The blockchain has just disrupted another niche. UK-based Nivaura in partnership with Microsoft's Azure cloud has proved in a test case that the public ledger can be used to support regulated assets. The blockchain is an increasingly attractive option as the payments industry continues to embrace cryptocurrencies and even digital fiat money.
The technology was created by Avtar Sehra, Nivaura's CEO, chief product architect and a theoretical physicist who switched careers only to uncover a bunch of inefficiencies in investment banking.
Two structured notes of equivalent economics were issued to retail investors using @nivaura technology. One centrally cleared/settled on Clearstream and the other on an open public blockchain $eth network. Change between different post trade services was with a click of a button. pic.twitter.com/8rDppVo0Ow
— Avtar Sehra (@avtarsehra) March 18, 2018
The fintech startup tested its technology by performing the registration, clearing and settlement functions on a pair of principal protected notes (PPN) tracking the FTSE 100 index, one of which relied on the Ethereum network and the other that relied on traditional methods, then compared results. The experiment was successful.
If the platform catches on among investment banks and even venture capitalists raising new funds, among others, it could lead to a paradigm shift in how investment products are designed, leaving certain third-party service providers and their hefty fees out in the cold.
Blockchain the Disrupter
The blockchain is a disrupter of industries, everybody knows that. And now it's made its way into investment management, removing the need for third-party firms that traditionally perform pricey functions tied to clearing, settling and more.
Nivaura gives the example of a UK-based retail investment company that used the blockchain-fueled technology for a bond issuance a year ago. The administrative costs associated with the product, which are typically spread across the issuer and investors, were reduced from GBP 30,000 to GBP 50 across the duration of the product.
Nivaura appears to be targeting investment banks with its technology but it could probably be used by any entity involved with bond issuance, including companies or government agencies, for instance.
“Very little automation takes place in the financial industry, and it’s hard to create something that’s automated but flexible. Our system is completely automated, end-to-end. We track all the data, and the money flows in a compliant manner, executing the deal in a legal way and aligning with all regulations. It makes sense for issuers and investors," said Sehra.
As one of Sehra's followers on Twitter explained, the platform creates a peer-to-peer relationship with the issuer of the financial product and the investor.
Meanwhile, the company selected Microsoft's Azure and its Coco Framework for blockchain due to its support of regulatory guidance issued by the UK's financial watchdog, the FCA.
In addition to Ethereum, Nivaura's technology also works with the bitcoin network and could eventually support Zcash and JPMorgan's Quorum blockchain.
Featured image from Shutterstock.