?
It is a huge question. The results of decisions being taken right at this moment will reverberate for generations to come.
Did Goldmans quit the R3 project over a power struggle?
One of the rumoured reasons for Goldman Sachs quitting the R3 project? A row over how much power each of the different firms would wield.
Coindesk has reported that R3 is supported by a membership model that sees members pay between $240,000 and $500,000. Financial regulators are allowed to join the platform free of charge.
But is this a viable long-term solution? Will banks attempt to “bully the pot” by investing more than others and trying to establish more influence.
Only time will tell if we face a situation that makes us think of that old French axiom.
“Plus ça change, plus c’est la même chose.”