Disclaimer: This is my own personal opinion and pure speculation on publicly available information. The content in this article does not reflect the opinion or work of any organization I am associated with. This is not financial advice.
Introduction
Seeing the bigger picture is often hard and when it comes to such fast emerging and changing tech like DLT, especially with a universal product like Chainlink. A good overview on the whole space is required to wrap your head around what Chainlink might achieve in the future. I want to focus on one thing here, the banking side. It lacks awareness in my opinion.
Sergey Nazarov and partners have been saying for years that #Chainlink works with leading data providers and “big banks”. I don’t think he specifically only meant SWIFT here, even though SWIFT is very significant as well as its the main infrastructure for over 11,000 banks worldwide. But we will discuss SWIFT in another post in detail.
Not a single bank has been confirmed to work with Chainlink yet. Even though the Chainlink Marines are saying SWIFT is a partner, this has never been confirmed by SWIFT either. Banks and insurance companies are said to become the first to profit big from the new DLT. Why? Because it’s by far the best fitting use cases to be applied to DLT infrastructure. It’s exactly what DLT can easily enable: using blockchain and smart contracts as vehicle for very high stakes contracts AND having simple, multiple source-able data (price of gold, stocks or currencies from hundreds of different exchanges) put into them via Chainlink. A report, co-authored by Santander Bank says that DLT could reduce banks’ infrastructure costs by up to $US20 billion a year.
Sergey also repeatedly says that derivatives (and insurance) is the first major real-world use case enabled by smart contracts, other than tokenization and trading of tokens which makes up most of the network activity right now.
Also, Sergey's first interviews and talks about Chainlink had a lot more focus on the banking side and I think that was for a reason. So who are these banks and when will they get announced if that is the first actual ‘thing’?
Let’s see which banks are actually active in the DLT space. One that is easy to find is Santander. They are a top 10 bank worldwide and have dug into blockchain as early as 2016. They joined the Ethereum alliance in 2017, had a Proof of Concept that issued a $20 Million Bond on Ethereum
and joined an effort for issuing and settling of European Commercial Paper (ECP) with the European Investment Bank and Ernst&Young.
After searching for ties to SmartContract.com and Chainlink, the only thing I could find is that both Chainlink and Santander are actively supporting and working with the HyperLedger Avalon Trusted Computation Framework. Nothing else.
So I started to search the other way around, from Chainlinks Proof of Concept at the SWIFT Innotribe Challenge, and found something that barely anyone is talking about. We actually got names of banks that have supported/worked with Chainlink on that Proof of Concept in 2016. For those who don’t know what I’m talking about, read this article.
Chainlink essentially showed how banks can input data of interest rates from different banks, into one smart contract to securely issue bond payments and automatically facilitate bank payments based on the outcome, which is one of the biggest use cases of banks. Now, this article shows the names of the 5 banks that not just got used as example, but “who helped to build the proof of concept” and whose data got used for executing the Smart Contract: BNP Paribas, Fidelity, Societe Generale, Santander and Barclays.
Also confirmed at the SIBOS 2017 conference in an interview with Sergey:
After the SIBOS 2017 presentation, Sergey stated that because of the high interest by participants, they continue to work and improve the setup.
The exact words are highlighted here:
The one I want to focus on right now is Barclays. We know they actively participated and supported the Chainlink PoC. This started in 2016 and was presented in 2017. I knew I have seen the name just recently and found this in a quick google search:
Oracle, leading cloud provider, has announced to fund and support 50 startups in creating Smart Oracles with Chainlink’s software to speed up development of DLT infrastructure and connect the Oracle Cloud and it’s customers to Ethereum and other chains and DLT. They literally help them setup Chainlink nodes. One of the Startups doing this is Crowdz, which is funded and in partnership with Barclays and member of the Barclays Accelerator program. Interesting.
Listed on their website and with a video stating a direct partnership and onworking collaboration with Barclays about their technology to cut cost for everything around ‘Invoices’ and bank payments for mid- and big-sized companies. Interesting team of long term CISCO employees, MIT and The White House by the way:
Not only did Barclays start working with Chainlink on their Proof of Concept in 2016 already, but they actively fund and collaborate with Crowdz who integrates and uses Chainlink as Oracle solution. I got a bit more into Barclays and their approach to adopting DLT and found Michael Arief, a Risk Manager at Barclays for +10 years, who follows the whole Chainlink team on LinkedIn:
Now this doesn’t have to mean anything at all. But let’s keep digging. Further searching for his name, I found out he build something on top of Chainlink in a recent Hackathon: SmartPiggies. It sounds like a CryptoKitty copy but it’s a lot more than that and definitely interesting:
An open-source standard for a free peer-to-peer global derivatives market
Just a hobby-project or weekend-thing for the Hackathon? No, look at their 60-page-long whitepaper:
To me, this is a well thought-out and pre-planned project. They think about everything important and mention a lot of the stuff Sergey is talking about when it comes to the components of what makes Chainlink so secure. Malicious APIs, Sybil Attacks, SGX, TownCrier, Availability and network congestion(uptime), Frontrunning and why Oraclize might not be sufficient.
