15 of the World’s Biggest Institutions including banking institutions, trading companies, an inspection company and an energy major have came together to form a new venture firm called Komgo SA. Komgo SA is based in Geneva, Switzerland, and is due to go live later this year. It was created with the objective to digitize the trade and commodities finance sector, using blockchain technology.
Founders include: ABN AMRO, BNP Paribas, Citi, Crédit Agricole Group, Gunvor, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, Shell, SGS and Societe Generale manage, operate this new firm.
A Shared Vision
Komgo SA is established with a shared vision for industry creativity and the group of companies aim to build a truly open and more efficient network within commodity trading.
Previously Successful Blockchain Experiments Form Foundation of New Venture
A number of successful trails accompanied the launch of the Komgo. These include 2 Proof-of-Concept (PoC), which are based on blockchain technology. Previous experiments were based on the concept of ING’s Easy Trading Connect platform in Energy and Soft Commodities Trading.
Easy Trading Connect (ETC) platform was built as a prototype which was designed to digitize and standardize commodity transactions under the collaboration of ING, Société Générale and Mercuria for an oil cargo transaction in February 2017 (known as Easy Trading Connect 1). Later in 2018, it realized more advanced features to enhance real-time dynamic access to the information uploaded by the Network holders to improve the efficiency and security of the whole process. Easy Trading connects 2 which is the second platform prototype which got completed by January 2018. This was done in collaboration with global merchant firm Louis Dreyfus Company, ING, Societé Génerale and ABN AMRO. This platform was implemented for the execution of a soybean shipment transaction from the US to China. This help reduces the overall time which is invested in document processing.
There has been a great success in every term. So the core team of the two successful blockchain-based proof of Concept POC which field in energy and soft commodity have also joined the new venture to develop a decentralized Ethereum blockchain based platform.
Blockchain Technology and the Commodities Sector
In the current scenario of a commodity trading market, trust plays an important role throughout the process of transmitting bulk of goods from the source, to destination. Each party involved in the system of trade, executes their respective part and that data is private to them. There is no place for transparency in the existing system, so that the other players can validate the process and entrust it. The point to be noted is that a majority of the trade-deal is done in old-fashioned paperwork; consuming a lot of energy, time, money. Insurance cost has also remained high in this sector.
Commodities Market Players have always thought of using some technology that would abide them to work flawlessly with less complex financing measures.
Distributed ledger Technology DLT holds great potential to transform the commodities sector on a large scale, making the transactions highly efficient. Lots of paperwork and any third party involvement would theoretically be eliminated.
ConsenSys is the largest formation of technologists and entrepreneurs building decentralized applications, and solutions on the Ethereum network. For the development of this new commodities trading platform, the venture is also establishing a partnership with ConsenSys. This company will be supported by a core team of two successful blockchain based PoCs, as mentioned earlier. The consortium is expected to provide the best service in the formation of Komgo SA. The newly formed venture will be assisted with blockchain based post-trade processing platform VAKT to explore synergies between the platforms.
As per the partners involved, this new system is expected to smoothen the whole trade process flow. The platform will ideally simplify and accelerate trustworthiness, audit-ability, and improve accessibility to trade-financing across the industry.
Less paperwork and less time are the main two goals behind the initiative.
Data availability over the network/platform may also help speed-up the transaction process. Finance costs are expected to decrease by about 20-50%, and are estimated to continue on the same trajectory over time.
In addition to all these benefits expected, applying blockchain technology in trade commodity finance may also elevate the safety and security of the present traditional paper-based administration in trade finance. The main advantage of immutability is the best part which may prevent cyber attacks from corrupting the database.