enVoy to close the $1.7trn trade finance gap with blockchain
00:00, 9 December 2021
Trade finance is a series of instruments used by banks and corporates to smooth the movement of goods around the world. The $20trn market is still almost entirely paper-based and systemic inefficiencies mean many small- and medium-sized enterprises (SMEs) are often unable to access it.
This leaves what the Asian Development Bank calculates as a $1.7trn trade finance gap of goods which do not get exported because finance is unavailable.
Tech firm enVoy says its VOY utility token, which goes live on 20 December, can not only shrink the trade finance gap but also use blockchain to speed up the underlying global supply chains. Capital.com spoke to enVoy’s CEO and founder, Lee Tarone on a video call from his Madrid base about the project.
Capital.com: Why is enVoy targeting the SME trade finance sector?
Lee Tarone: Although by definition SMEs are smaller individually than the larger scale corporates which currently have access to trade finance, taken together as a block, smaller firms represent a bigger chunk of global trade than the tier one names. But currently the banks won’t, or can’t, finance this part of the supply chain because of issues like KYC (know your customer) regulations. In fairness, the banks find it too expensive to originate and assess these smaller trades.
But blockchain solves this problem by creating a roadmap of the supply chain, which is currently very difficult to navigate.
I’m surprised the world has done as well as it has on the current archaic system. People naturally worry about fraud, but the most common problem is admin errors on these forms. The manual re-entry of data is horribly prone to error. We automate end-to end.
If you are able to digitise the supply chain process, people are able to see the goods in transit, and can use blockchain to verify the goods. Then you have digitised documents which verify and enable the finance to happen instantly, rather than the current eight-week process. You are already quids in.
This means businesses are able to turn over a trade a lot quicker, and a company which now does two or three trades a year can instead turn this into 10 trades a year. The end result is GDP growth and banks see lower losses to fraud. It’s a win-win for everyone.
It means Christmas presents and toilet paper can be on shop shelves and not stuck at sea, in ports or warehouses.
Blockchain also speeds up payment processing. We are currently working with a company in Madrid that was waiting eight days for a $700,000 payment which hadn’t arrived. That’s eight days those goods were in the port incurring charges.
If the payment was made in real time, then those goods would be released and the whole trade system moves faster, which would ease the sort of problems we are seeing globally due to Covid.
CC: Why have you added the Corda blockchain to your system?
LT: R3’s Corda blockchain is a distributed ledger platform that is specifically designed for regulated firms. R3 are a great team. They have the banks and the network infrastructure in place and crucially it’s great as a private ledger because trade finance does warrant strong security.
The public ledger doesn't always work, but by using Corda, enVoy is completely auditable. We didn’t move away from Ethereum, but instead we built the defi portal, or what we term the ‘teleport bridge’, which enables payments, and liquidity to come in from different blockchains. For example, Stellar is great for payments.
The teleport bridge is basically an interoperable multi-chain bridge which keeps everything within the enVoy ecosystem of digital assets meaning there is an audit trail for authorities and companies to follow.
CC: Why are you launching on the Liquid and Uniswap exchanges?
LT: We want to work in ‘light’. The key word here is ‘regulated’, and the VOY token will be launched on exchanges which are very heavily regulated in Japan and Singapore. Our two key markets are Asia-Pacific and Latin America so we wanted to deal with trusted exchanges in those locations.
CC: Non-fungible tokens are critical to enVoy’s systems. What does this say about the utility of smart contracts?
LT: It doesn’t matter whether it's art, or soya or trade finance, they are all assets that are bought, sold and moved around. If you look beyond trade finance to trade in general, NFTs (non-fungible tokens) create this whole ecosystem of buying and selling and interoperability of all different asset types into a whole new industrial revolution.
And that is what we are currently seeing with blockchain and the metaverse — an industrial revolution.
Our NFTs will be based on the title documents of goods. The bills of lading, if you tokenise them, it's an NFT. It's the exact same process as with a piece of art. You can then put those NFTs into a huge marketplace, which is the metaverse.
We are not specifically going to the metaverse right now, we’ve got enough going on at the moment. But the metaverse is happening and it shows you the world is coming together.
Or if the banks do finance SMEs, it's at a much higher cost than the fees and interest for larger corporates. But by applying blockchain technology and providing a transparent and auditable trail of where the goods have come from, and who has been involved, the dynamics change and we can bring the cost down.
We’ve spoken to banks about enVoy and they really like what we are doing, because if we achieve the efficiency that we are aiming for, that means they are able to finance these SMEs via our platform.
The banks see VOY as a great opportunity to finance SMEs because as risk levels decrease, it becomes a viable opportunity to work with these firms. I don’t exactly know how much of the $1.7trn trade finance gap a platform like ours can fund, but it will be significant and strengthening the SME sector will in turn boost global GDP (gross domestic product).
CC: Why involve the banks at all?
LT: Blockchain, crypto and DeFi (decentralized finance) are all about the democratisation of finance and certainly when we started this project we had a very narrow vision of what that involved. We were going to save the world and democratise finance at the same time, but the reality is it just can’t function like that.
Some people in our sector have a negative outlook on banks and see working with them as rejecting the ideas of democratising finance, but the fact is banks have large amounts of capital and influence within the global economy. Banks and related finance organisations understand trade finance and want to do more. The gap is so large that we need to engage with as many stakeholders as possible. We simply have to get the funding flowing, so trade can grow.
Anyone who says, ‘let’s get rid of the banks’ is not being realistic. At least for some elements of trade finance.
CC: Are institutions the target market for the VOY token?
LT: Traditional crypto or blockchain circles have been very focussed around retail investors or individuals, but this is changing. If you look at art and music, the truly revolutionary movements all start underground, in these dark and dingy spaces. They then evolve and mature into a more corporate and institutional arena and the same is true of crypto.
One use for the VOY token is to democratise finance to individuals and we don’t want to lose that. We definitely want to mobilise the individuals and the mass market to finance trade, and it will be great if we can achieve that. They can share in the rewards for providing finance.
But to succeed in the trade finance sector, VOY needs to operate in a regulated space, and a more corporate arena. That reflects what is happening in the broader crypto sector as it's being adopted wholesale now by financial institutions and corporates. The crypto market is maturing, with institutions coming in and dominating the sector. It’s no longer just a bunch of people in their rooms, it now includes major institutions like Nasdaq.
So the answer to your question is, we are targeting both the retail and the institutional markets with VOY. I expect the early stages will be dominated by institutions, but we are trying to educate people about this huge world that is trade finance and supply chains, and bring the retail sector on board as well.
One of the reasons we built VOY on the Ethereum blockchain is so we could connect to the public audience, because that’s where it’s sitting right now.
CC: Could the VOY token ease the current global supply chain issues?
LT: It definitely would have helped - there would be a lot more transparency, on the entire supply chain, and payments issues. Currently, supply chains function around bills of lading which are paper documents that don’t answer questions like, ‘where has this vessel been?’
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