Let’s look even closer at Michael’s job description and what he exactly does:
“Architect of the firm-wide Market Risk Limit system”
Now look back at the Piggies whitepaper:
“The standard outlines an instrument that provides a risk management mechanism similar to that of traditional financial options while leveraging the inherent advantages of smart contract design”
It’s the exact same thing, but with Piggies it’s applied via DLT.
Also, the following guy is listed as employee for SmartPiggies. Interesting CV if you ask me. Does a guy from the FED really do an open source derivatives protocol just as a weekend-hobby?
But there is more to Michael. It turns out he is very active in the space for a good time, and has met Sergey Nazarov and Ari Juels, co-founder of TownCrier very early on. Remember, TownCrier is mentioned in his Whitepaper and part of Chainlink. Michael was sitting in the first row, attending, recording and uploading Sergey’s and Ari’s talk to YouTube. Also take a look at the dates as this was very early:
..and, just as interesting side note and for the general timeline, CTO of Barclays is also an early bird. In January 2016, he was Panel Speaker at Devcon one, together with bank Society Generale who both joined the PoC at SIBOS with Chainlink, . “Banking with Smart Contracts”:
Let’s summarize here before continuing:
Barclays started very early in research and development for DLT way back in 2016. They joined and supported Chainlink’s Proof of Concept in 2016/17.
In 2019 they put a a good amount of money into funding Crowdz, who is integrating Chainlink via the 50 Oracle Startups thing, where they literally spin up Chainlink nodes. Same year, a few months earlier, long-term Barclays employee Michael Arief created SmartPiggies which then joined Chainlink’s Hackathon and won, with their Whitepaper explaining and perfectly outlining why and how a derivative protocol would use Chainlink. And as coincidence, it’s seen that Michael has been in direct contact with Sergey and Ari 3 years ago already.
Now look at the current state and efforts from Chainlink’s side
Chainlink’s effort in making Derivatives a real thing
Interesting side-note that I think is important here: Sergey mentioning at SIBOS how surprisingly strong the “appetite of senior folks is in implementing this in the near term” is. See in this video:
Chainlink started ramping up banking-related things again in mid-2019 with the release of the Mixicles whitepaper and 2 blogposts, which are all about Derivatives. Right when Google announced integration of BigQuery+Chainlink and a third party wrote a detailed blogpost on having Derivatives on Google via BigQuery.
- 3rd September: Release of Mixicles Whitepaper
- 4th September: Breaking Down Mixicles and Their Potential to Unlock Enterprise Demand for DeFi Applications
- 11th October: Solving Trust Problems in Derivatives Using Chainlink (Mixicles)
Now, Chainlink is known for being really efficient and focusing on the next important step and tailor-cut their resources to that one think. They watch the space closely and push for things that are most needed.
For anyone who doesn’t know, Mixicles is all about making Derivatives work, technically in terms of privacy within the Smart Contracts and legally in terms of making it audit-able. It’s creating the tools needed to legally execute and work with Derivatives and other financial instruments. See the following screenshots and highlights with core explanations and why it’s important:
Why is the Chainlink Team pushing for Mixicles when there is no banking partner announced yet? I think Chainlink has been pushing for this because the first banks are in fact ready to go (just not announced) and there is just this last burden of regulation and the needed privacy/disconnection between input and output, which Mixicles solves. Sergey repeatedly confirmed that derivatives and insurance will be the first real-world use-cases, and who would know this better then him? I think, looking at the timeline and the efforts by Barclays, Barclays employees and Chainlink, that Derivatives are in fact just around the corner. Mixicles is probably the very last step before derivatives can legally exist and be executed on DLT and its about to go live on Ethereum any moment. This would really open the gates for the big money and actual high stake use cases that have been promised by Ethereum. Barclays is probably one of the first to work with it.
Let me know what you think.
