TDB: Please share with us how XDC Network is rethinking global trade finance through its MLETR compliant protocol? What is the significance of MLETR compliance?
Atul Khekade, Co-Founder, XDC Network: When SWIFT was started around 1973, size of global GDP was around 5.5 Trillion Dollars. Size of global economy today is around 100 trillion dollars. So its 20x the size what SWIFT was designed for.
Moreover, SWIFT was built on technology and infrastructure rails available in that era with just messaging system across a handful of banks and Nostro based deferred settlement only.
One of the greatest things about SWIFT is that it is the base infrastructure for global payments even today and we think that will remain that way for a long time.
Today there is a Trade Finance gap is close to 5 Trillion dollars, on top of that there are millions of MSMEs and thousands of Fintechs who are operating in the unorganized trade finance space. Banks do not lend to that category and alternative investors do not have an organized trusted channel to access this market.
MLETR law is a historic step is enabling systems to support worlds GDP for next 50 years which could be even multiple times of what it is today.
XDC Trade Network has completed key integration of Singapore Government backed TradeTrust for verifying Trade documents at source. With this integration, now millions of trade documents like bill of lading, bill of exchange or receivables, insurance docs can now be verified at source giving credibility to this new asset class the millions of MSMEs deal with. This has never been done before. SWIFT only has support for Letter of Credit which is only originated and distributed bank to bank. While all these MLETR compliant docs are originated and distributed directly p2p between corporates and MSMES.
We are looking to work with Innovation team at SWIFT to compliment its massive base infrastructure and take it to millions of MSMEs and Fintechs with XDC Trade Network.
TDB: Please share with us any recent real-world use-cases demonstrating XDC Trade Network’s efficacy in the digitisation of trade processes.
Atul Khekade: XDC Trade Network is built on the tokenization standards on XDC Network which is a layer1 hybrid blockchain protocol specifically designed for global trade.
Tokenization standards created by XDC Trade Network enable
- Verification of all types of trade documents at source (such as bills of lading, bills of exchange, warehouse receipts, receivables etc) nearly enables tens of trillions of trade assets to be verified
- Transferability in completely electronic form – All the trade documents are now converted into bearer assets which can change ownership between the multiple counterparties involved
- Fractionalised access – Multiple counterparties can access these trade assets in a fractionalised manner.
The real-world transaction that was carried out recently was originated by Singapore based TradeFlow capital which provided verification at source for the Bill of lading in a completely electronic format. Further, the ownership of the document was transferred in a completely electronic format to the alternative funder which funded the transaction as an over collateralized asset. Furthermore, the trade asset was funded fractionally by multiple parties .
This transaction has been revolutionary on multiple levels as never before a trade document was represented as an electronic tradeable document that was fractionally traded and settled instantly on XDC Network.
TDB: What implications will this have for private credit lenders looking towards TradeFinex for funding? How does the DAPP seek to address the widening funding gap for MSMEs?
Atul Khekade: Tokenization of millions of Trade documents will enable a large part of over 30 trillion on Trade Finance to go completely digital.
However, the other part of the equation still remains unsolved. Only banks have been funding trade finance till now but now the alternative investors are taking ownership of their investors causing a boom in the private credit market. However, trade assets and a real time settlement system isn’t yet accessible to them in an organized format.
This is where TradeFinex as a decentralized protocol has created smart contract standards that enables accredited private credit investors to access these digitized trade assets in an organized format on the XDC Network blockchain. There is a complete transparency on trade assets and the protocol itself is self-custodial and peer to peer. It means that the trust created through TradeFinex protocol allows the Trade Asset originators and private credit investors to originate, distribute and instantly settle these assets.
Both originators and private credit investors can access the protocol through their own custody account without any central counterparty risk.
The Dapp standard also allows all messaging between counterparties to be ISO20022 compatible.
This allows Trade assets to the tune of trillions of dollars to be now digitized, tokenized and being accessible to wide range of liquidity coming from the private credit market in a very organized and trusted manner.
A very important aspect of this dapp is using the 24*7 onchain settlement and risk mitigation capabilities of XDC Network using ‘XDC’ the native asset of the network and ‘FXD’ or Fathom dollar, a unit of account soft pegged to the value of US dollars. As these assets are tokenized and traded across borders, the counterparties need to mitigate their risk and access liquidity. XDC Network has a fully diluted market cap of close of 2 billion dollars. This liquidity can be accessed right now by the counterparties. As the transactions on XDC Trade Network and TradeFinex increase, the market cap will further increase access to capital.
TDB: TradeFinex seeks to set standards in private credit. How does it intend to go about doing so?
Atul Khekade: As explained in point 1, SWIFT was designed when the global economy was fractional to the size of what is is today and only accessible to a network of a handful of banks and corporates.
TradeFinex as a protocol along with tokenization from XDC Trade Network now allows millions of MSMEs to access capital from private credit investors through thousands of Fintech originators.
There are multiple ways of creating this network effect. One is working with SWIFT and complimenting the massive rails that theyve built to take it to non-bank private credit investors market. Other is building a network effect ground up by ourselves through partnerships and pilot transactions.
TDB: Going forward, what can market participants come to expect from the XDC Network in facilitating globally accepted standards and solutions for trade finance and the larger supply chain finance space powered by the blockchain?
Atul Khekade: The pilots are proceeding very fast and every time the counterparties conclude a transaction, they want to do a bigger transaction next. We expect that the network effect of these pilots will stabilize the production environment and major global corporations, funds, fintechs and MSMEs will scale up the transactions to billions of dollars.
We now have shipping companies, regulated originators, digital asset custody providers, banks all over the world setting up pilot transactions.
