Blockchain Technology for the Commodities Markets

Kynetix has worked in the financial and commodities markets for over 20 years and has unrivalled experience building world-class platforms that connect the financial sector with the physical economy.

Through our experience and expertise in building platforms such as ICE Guardian and LMEsword, we have designed and built a new and improved solution, Sentinel.  Sentinel brings together participants across the commodity supply chain including commodity producers, warehouse keepers, commodity owners, exchanges, trading companies and financing banks onto a single transparent market infrastructure platform.

From the dematerialisation of assets, secure and trusted electronic title transfer, proof of ownership to physical deliveries and settlement, Sentinel creates the distributed ecosystem which enriches the transparency required for the greater participation of financial institutions in the physical economy.

At Kynetix, we quickly realised the potential benefits that Block Chain technology, in particular the distributed ledger technology (DLT) 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 would not remove the need for storage inspections and strict legal governance of the 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.

 

Get in touch today to discuss how we may be able to help.

If you would like to know more about this service or anything else, please get in touch and a member of our team will get back to you.

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