Commodities are the basis of crucially important worldwide markets which involve the buying, selling and price discovery of some of the most common items and materials we rely on every day.
From foods such as soybeans, wheat, and bananas, to valuable metals, commodities power our infrastructure and to a large extent underpin the entire global economy. Now, as emerging nations GDP is growing and the worlds population increases, there’s a marked increase in demand for commodities.
Despite this, as of yet, no effective platforms have been produced to bring commodity buyers and sellers together, and price discovery. The buying and selling of physical commodities are still largely done over the phone, email, or using third parties.
However, there’s one company that is leveraging the power of blockchain technology to bring the physical commodities industry into the digital age. Blokt had an exclusive interview with Matthew Botell, Co-Founder of TradeCloud, to find out how it’s revolutionizing the way commodities are traded. The interview went as follows:
What was the impetus for founding TradeCloud, and what experience does your team bring to the TradeCloud project?
TradeCloud is a bespoke platform, designed and developed specifically for the physical commodity markets. Our vision is to bring the commodities industry into the digital age, by providing a state-of-the-art communications platform, and the realization of “The Commodities Web” – a network-of-networks of services, built around blockchain technology.
TradeCloud was founded by a group of leading Commodity and IT professionals with a proven track record of success. These include our four co-founders, Simon Collins, who brings over 25 years of commodities experience, Mark Cheong, who has held senior treasury and finance positions, Justin Wilson who has over 25 years of IT and consultancy experience, and myself, Matthew Botell, with over 20 years’ experience in physical commodities.
Together, our team has considerable experience in trading, operational and risk management roles. This has allowed us to build the first phase of the TradeCloud platform, which focuses on communication around negotiation and efficient price discovery, with both commercial and structured, secure and compliant solutions in mind.
What are the current major inefficiencies in the commodities markets, and what makes it ripe for disruption?
The commodity industry has been slow to change. Market participants and service providers remain disconnected, only able to reach each other through outdated or unfit for purpose communication tools. This has led to inefficient communication, inadequate price discovery and a poor allocation of services to the industry.
The lack of digitalization in this space has contributed to fraud, sometimes on an enormous scale such as the Qingdao stock scandal, and emailed payment instructions being intercepted and changed. Services such as new finance channels and credit insurance capacity have not been able to be accessed and utilized as the providers and those that need their services have not been connected.
Inefficient processes and antiquated price discovery methods have caused rising costs and shrinking margins – blockchain solutions can change this.
Why do current commodities markets require integration with blockchain technology, and how did you identify this need?
Physical commodity market transactions involve, in most cases, very high-value cargos, passing hands numerous times. Contracts for commodities transactions can be complex, with on average, ten separate commercial terms and fifteen legal terms to agree on between parties.
Therefore, the execution of these transactions can take as long as six months, involving multiple parties and intermediaries. The use of blockchain technology in the execution of these trades builds trust between parties, allowing one version of the truth, an unalterable audit trail, and the ability for independent parties to verify information. In a time when email is no longer considered the safe communication channel it once was, communication over the blockchain is a significantly more secure alternative.
TradeCloud is already building communities and connecting the industry over its secure, efficient and easy to use platform. Our digital vision, centered around the Corda blockchain will make transacting and executing physical commodity trades, fast, efficient, secure, both reducing costs and improving margins at the same time.
In just one year, you’ve attracted over 200 enterprises and 400 users onto the TradeCloud platform. How has TradeCloud been received by users?
So far, market feedback has been extremely positive from all areas of organizations, from traders and marketeers, all the way through to management, IT, legal and compliance.
As we develop the TradeCloud Commodity Web, centered around communication in the execution of the trade, our team’s operational and risk experience, coupled with close liaison with market participants, will allow us to develop a tool which will make the most of blockchain technology for different facets of the commodity industry.
TradeCloud is currently serving the metals commodities markets, with plans to expand into the energy and agricultural sectors. How easy will this be, and what is the potential market size?
