Our Vision for Distributed Credit
If the blockchain boom has taught us one thing, it’s that money can move as freely as information. This revelation catalyzed a paradigm shift in how we think about global finance. Digitized assets and disintermediated transactions have been demonstrated to be at least possible and — in some cases — quite practical. And now our institutions are taking their first, brave steps into this new world.
Technology never tells its inventors how to apply it. The killer app is rarely the problem that inspired the invention. Distributed ledgers were devised as means for immediate global payments. But we believe their real power lies in credit. The extreme fungibility and flexibility of digital assets presents a qualitatively new opportunity for unified balance sheets & globally available lines of credit.
Concordia packages a generalized platform for managing collateral & risk. There are several components to any central counterparty that extends credit to its members:
- Escrowing a required sum of collateral
- Tracking valuations, ideally in real-time
- Forcing repayment of at-risk debtors via orderly liquidations
- Adapting to changing market conditions
This constellation of features together are the bedrock for margin, on which any kind of debt instrument can be built. Bonds with fixed coupons, floating-rate lines of credit, unrealized P&L on open derivatives trades, synthetic collateralized debt obligations — all of these require the same basic skeletal structure: collateral that covers obligations, which can be liquidated in times of stress.
The team at Concordia approaches this problem as a technology company would. We built the basic operating system, and empower customers to develop their applications on top of it. This modular approach presents companies with the opportunity to “bring-your-own-broker” while giving its members universal cross-margining across all connected products. An exchange can add leverage capabilities by connecting into Concordia, without needing to take the hard work of risk & collateral management. Or a company can originate OTC fixed-rate loans, using Concordia to escrow sufficient collateral and prevent default on the position. For members, one omnibus account can secure all its owner’s debts.
Putting this in the concrete context of today’s digital asset terrain, the fact of multitudinous blockchains & tokenized assets will no longer create friction or fragmentation. After all, the great improvement of digitized assets is that it levels down the differences so that a token is a token. The problem to solve is to connect and commingle these tokens, regardless of the ledger that physically houses them. Using Concordia, customers can construct one global portfolio of all their positions. A member may collateralize a basket of ETH & tokenized US Treasury Bills natively on Ethereum, in order to draw a USDC loan on Solana, with which they make a market on a decentralized exchange, and finally collateralize that derivative tokenized market position back into their portfolio. That example is cross-chain market making on leverage — and trivial to accomplish using the Concordia omnichain network. The fact is that any kind of asset can be cross-collateralized with others, in order to secure any kind of debt instrument. Concordia is an engine that works just as well in any vehicle.
The key to unlock connectivity is through standardization. Defining the eligibility of collaterals, and maintaining sufficient margin to meet obligations, requires a general framework for quantifying risk. Concordia’s team carries deep expertise from conventional exchanges and clearinghouses, by which we operate a world-class risk management system designed from the ground-up for the 24/7 nature of digital transactions. The risk engine standardizes margining & liquidating procedures in an open-ended manner so as to support future innovations in digital finance, while being fully backwards compatible.
The era of distributed ledgers is one of real-time streaming data, with sub-second pricing, instantaneous settlement, and transparent fairness. We carry this virtues forward into the system design. Our risk models are continuously backtested, with full visibility into every parameter for every algorithm. The reserve balances are present for all to see at all times; there is never any doubt around the internal balance sheet. But to meet the needs of institutional customers, Concordia offers privacy & robust encryption layers, ensuring that customer data is only visible to whom its owners permit.
The digital era is about making connections. We believe distributed ledgers proffer a new standard for efficiency, transparency, and accessibility. Combining tokenized representations of a value into a single account, despite the underlying technological diversity, is a powerful pattern to unlock unified credit & liquidity without borders.
