Innovation in Commodities Markets

At Kynetix, we quickly realised the potential benefits that blockchain and distributed ledger technology (DLT) in general could bring to the ecosystem in which we operate. After publishing a well-received white paper, we launched the Commodity Blockchain Consortium in November 2015, which brought together a number of significant physical market participants with whom we are now developing 3 real-world use cases.

Challenges faced by Commodity Markets

Our heritage lies deep within connecting the physical economy to the financial markets. This includes the dematerialisation of physical documents notoriously used across the value chain.  From warrants and receipts to bills of lading, Sentinel has been successfully deployed across a number of global exchanges to enable secure, transparent and legally binding electronic title transfer and settlement.

Leveraging our heritage and expertise in these areas, we are uniquely positioned to marry these challenges with latest developments in DLT. Whilst the wider DLT community is largely focusing on instantaneous settlement, within the physical economy there are many factors outside of the market’s control such as the weather and geo-political factors that may restrict gains in instantaneous settlement that we see greater value in:

  • Provenance of physical assets
  • Unlocking of collateral
  • Faster and broader access to finance
  • Removal of manual processes and paper
  • Enabling scalability of the ecosystem

We deal with assets which are often stored in warehouses, silos, sheds, containers, barges and trains…or all the above. We ensure that these assets are transparently represented – from their location, grade, quantity and provenance to give confidence to the financial markets to interact with them. Today, this is mostly done through traditional methods such as the issuance of paper in a market that is historically resistant to incremental or wholesale change and remains highly susceptible to fraudulent activity.

It should be noted that DLT won’t remove the need for storage inspections and strict legal governance of any ecosystem but would provide a more robust framework to underpin these activities. Kynetix is at the forefront of initiatives in this space working with a workable number of participants including investment banks, storage owners and additional expertise from Imperial College London.

 

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