Every blockchain needs an ecosystem to thrive on, helping them to get the network effect that they want for their users. A new platform, featuring a private and permissioned blockchain, is in the works from CLS and IBM called LedgerConnect.
LedgerConnect will act as a blockchain “app store,” which will give banks the ability to utilize distributed ledger technology (DLT) solutions. These programs are setup by both fintech and software providers, allowing the vendors to support bank customers. The new program was announced on Monday, and the project will get the benefits of both a trading utility token that is already owned by the banks (CLS) and a major software conglomerate (IBM). Some of the founding banks in this project include Barclays and Citigroup.
In total, there are nine different banks that are involved in the proof-of-concept (PoC). Some of the vendors that have contributed their help and services, including Persistent Systems, Baton Systems, SynSwap, Calypso, OpenRisk, Copp Clark, Mphasis, and IBM.
On LedgerConnect, the use of DLT is applicable to multiple services that banks already offer, like KYC, sanctions screening, collateral management, and market data, among others. The program will also help with the connectivity issues that impacts both upstart fintech and tech firms deal with. This gap will help banks with the costs and the complex nature of hosting their own networks, which means they will have more flexibility in the market.
Keith Bear, who is the vice preside of financial markets within IBM, told CoinDesk, “Having a secure network and proven infrastructure allows an app store kind of model, where banks can identify applications from certified fintech and software providers and deploy these apps over a seamless blockchain network.” For banks like Barclay, which has some of the most activity of any bank that presently deals with DLT, the app store is the best way to see how this tactic plays out.
The head of the CTO office at Barclays, Dr. Lee Braine, discussed that there are multiple utilization options that will help the industry learn how to offer DLT for different environments. Dr. Braine said, “Some banks may also look to explore the more decentralized deployment option of hosting their nodes themselves. By participating in the LedgerConnect proof-of-concept, Barclays is gaining experience of a distributed ledger private network aimed at connecting both market infrastructure-hosted nodes and bank-hosted nodes.”
LedgerConnect is hosted on a permissioned blockchain, and it primarily uses IBM’s blockchain platform. IBM’s platform was actually setup on Hyperledger Fabric, which is also what every app in the store is setup on as well. As the founders make progress in the maturity of this technology, they are available to other blockchain solutions for the enterprise. As the head of innovation and solution delivery for CLS, Ram Komarraju said, “We are not averse to supporting other ledger implementations, whether it is R3's Corda, whether it is Quorum (provided these techs are robust and can meet the needs we have from security perspective etc.).” However, he also commented that they company’s plan is not to “be limited to one technology only.”
The Original Blockchain Consortium
Some experts consider CLS to be the first of many blockchain syndicates. The company was established back in 2002, which was six years before blockchain was even created, but it gave them the time they needed to develop the right coordination for FX trades. It started testing blockchain technology in 2016, which was earlier that Hyperledger’s efforts began, and it was when R3 still was not going public.
To give the blockchain a more formal approach, CLS changed their work into CLSNet, which allowed the company to test the potential of their blockchain. By matching and netting trades with currencies separate from the platform, the younger technology could be kept separately. Komarraju said, “There is a lot of trade processing we do for banks and buy-side firms, without getting to the last mission-critical aspects of settlement itself.”
As a result, CLSNet has the privilege of being the first application offered within the LedgerConnect portal. While they continue to add other apps, each one is chosen for their potential ability to eliminate data duplication and to produce new reconciliation methods. On this note, Komarraju added, “Look at capital markets today, every bank has its own silo office systems even though they are trading typically with a counterparty that has the same type of business logic but using the same technology stack.”
LedgerConnect seems to be a way to collect all of the different types of infrastructure they have picked out and combine them into something more usable by banks. However, there is no way to ignore CLS’s important role in laying out the groundwork for this utility.
PoC Fatigue in the Industry
The reason that LedgerConnect is so far from the way that other PoC’s work is because of the advancements that they have made on their own. Even though there are limited banks that are outing their role in the app store, which does not mean they are unprepared. In fact, Komarraju even says that LedgerConnect is actually “in the very late stages of proving the technology.”
In light of this information, some experts and investors have been questioning why the involved banks and fintech conglomerates have been so quiet about the involvement. In fact, even LedgerConnect has not released a full list of their partners and participants. According the Komarraju, they are still waiting on the approval of some of the banks involved, due to either incomplete proof of concept on LedgerConnect’s part or pending internal approval.
According to Bear (IBM), the reason that there is so much fatigue in this part of the project is due to a lack of progress. There is a number of reasons that this can happen, but Bear assures consumers that they are “trying to get rid of that PoC fatigue.” Unfortunately, the bitter irony of that effort is that they may end up going through a PoC to achieve that.