InsightsInterview with Alisa DiCaprio, Head of Trade and Supply Chain, R3

31.07.2019| Articles

Hi Alisa, thank you very much for taking the time to chat with us today. To start with, could you please tell us a bit about yourself?

Sure, here at R3, I’m Head of Trade and Supply Chain in our office out of New York City. I joined from Asian Development Bank’s (ADB) Economics Department where I was working on trade digitization, innovation and trade finance across Asia. In that role, I did a lot of traveling throughout the region, working with customs officials, different government agencies and the private sector to facilitate international commerce. 

I’m also a trade economist by training, I got my degrees at MIT and from Johns Hopkins University. I originally worked for the public sector, for the US government and for the United Nations, primarily on free trade agreements and trade negotiations but also on labour standards and sustainability projects.

Could you please define what is DLT?

DLT stands for distributed ledger technology. In the public cadence it’s effectively blockchain. It just refers to a database that’s shared by multiple individuals, institutions or parties. It’s a way of exchanging data; instead of having a central authority where the information is cleared or stored, all the transactions are conducted between the parties on the network. Any updates to the transactions or to the data are visible as they happen, so this cuts out a lot of the operational inefficiencies and intermediaries. 

In trade for example, intermediaries and the exchange of data are both key to the trade process and also sources of friction. At each juncture, parties are exchanging data, adding data, editing the data, so it’s very difficult to keep it up-to-date. DLT or blockchain technology allows all participants in the transaction to see the same data, at the same time and know that what you’re seeing is what your counterparty sees.

When did you realise the impact this technology can have and decide to work in this domain?

Working as a trade economist I learned pretty quickly that international trade is extremely slow, expensive, and opaque. Economists are trained to improve efficiency, so I’ve spent my whole career trying to figure out how to solve these different problems. 

During the last few years, it became clear to me that digitization was as much of a hindrance as it was a solution. While it could improve the speed of trade for everybody that was using that digital solution, it didn’t change much for any party that wasn’t on that particular platform. 

So when ADB started talking about blockchain, I began looking into it. And it was really the first time that it looked like it could solve some of the problems that we have in trade without requiring all counterparties to be on a centralized solution. That’s when I got interested and realized that the technology side was where the change was happening. So that’s when I moved into R3.

Could you please share what does R3 do?

R3 is the company that builds and maintains the Corda blockchain. Initially, we were formed as a banking consortium and built applications for our banks on existing blockchains. But relatively quickly, we realized that banks would struggle to deploy a public blockchain on their internal systems for security and regulatory reasons. As a result, we asked the banks what they needed and went back to build our own blockchain – Corda – that would actually work for highly regulated financial institutions and that’s how Corda came to life.

Corda is the only blockchain that’s built from the ground up with the purpose of being deployed in regulated institutions. This means that it has some specific features such as strong identity protocols and business network interoperability that we knew from the start were going to be required.

Corda has quickly become the dominant blockchain in the financial sector, what makes Corda and its features so attractive?

Corda is relatively new. Our open source platform went live in 2016, and the enterprise version two years later. And even though we started in the financial sector, it’s actually suitable for many other sectors and institutions because of the features around confidentiality and identity.

When you have a public blockchain, all of the nodes have all of the data. Anytime you add another node or another entity joins the network, that node or entity is privy to the full information of the entire network. But with Corda, each of the nodes only has the data for the piece of the transaction that is relevant to that node. 

Corda and its point-to-point architecture allow networks to scale much more quickly as you don’t need to make special considerations for trying to block the information and architect it in such a way that you can add nodes without allowing them to have access to data.

The second important feature is about identity.  For example in Bitcoin, your address and your name can be anything you want it to be, so it’s not necessarily traceable to you as an individual. But the way that we built Corda, as a private permissioned blockchain, means that for a particular trade transaction, you know the identity of the entity that is running the node. That’s incredibly important when you have regulated institutions that need to be identified by their legal identity.

What are other key differences of Corda compared to other blockchain protocols? 

If you take a public blockchain for example, which uses a public broadcast, participants share all of their data. Anytime there’s a transaction, everyone sees it. You can architect different privacy solutions and segregate sub-networks to allow business networks  to share confidential data just within that particular group. But this means that your group is no longer fully connected to the rest of the network and you can no longer transfer assets freely between the different parts of the blockchain. 

With Corda, even though it’s a private permissioned blockchain, we’ve designed it in such a way that if you’re on Corda your assets are transferable between different applications and networks on Corda. 

Let’s say you’ve initially joined as an automotive company with your supply chain management solution and all your suppliers on that particular Corda network. If you want to offer them trade finance you can simply link into for example the Marco Polo Network and offer an additional open account solution through the existing applications that already exist and connect both networks. 

Focussing on interoperability, could you provide more details around the challenge and how Corda supports that?

Interoperability comes up in most of my meetings these days. And that’s because today what customers want is multiple solutions that can work across multiple blockchains. They don’t want to be locked into one particular provider. It makes sense. There’s a number of different levels of interoperability, let me just discuss two. 

