The Lease Chain — A Trusted Technical Service Platform For Supply Chain Financing in China
Abstract: Emerging blockchain technology plays a significant role in financial innovations and is the driving force behind the Fintech industry. As a series of decentralized, immutable blocks, blockchain technology allows companies to track the complete lifecycle of a financial transaction or product management. It revolutionizes the way modern finance and procurement operate, making the processes more democratic, secure, transparent and efficient. In May 2019, Mingqing Technology (Shenzhen) Co., Ltd. joined Jingtum’s SWTC blockchain ecosystem to form the Mingqing Super Node and built a supply chain trusted finance technical service platform — the Lease Chain. The Lease Chain platform joins up smart equipment manufacturers, lessors and related investors on Jingtum’s blockchain to provide trusted one-stop leasing and investment services for IoT equipment/devices, enabling efficient transfer and distribution of capital and resources.
The Lease Chain: M2C Internet of Things Financial Platform
The Lease Chain proposes the innovative concept of “M2C”, namely “Machine to Consumers” whereby users directly face the machine and all data is provided by IoT devices, ensuring the timeliness and authenticity of information. Based on the distributed ledger and cryptography technology, the Jingtum blockchain enables IoT data to be automatically uploaded to the blockchain to ensure its security, uniqueness and immutability, forming a multi-party trusted and risk-mitigating information sharing platform.
A Win-Win Platform — a trusted technical service platform for supply chain financing
The platform serves four main roles: equipment manufacturers, equipment lessors, investors and third-party services, which constitute the overall ecosystem of the Lease Chain.
(1) Equipment manufacturers are the product sources of the smart manufacturing equipment leasing services on the platform who are the most important builders of the platform. They are trusted third-party vendors that have been vetted by reviewers on the platform. Manufacturers can put on display and map their equipment into unique ERC721 tokens, entrust the platform with equipment leasing and receive prepaid purchases. After the equipment manufacturers are matched with the actual leasing parties via the platform, the manufacturers are responsible for evaluating the lessors and delivery of equipment. Equipment manufacturers can also choose the salvage value of the equipment or provide certain idled security deposit to the platform according to their own financial strength in order to enhance their credit rating, offer quick refund and promote product upgrades.
(2) The equipment lessor is the lessee of the smart manufacturing equipment on the platform who is also the customer of the leasing service. The lessor that has signed the lease contract will have the right to use the equipment and pay the rent on a regular basis, solving the problems of less equipment leasing by SMEs and lack of innovation in product leasing.
(3) Investors are the core support and source of funding for the platform, including individual investors, institutional investors or investment agents. Investors can choose the smart manufacturing equipment connected to the Internet of Things as their target investment products based on their own risk preferences and affordability. After investment, they will become participants in the operation of the equipment, having ownership of the equipment, assuming the potential risks in the use of the equipment and at the same time receiving high yields for leasing the equipment.
(4) The third-party services within the platform include equipment certification, quality inspection, design of financial products, transfer balance and exchange services etc., which cover the whole business process on the platform, improving the overall functions of the platform. In order to ensure fairness and transparency, all third-party service agencies will be connected to the blockchain and assigned credit ratings, and all service histories and evaluations will be publicly displayed.
As a strategic emerging industry, the vast majority of China’s smart manufacturing industry is small and medium-sized enterprises with weak financial strength and difficulties in getting finance. Taking the traditional movable asset financing business as an example, the bank faces a host of risks such as repeated pledge, insufficient collateral, unspecified collateral, unclear ownership of goods, opaque supervision process, and delayed warnings etc. Small and medium-sized enterprises have insufficient credit such that traditional financial institutions are unable to bear the corresponding mortgage risk.
Advantages of the Lease Chain: a risk-mitigating solution based on trusted technical services
(1) Credit anchoring based on blockchain and Internet of Things technologies;
(2) Supervision of friendly and immutable business records;
(3) A profit-sharing model that supports smart contract execution;
(4) An integrated risk-mitigating third-party service
How does the Lease Chain work?
