A grand opportunity looms for Jibrel in one of the largest markets in the world — the commodities trading market. By leveraging blockchain technology, JCOM (Jibrel Commodities) will bring about huge benefits to the industry in the form of cost savings, instant settlement, increased transparency, and currency risk protection. Furthermore, JCOM will unlock this asset class to an entirely new category of investors by algorithmically facilitating Sharia compliance of Islamic products. In doing so, Jibrel would be taking the next logical step to position itself as a leader in the evolution of commodity markets.
The Current Industry Landscape
Despite the size of the industry, much of the global commodity business is still run manually and on paper. This is particularly true in the trading of non-industrial, agricultural products. Hordes of middlemen and observers weigh on the industry’s profits, all capitalizing on the principal question:
How do you ensure that the cargo you receive was exactly what you ordered?
Currently, such trading is all about manual documentation. Since there is no trust between counter-parties, both sides hire middlemen and intermediaries to check the accuracy of documentation. Thus, documents and invoices are stamped and scanned manually before being emailed back and forth. That arduous process not only cuts into economic efficiency, but also creates multiple opportunities for fraud at each point of contact.
As cargo changes hands, it goes through individuals, vessels, companies and countries — all of which need to adhere to different regulations, systems and formats of documentation. That makes it difficult for fraudulent alterations to be detected. In other words, it is entirely possible for almost any document to be intercepted and changed at each stage between the original supplier and end consumer.
A notorious example of such a scam was a $3 billion fraud at the Qingdao port in China where there were allegedly fake, duplicated warehouse certificates. The incident roiled the metals markets in 2014 because the fake receipts had been used to pledge the same cargo of metal multiple times. More recently, Australia’s ANZ and French bank Natixis came under the spotlight when both were embroiled in another case of alleged fraud involving warehouse receipts.
There is no complete information about how much money financiers are losing from this. The primary challenge seems to be getting companies to conform to one digital standard and building an ecosystem around it. That will require the buy-in of current trade participants including state-owned enterprises and regulators.
While there are middlemen and companies that can verify the authenticity of goods and papers at any stage, all this makes the process more costly and time consuming. For instance, any discrepancy needs to be crosschecked over the phone followed by documents being resent through either email or courier. Those providers of verification services, which include surveyors, will be the first in line to be disrupted in a technology revolution tackling the issue.
How JCOM Will Transform the Industry
JCOM will allow for Shari’a compliant digital products. On-chain commodities will algorithmically facilitate Sharia instruments providing various benefits such as:
Cost Savings & Lightening Settlement
JCOM will lower the annual trading fees of Islamic banks as purchase of commodities that facilitate Islamic loans and Sukuk would be done algorithmically. Since purchasing a “tangible” asset to facilitate Islamic debt is a key Sharia requirement, solving settlement problems that involve physically moving the commodities from one place to another is critical.
Improving Loan Response Lifecycle & Underwriting
Digital commodities will help improve the Islamic loan response lifecycle as well as the efficiency of loan underwriting through automation and trusted third party elimination. This will lower operational costs and streamline the application and decision making processes.
Democratizing Access & Systematizing Trust
JCOM will be able to offer the commodities market to countries with strict capital controls including China, Turkey and Egypt, contributing to a more efficient and transparent market infrastructure. Digital commodities would enable decentralized secondary trading with centralized compliance. This would expedite the shift to a state of market hyperliquidity characterized by speed, highly standardized and accessible information, trading platforms and narrow spreads.
Securing Supply Chain Management
The use of digital commodities would significantly improve transparency in the supply chain, verifying the ownership and origin of goods and enabling reliable tracking. It would also create a more efficient and liquid market, moving commodity trading away from bilateral deals struck directly between two parties to transactions based on electronic platforms that match buyers and sellers.
Enabling Fractional Ownership
The tokenizing of precious metals creates the possibility of fractional ownership along with greater transparency in an asset class that has been opaque, illiquid and often expensive to own.
Ultimately, utilizing Jibrel’s blockchain as the mechanism for price discovery and trading, all the way through to back-office settlements and payments would bring about potential cost savings and process efficiencies that are too compelling to ignore. While practical challenges, such as, regulatory education and incumbent’s incentives may exist for implementing this broader ecosystem, however, building towards this goal offers the potential for a better and fairer market for all.
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