US blockchain company Skuchain has established cross-blockchain interoperability in trade finance by linking together its Hyperledger-based EC3 platform with Corda, in the first real-life example of the Bankers Association for Finance and Trade (Baft) distributed ledger payment commitment (DLPC).

The Skuchain DLPC CorDapp brokers a connection between the Corda network and Hyperledger Fabric, the base protocol for Skuchain’s EC3 platform. In short, this new application enables trade originating on Fabric to be extended to participants in Corda networks, a move that Rebecca Liao, Skuchain’s co-founder and executive vice-president, calls “the answer” to the problem of interoperability between disparate systems.

“While banks and enterprises have experimented with trade finance transactions before, all have faced two showstoppers for adoption,” she tells GTR. “Without a standard that cuts across trade instruments, blockchain will bring limited value, efficiency and risk mitigation to transactions. Meanwhile, blockchain networks were becoming increasingly balkanised, which will decrease their effectiveness for enterprises who can’t find their counterparties in the same network.”

The issue of standards was solved – at least in part – by Baft’s DLPC last year. The objective of the DLPC framework is to allow banks to create a legally binding promise to pay and represents monetary value based on a negotiable instrument. It can be assigned and distributed to third parties and is sufficient to trigger payment. The DLPC also allows all parties to a trade transaction to know where a payment is, rather than only being trackable by each entity separately.

But with live DLPC transactions coming up on the horizon, which would then be expanded into long-term trade finance programmes, Skuchain saw a need to solve that second problem of balkanisation, Liao says. “That’s what we’ve achieved today.”

The way it works is as follows: Skuchain’s EC3 platform uses proof of provenance codes (Popcodes) to track the flow of goods on the SKU level, and Brackets – cryptographically secure smart contracts governing an entire purchase cycle which give corporates the ability to digitise purchase orders, invoices, bills of lading and letters of credit. Enterprises running nodes on that platform submit purchase orders, for example, from buyers to suppliers with directives to create a DLPC with a set of fields based on the best practices published by Baft for placement on the Corda network. This is done either via an API call or through a user interface. A smart contract is then triggered, which produces the DLPC payload and submits it to Skuchain’s EC3-Corda gateway. This gateway then talks to an EC3 agent node on the Corda network, which then validates the DLPC and submits the transaction.

Skuchain says it will be executing the first live transactions over the next two months, with as yet unnamed corporations and banks. These transactions will involve the use of the DLPC as an alternative to a letter of credit and the tracking and presentation of trade documents for mineral commodities transactions across the supply chain, with counterparties in China, Singapore and South America, says Liao.

Industry players from banks to corporates have long expressed concern about backing the wrong horse in trade digitisation, going down a potentially costly development and implementation route, only to discover that it is not the industry standard. In response, a flurry of initiatives have been tabled to get different systems to talk to each other, from technology firm Quant Network’s Overledger operating system, a virtual blockchain that links existing blockchains and allows developers to build multi-chain applications, to the International Chamber of Commerce (ICC)’s Digital Trade Standards Initiative (DSI) which seeks to “connect digital islands” in trade through new protocols.

Liao, however, believes that Skuchain’s solution provides the simplest way forward.

“In order to achieve interoperability without requiring complicated, uniform technology standards or point-to-point integration, we have to use a network of networks approach,” she says. “For our core application of Inventory Control & Finance, the enterprises on our networks needed to get to the banks on the Corda network. Since the Corda network is an open source network, we decided to build this connection to provide a freeway for trade finance transactions on the blockchain.”