Our existing platform provides us with the foundations to move into other commodity sectors with relatively minor development efforts. This thought was always very much in our minds as we built the metals module, and it has proven very flexible.
There are of course certain nuances to trading different products, but a significant proportion of our platform offering is applicable across a wide spectrum of commodities.
Once we have launched our energy and agricultural modules, the combined market we shall be addressing is a staggering US$8 trillion per annum. This represents perhaps the largest untapped digital opportunity available today.
You mentioned that TradeCloud is building on the Corda blockchain, can you describe why you chose Corda, and why it’s a trusted blockchain for enterprise solutions?
The r3 guys, the development company behind Corda, are uncomplicated, solution-oriented and have a great product in the Corda blockchain. The Corda blockchain is an enterprise-grade blockchain designed initially for banks and high-value transactions.
For our implementation, an open source version is available, so we can check the quality of the code and see the causes of problems very quickly. It also works with common development tools like Java and Kotlin, used for Android development.
The Corda blockchain has a clean privacy model where data for a transaction is only seen by the participants in that transaction, without complex workarounds like sharding.
What is the purpose of your native token, the TC token, and how will they be offered?
The TradeCloud (TC) token contains both security and utility features and as such can be referred to, in our opinion, as a hybrid token.
TC tokens can be exchanged for internal credits on the TradeCloud platform, which in the future, will be able to be used to pay for services on the platform. This is the utility part.
While the investor is holding the token, they will receive a fixed profit share per token. This is the security part. Once the token has been exchanged for internal credits, it no longer receives a profit share.
We are launching a security token offering (STO) for TC tokens in Switzerland and the funds raised will be used to accelerate the growth of TradeCloud. Through our STO, we intend to raise US$45 million.
In our private STO offering, only qualified investors will be able to invest.
A wider audience can invest in the public offering, subject to passing KYC and AML checks. Our minimum investments are as US$25,000 for the private round, and US$10,000 in our public offering.
The TradeCloud platform has now been live for 12 months. In this time, what have you learned, and have you had to pivot any aspect of your business with changing market conditions?
We have had to learn patience for sure! Larger companies have various stakeholders, who have to be shown and explained the platform, often not together.
Today we have approximately 230 member companies, located in over 35 countries globally, so we have to have a very coordinated marketing and follow up approach. Our STO will allow us to considerably grow the marketing team and help build the community further.
We are currently developing the first pilot for the TradeCloud Commodity Web, which will involve some major industry players – so watch this space.
Regulation is the elephant in the room for many ICOs. Do you believe that existing regulation for commodities will allow TradeCloud to operate in a clearer legal landscape, and scale faster?
We embrace regulation where we meet it, as we are a company who believe in doing things properly. For example, we chose the more regulated STO market over an ICO as we wanted our investors to benefit from the future profitability of the company.
Likewise, we also chose Switzerland as the jurisdiction, as we know FINMA take investor protection seriously. Despite a six-month process, involving 20 companies and the cost of hundreds of thousands of dollars, we are convinced this was the right direction to take for our company.
As a communications platform, rather than a market itself, the TradeCloud Platform has not faced any regulatory hurdles.
Finally, thinking of the future, STOs have been predicted to grow into a US$10 trillion industry by 2020. Do you agree with this prediction, and where do you see the highest areas of future growth for STOs?
Provided the area is properly regulated, sensible law is applied and the market is backed by sound technology – then absolutely. The points raised in question 13, prove a distinct barrier to entering the space seriously, which perhaps didn’t exist in the ICO growth period.
Additionally, as long as regulators can ensure only serious companies launch STO’s, then one would expect most to be successful, thus leading to STO’s becoming more mainstream.
When I look at our STO, the success of the STO should be based on the success of the company and external factors, such as prices of certain cryptocurrencies, should theoretically not be an influence.
Blokt would like to thank Matthew Botell and the team at TradeCloud for sharing their expertise.