Skuchain’s blockchain platform has completed the first live trade transactions using a distributed ledger payment commitment (DLPC), facilitating a series of metals purchases by Mitsubishi’s trading arm.
Mitsubishi’s Americas trading business used Skuchain’s DLPC functionality to purchase metals worth US$43mn from a mine in Peru, with payment made through Mizuho Bank.
California-based Skuchain says the DLPC – which uses smart contracts to automate payment to the seller once a purchase order is met – makes open account trade “frictionless and with a similar level of security as letters of credit, guarantees and other traditional trade instruments, at a reduced cost”.
Srinivasan Sriram, Skuchain’s founder and chief executive, tells GTR that the DLPC “doesn’t have all the trimmings of a letter of credit, but takes the key components of a letter of credit”.
“It means you have trust without having to put money in escrow. This ensures the buyer can provide a commitment that the seller is satisfied with, based on a set of conditions,” he explains, adding that the trades are the first real-world trade transactions to be based on the DLPC.
Unlike a letter of credit, the bank is not expected to review the terms of the transaction – though it is still obliged to carry out anti-money laundering checks.
“By placing control over trade finance arrangements squarely in the hands of the enterprises that need it while tapping into vast pools of capital at banks and other financial institutions gives the company more liquidity and trading capacity,” the Skuchain announcement adds.
Yuichiro Yoshinari, director for innovation and design thinking at Mitsubishi Corporation’s Silicon Valley branch, says the company was “honoured to collaborate with Skuchain and Mizuho Bank to conduct the first DLPC transactions in real trading”.
“We would like to continuously pursue further opportunities to apply DLPC to provide better services to our customers and partners,” he says.
Yoshisuke Maeda, general manager at Mizuho’s global transaction banking department, adds that the bank also intends to accelerate its use of “cutting-edge technologies in trade finance”.
Mitsubishi’s Japan-based metals and mining business has previously partnered with Skuchain to develop its own trading platform, ECO, which generates, manages and executes invoices and confirmations between counterparties.
The DLPC transactions were carried out in line with industry-wide best practices developed by the Bankers Association for Finance and Trade (Baft). The most recent version of those best practices was published in January this year.
Tod Burwell, president and chief executive of Baft, says: “Digitisation of trade requires standards as well as supporting legal framework. We were delighted to work with our members to develop the DLPC for this purpose, and even more excited that this has been successfully put into practice to facilitate live transactions.”