LedgerConnect is an interesting new platform from IBM and CLS. Most people know IBM, and CLS is a forex-trading infrastructure firm that has connections with many influential banks. Their new platform seeks to become an “app-store” for global banks. Financial firms have been bombarded by numerous options when it comes to blockchain development. The rising interest in blockchain has put banks into a tricky position.
If a bank decides to ignore blockchain, they do so at their own peril. If they want to develop blockchain technology, it is a jungle out there. The prices for blockchain developers are exploding, and most banks aren’t really in the tech business. Suffice to say, this has left major banks at a relative disadvantage when it comes to blockchain.
Enter LedgerConnect, and their novel idea of an app-store for mega finance. In practice, their platform would help developers who have a track-record in finance connect with banks that need blockchain solutions. CLS is a near perfect company to develop a platform that helps big banks adopt blockchain, and has a long-standing relationship with IBM.
LedgerConnect is Well Placed
CLS isn’t a maverick startup company. It is a company that was born out of the need to modernize FOREX trading nearly two decades ago. CLS also an early adopter of blockchain, and has been researching the technology since at least 2014. IBM helped them develop their FOREX trading infrastructure, which put them in contact with most of the major banks.
So far, LedgerConnect has disclosed they are working with Citi and Barclays, who are founding members, but there are probably many more majors involved who can’t be disclosed. Eight companies have already been identified as possible vendors on the platform. Copp Clark, IBM, MPhasis, OpenRisk, SynSwap and Persistent Systems, Baton Systems, and Calypso are all participating in a Proof of Concept (PoC), and as many as nine major banks are working with them.
Keith Bear, IBM’s vice president for financial markets, commented on the project to 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.”
Widespread Adoption is Possible
LedgerConnect would offer major firms access to DLT-based solutions for accessing market data, derivatives post-trade processing and reconciliation, know-your-customer processes, sanctions screening, and collateral management. In theory LedgerConnect could drastically cut the costs and lead time involved in developing DLT technology for the financial sector.
Large banks are subject to numerous regulations. This makes a platform like LedgerConnect difficult to deploy, as they need to secure regulatory approval for their business. This process may take as much as a year, and could be subject to delays depending on the jurisdiction where the bank is operating.
Despite the legal hoop-jumping, LedgerConnect seems to be getting a warm reception from the financial community. Dr. Lee Braine at Barclays had this to say about deploying DLT in live environments
“Some banks may also look to explore the more decentralized deployment option of hosting their nodes themselves,” and continued, “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.”
A Hybrid System Seems to be Emerging
Due to the nature of existing practices in finance, LedgerConnect runs on a partly permissioned blockchain, which is based on IBM’s blockchain platform. IBM used Hyperledger Fabric to create their platform, and all the apps available on LedgerConnect are Hyperledger-based at the moment.
The founders are open to different architectures, and if LedgerConnect becomes popular, the size of the banking market will probably attract new developers to the space. Ram Komarraju, head of innovation and solution delivery at CLS, commented on their openness
“We are not averse to supporting other ledger implementations, whether it is R3’s Corda, whether it is Quorum… [etc…].”
The amount of money that moves through the established financial system on a daily basis is enormous. The FOREX market alone is thought to have a daily turnover in excess of 5 trillion USD. CLS is in an incredible position to unify DLT and the major banks, but whether or not the banks will pass the savings that DLT-efficiency creates on to their clients is questionable.