New approach to supply chain finance or how Eximchain helps SMEs to get a loan in modern age
Reputation is the key
Running a business is a constant challenge. Especially if your company isn’t among Fortune 500 and its operations involve supply chain management. Being a well-known company gives plenty of opportunities. Low cost of borrowed capital is one of them. At the same time, small and medium enterprises(SMEs) left with a handful of options and facing higher requirements due to the inability to prove their track record.
According to the International Finance Corporation, SMEs in emerging countries face $4.5trln financing gap. Mainly it is caused by a high risk for banks to finance SMEs due to lack of information about their operations. What if there was an innovative tool that can both track and store reputation of SMEs and eventually could provide a transparent overview of the supply chain? Solving these issues could open a door for SMEs to broader loan proposition with smaller interest rates boosting up the world economy.
And that’s what Eximchain is aiming to do.
The project
Eximchain product refers to supply chain finance(SCF). SCF is a set of technology-based business and financing processes that allow financiers to fund an organization’s trading operations through its supply chain relationships. SCF enables buyers to optimize working capital and suppliers to generate additional operating cash flow while simultaneously minimizing risk across the entire supply chain.
Eximchain aims to become an app store for SCF solutions that will be built upon its blockchain. Third-party developers will be able to create end-to-end solutions to manage sourcing, financing and logistics processes on a public permissioned blockchain with privacy. Data generated by these apps will bring more transparency to supply chain giving parties an ability to monitor buyer/supplier reputation and make consistent decisions about partnership or lending funds.
What about business model?
In the next 12–18 months, Eximchain is rolling out several apps of their own.
First one is called Multi-Party Dynamic Contracting. In simple words, it is coordination engine for contract negotiations built with Game Theory in mind. The goal of this app is to align the incentives of contracting parties in private, automated and auditable fashion, making a deviation from the optimal set of parameters unprofitable for participants. Nash equilibrium achieved! Not bad.
Bulding reputation on Eximchain through records of historical data and transactions opens even more exciting opportunities. Team describes the case where a buyer has higher(than supplier) credit rating. With Eximchain help, buyer and supplier will be able to execute interest rate arbitration. Thus the buyer can become the main financier for the supplier in return for better prices, extended terms and overall improvement of relations.
Whitepaper suggests another app built by team for win-win coordination of buyer and supplier in inventory management. It enables stakeholders to track demand and inventory data. Eventually, it should help to set optimal parameters for a Buy-Back contract allowing parties to generate additional profit which in other conditions could be left undiscovered.
We assume that native apps will introduce Eximchain to developers and engage initial users(SMEs) to the platform. However, onboarding of quite conservative parties such as importers/exporters and banks is one of a challenge. The Eximchain team acknowledges that and promises seamless integration of their product into the workflow of potential users. It makes sense because native apps are supposed to become the primary source of revenue for Eximchain in future.
Under the hood
Eximchain utilizes its blockchain —modified Quorum, permissioned enterprise-focused version of Ethereum, with Istanbul BFT (IBFT) consensus algorithm. It has throughput around 80 tx/s which in theory could go up to 1000+tx/s. This makes Eximchain development independent from other chains and their progress on scalability.
Main features of IBFT:
- finality — excludes forks
- configured block times (up to 1 sec)
- manageable validator set and vote-based consensus algorithm
Network participants:
- users: financiers, buyers, suppliers
- maker nodes: propose blocks with transactions
- validator nodes: validate blocks
Tokenomics
- Ticker EXC
- Token ERC-20 — swap to native token currently in the process
- Mainnet launched Oct. 2018
- Circulating supply 67 306 444 EXC of total 150 000 000 EXC
- No public sale. Raised $20mil in private sale to strategic partners. Airdrop for community.
Eximchain token EXC is used as a payment method and for staking.
Anyone with 1000 EXC(~$30) can become an active participant(node) in the network consensus. Nodes gather 100% of fee rewards(paid by users) from the block they propagate and validate.
To be elected as a node candidate should pass KYC and then be elected for through quadratic voting(QV) process.
After each governance cycle (currently set at one month) period voting process repeats.
As team claims quadratic voting in combination with KYC will allow to reveal malicious actors and make the whole platform stable and secure.
What’s Quadratic Voting
QV as a proposal on the improvement of the democratic voting system has been discussed actively in cryptocommunity for some time. The idea is being developed by Glen Weyl, Eric Posner, Steven P. Lalley and recently Vitalik Buterin.
What makes QV special? There are few key differences from the traditional voting system:
- votes can be bought
- voters can buy as many votes as they want
- votes are purchased from the system, not from other voters
- every next vote bought by particular voter becomes linearly expensive
- price of a vote is determined regardless of other voters decisions and depends only on particular voter’s amount of votes
- all funds spent on buying votes are distributed equally among all voters after voting process concludes
(Majority win rule and secrecy of the ballot left unchanged)
Here you can see how QV works and how the price of votes is determined.
In Eximchain context, QV is used for electing nodes. Only participants with more than 1000 EXC can vote. We assume that usually, candidate nodes will vote for themselves. Some of the candidates will be buying votes until they spent ≤ sum of all projected fees the elected node acquires during governance cycle. Paying more than one can earn as a node will be unprofitable and probably will attract attention as a possible malicious threat.
Also, note that in QV funds/credits spent on buying votes are equally divided among voters after the voting process ends. Thus candidates who bought votes but weren’t elected as nodes lose their funds in favor of those who didn’t spend a penny. The optimal strategy for candidates yet to be established since Eximchain’s implementation of QV is one of the earliest. But as for now, we see that one can split his stake among several identities lowering the costs. Of course, it is possible only in case one possesses those identities and they all be able to pass KYC.
Key points
Strengths and advantages
The project goes for a stack of real-world problems by recording and storing buyer’s and supplier’s activity. Nature of blockchain also allows to create an inclusive marketplace enabling mostly anyone to participate as financier: one just needs to assess the reputation of the borrower. Therefore, affordable credit for SMEs becomes a reality. Moreover, Eximchain’s viable business model is what distinguishes platform from the majority of crypto-related projects. Another source of revenue could be a variety of apps built by third-party developers using SDK.
Other pros:
- Scalable and secure infrastructure with KYCed consensus participants
- Automation of negotiating and contracting processes, reduced paperwork
- Sensitive data will be kept private and safe
- A core of the team is from MIT. Members have a solid background from different domains and previous working experience in large companies.
Risks and challenges
Blockchain b2b solution may have a steep learning curve for potential users. However, this could be applied to any blockchain solution right now. On the other hand, bigger/older chains that eventually solve scalability issues and speed up their development can attract more users due to the network effect.
Also should be noted that China, seen a huge potential market for Eximchain, seems to be in a hostile mode to crypto projects. However, the team claims that they have completed the first proof of concept with a supplier platform exactly there, in China.
Some risks we see in “gaming the system”:
- Sybil attack in the context of “pumping” reputation via several half-fake entities is challenging but still achievable
- Sybil attack in the context of nodes election is possible: one could split his voting stake among several identities.
Conclusion
Despite several questions left unanswered, we see Eximchain as the solid project that could push forward the adoption of blockchain economy. Scalable infrastructure, implementation of secret smart contracts, novel concept of voting and focus on actual problems is what makes this project interesting. The future success of Eximchain mostly depends on the ability of the team to promote advantages of their solution and how easy onboarding process for end-users will be.
Credits
Co-authors Nastya Parygina and Igor Line
Infographics and cover picture magic by Alina Loseva
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Neither author nor Decent Fund don’t own any EXC and don’t have any relation to Eximchain.