1. Credit certification: industry-wide access evaluation
Corporate credit certification is the basic requirement for access to the Lease Chain platform. Each enterprise needs to undergo access evaluation, credit certification and connection to the Chain. The whole evaluation process consists of three steps: enterprise registration, information audit and upload of data to the Chain. Uploaded data need to be constantly updated that includes transaction history, industry reviews and credit rating.
2. Connection of equipment: on-chain asset under real-time monitoring of real and transparent data
Once the manufacturer has uploaded the smart manufacturing equipment to the Lease Chain platform, the platform will assign the equipment a standard IoT sensor and grant access to the IoT management system. This allows effective real-time monitoring of the whole process of the equipment in transportation, warehousing, storage and leasing, enabling the platform, investors and manufacturers to effectively manage the entire lifecycle of equipment leasing.
The Lease Chain generates a unique non-homogeneous token for each smart manufacturing equipment that is connected to the IoT system on the platform. The uniquely identified non-homogeneous token maps the real world asset to an asset in the digital world, enabling more convenient and faster circulation, and precise tracking of the whole process.
3. Contract management: standard design matched by smart contract on the Lease Chain
After the equipment manufacturer submits its leasing requirements on the platform and the equipment lessor signs the Memorandum of Agreement, the platform will then complete the equipment leasing arrangement. The matching algorithm match the needs and preferences of the participating parties and, referring to the terms and conditions in the Memorandum of Agreement and the credit rating of the parties involved, provide higher quality services and more convenience for the high credit participants.
The tripartite contract signed after the successful matching will automatically become a smart contract according to the terms of the contract agreement and a corresponding relationship with the non-homogeneous token of the rental equipment will be established which is open, transparent and tamper-proof that can be audited by all parties on the platform to reduce information asymmetry.
4. Product operation: real-time clearing/settlement on the Lease Chain
On-chain certification of products and equipment: Each leased equipment and its corresponding lease contract design will be recorded on the Chain, and corresponding to the non-homogeneous token of the investment equipment, the equipment process information will be disclosed to investors in real time.
In order to carry out transaction of the leased products, investors need to use the uniform on-chain certificates in order to ensure the secure transfer of funds and real-time clearing/settlement. Investors need to uniformly use the on-chain certificates within the platform to ensure the secure flow of funds and real-time clearing/settlement.
5. Implementation of the contract: open and transparent with well-supervised contract execution
After the lease contract is signed, it will be certified and recorded on the chain, and the contract will be formally executed by way of a smart contract. The rent paid regularly by the lessor will be allocated among the investors, third parties and the Lease Chain platform according to the on-chain CNT certificates.
Participants can check the transfer balance on the blockchain browser to ensure that fund allocation and transfer are carried out in accordance with the contract provisions. The supervisory agency shall monitor in real time to obtain real, traceable and tamper-proof information of capital flow.
Development and future prospect of the Lease Chain
For smart equipment manufacturing enterprises, especially small and medium-sized enterprises, financed leasing has become a new choice for enterprises due to capital bottlenecks and difficulties in bank mortgage financing. As an innovative financial instrument supporting the real economy, financed leasing can match the enterprise’s cash flow, meeting the long-term capital needs of customers. This has strong advantages in serving real enterprises and developing the high-end equipment manufacturing industry.
The Lease Chain puts forward innovative service products and solutions for equipment finance and leasing. In particular, it targets the Internet of Things and smart manufacturing equipment and raises purchase funds for individual or institutional investors so as to solve the problems for lessors and investors in the M2C model whereby equipment users lack reliable equipment, investors lack credible investment targets and equipment manufacturers lack the funding.
The Lease Chain is dedicated to providing credit certification and equipment management tool for small and medium-sized smart manufacturing enterprises. Its core solution as an independent service output platform serves to connect a broad range of financial institutions, investors and lessors, helping small and medium-sized enterprises to have more access to equipment financing resources, thus establishing a transparent, open and a win-win industry ecosystem for all the parties involved.