First is interoperability among applications on the same blockchain. Corda took that fully into account and is built to allow any application on Corda to be interoperable with any other application. So you can participate in multiple business networks simultaneously. That’s unique among the different blockchains, which don’t have this capability or at least require additional engineering to build a bridge between them such as Hyperledger Fabric.

The second level is around interoperability between different blockchains themselves. We know that it’s possible and in fact we did it. Back at the beginning of the Voltron versions, we built a bridge between Hyperledger Fabric and the Voltron application on Corda and transferred an electronic Bill of Lading through the use of nodes and tokens between both blockchains. In terms of interoperability connecting various blockchain technologies, a lot of engineering work is required with middleware interoperating between them but for relatively limited return. 

So its possible, but it is still too early to be fully scalable because most of today’s blockchains are not stable and not backwards compatible. Corda, on the other hand, is backwards compatible This means if you haven’t updated your business network to the newest Corda version, it’s still going to work. 

As one of the key trade finance solutions leveraging blockchain technology, the Marco Polo Network is based on Corda. Marco Polo has been introduced by R3 and Marco Polo Network (formerly known as TradeIX) a few years ago and today counts over 25 financial institutions. Could you please tell us a bit more about R3’s involvement and how the trade finance network is leveraging the Corda blockchain technology?

Marco Polo is one of the most exciting projects out there today. It’s built by Marco Polo Network (formerly known as TradeIX) , which is a technology partner on R3’s Corda platform with a consortium of banks that’s growing exponentially. 

It connects banks and corporates in trade and trade finance and is focussing on Open Account including solutions such as Receivable Finance, and Payables Financing. The platform is modular and distributed, which is important as every bank offers open account solution in a slightly different way, allowing them to customize their trade finance products offered to their corporate clients.

It’s a really interesting simplified version of something that is quite complex. I think that’s why it has seen so much uptake in the industry. They’ve been already pilots in the receivable finance for cross-border trade transactions between corporates and financial institutions.

The partnership with Marco Polo Network (formerly known as TradeIX) and the member banks is excellent and we have been able to incorporate their comments and learnings through these pilots, and help us strengthen the platform so it works fantastically for trade.

How do you see the market and particularly the trade finance sector evolving in the coming years and adopting blockchain technology? 

What I think is most exciting is that blockchain has the potential to finally transform trade finance into something that’s much more streamlined and cost-effective. 

We know the biggest operational challenges are things like incorrect documentation and KYC (Know Your Customer), multiple systems, poor visibility, manual reconciliation, all of these things are addressed by blockchain. 

Trade is inherently a decentralized system. What we’ve done throughout time is to try apply centralized solutions, which never really worked. 

This is the first time that we see the entire industry getting behind a technology and going “oh my gosh, this is something that can completely change what we do”. And now what’s really exciting is that in 2019 we’re actually moving into deployment.

We’ve built the technology, we’re integrating it into ERP systems, we’re plugging it into back office systems, we’re working with the regulators so they understand how to audit and how to get insight into the transactions. We’re also working with the different regulators to make sure that the regulatory environment and the laws around it are suitable, including electronic documentation and electronic signatures.

So we’re not just changing how banks operate, we’re changing how the entire ecosystem of trade is architected. And that’s so exciting. 

Another part of the market that I see moving quickly is logistics. The shipping industry for example is beginning to embrace blockchain and form different consortiums. 

We also see companies that are competitors and that have never really worked together starting to collaborate in deploying this technology and change the way that they do business. And that’s one of the things that I think is most exciting about blockchain, seeing these new business models and these new ways of operationalizing the business coming forth.

Today, there’s a much broader understanding of what blockchain does and can do. Initially a lot of the conversations that I was having with partners were focused on what is blockchain, what can it do, and the differences from the way that you do business today. But by 2019 everybody kind of knows the answer to those questions. The questions are now more focused around “okay I know my business problem, I know how blockchain can address it but now I need you to help me to understand how do I build a business network? Do I need to work with a regulator for this? What are the different legal requirements around it? How do I govern this new business network?

How does R3 differentiate itself in this landscape?

At R3, we built Corda from the ground up with the needs of the regulated financial institutions in mind. We were building the technology at the same time as we were building the relationships with the regulators, with consultancies and businesses. We learned how to work with the whole ecosystem because its how we started. We can do a lot more than just build the technology, we cover the ecosystem. 

A key differentiator is also that we don’t build applications. We only build the blockchain. The requirements for features come from our partners, the applications built on top come from our partners. Our business model is to support our partners with technology, consortium building experience and with our contacts. 

We’ve really focused on helping our partners to understand how to deal with the regulatory aspect of this, how to bring a bank or an insurance company into a conversation, and how to integrate other technologies like IoT (Internet of Things) or AI (Artificial Intelligence).

For every corporate or financial institution interested in trying out Corda, you’ll have the opportunity coming up in October 2019. Participate in our next CorDapp Trial! It is a seven week program, bringing together participants to collectively explore the benefits of distributed ledger technology around a working Corda application. For October, participants will test out the Marco Polo Platform. Participants can apply for the trial here or contact R3 / Marco Polo to learn more and register.