Building a Case for Blockchain Efficiencies The formation of komgo, a private blockchain linking the financial interests of global trade is an interesting case in how interested parties can

KOMGO CASE STUDY

komgo is a blockchain-based open network that brings commodity trade finance into the 21st century by optimizing financing processes and accelerating industry operations with digitized transactions and a trusted source of documents to reduce fraud.

Catalyzing the Global Trade and Commodities Finance Network with Blockchain

komgo Case Study | A ConsenSys Solutions Project

The launch of komgo highlights a shared vision for industry innovation and underlines the ongoing commitment among members to build a truly open and more efficient network within commodity trading.”

— Souleïma Baddi, Chief Executive

Officer of komgo.

Bringing the Commodities Trade Financing Industry Into the 21st Century Backed by 15 of the world’s largest institutions spanning global banks, trading companies, and oil giants, komgo is transforming world-wide trade financing from an antiquated and risk- prone paper-based system to a fully digitized, secure, and frictionless experience via an open blockchain platform in partnership with ConsenSys and Kaleido.

PROBLEM STATEMENT

Rapid globalization has outpaced the trade finance industry’s ability to standardize and digitize its system of record-tracking. The exchange of commodities— each with its own unique regulations, shipping specifications, and certification requirements—is currently managed across different borders and jurisdictions using an ineffective, antiquated paper-based system of record tracking that is often prone to significant issues. Among these issues are fraud, security vulnerabilities, and inefficient payment methods that leave stakeholders waiting for payment for an inordinate amount of time. It has been difficult to make significant technological improvements to trade finance operations for various reasons, including the number of diverse stakeholders located across the globe and the complexity and volume of business transactions. Fractured processes cause billions of dollars worth of annual losses in income and missed opportunities.

komgo seeks to catalyze the world’s commodity trade finance network using Enterprise Ethereum blockchain technology to deliver higher levels of security, trust, and efficiency through automation and industry- tailored functionality.

THE ENTERPRISE ETHEREUM SOLUTION

A private, shared blockchain network based on Enterprise Ethereum that serves as a secure, streamlined, and digital platform on which only authorized parties — banks, commodity traders, energy corporates, inspection companies and the broader ecosystem of participants — can store data, exchange transactions, and send messages more efficiently and securely based on permissions. This network enables the secure peer-to-peer exchange of documentary evidence to support Know- Your-Customer (KYC) due diligence and the execution of trade finance transactions.

The komgo platform facilitates significantly increased transparency, while its “privacy by design” architecture permits private peer- to-peer transactions. This design model radically enhances trust and accelerates access to trade finance by reducing operational procedures and lowering the risks of failures and fraud across the industry.

komgo is backed by 15 of the world’s largest commodity trade and finance companies: ABN-AMRO, BNP Paribas, Credit Agricole, Citi, Gunvor, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, SGS, Shell, Societe Generale. By working with ConsenSys Solutions and leveraging Kaleido’s enterprise blockchain solution, komgo was able to quickly implement its vision and successfully deploy its live production network in December 2018.

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GOALS ACHIEVED

After 2 years of proofs-of-concept and pilots, komgo incorporated in August 2018 and launched its platform four months later on 20 December 2018. komgo is connected to another live Ethereum platform, VAKT, a blockchain based post-trade processing platform for commodities. The first letter of credit was issued on the komgo platform on 21 December 2018—a first for the commodity trade finance industry.

komgo catalyzes the world’s commodity trade network by facilitating a global

ecosystem that optimizes physical commodities financing and the acceleration of industry operations. While streamlined operations are estimated to create potential cash-flow gains of 30-40% across the entire production chain, industry-wide adoption of komgo is expected to reduce the cost base between 20-50% with the possibility of further improvement as the project matures. komgo seeks to further expand its product offering in 2019 and will continue to grow its network to hundreds of participants.

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The Problem Story Antiquated systems that are globally complex and difficult to innovate

Historically, the commodities trade financing industry has been maintained by outdated legacy systems and data management processes that are difficult to change. The industry ecosystem is vast, complex, diverse, geographically dispersed, and interconnected. Each participant observes different government regulations with political nuances, and faces varied economic challenges, including mixed levels of international influence. To further complicate matters, individual commodities must adhere to region-specific regulations, shipping specifications, and certification requirements— and as a result, it can take up to 90-120 days to prepare for trading. Ingrained challenges across this ecosystem have led to little standardization or digitization. The trade financing industry remains deeply reliant on a paper- based system of record tracking despite its shortcomings. In result, the rapid globalization of international trade has outpaced technological improvements the system relies upon.

Some countries in the Western world have agreed upon a digitized bill of lading, which is a detailed list of a shipment of goods in the form of a receipt given by the carrier to the person consigning the goods. In the energy market, however, where other

parties aren’t always trusted, this has mostly failed. Shipping companies have different methods to issuing bills of lading and with so many ports having a wide variety of cases, it’s been challenging to digitize the industry across the board. Commodities financing requires a tremendous amount of trust between transacting parties to hedge against all of the vulnerabilities the industry’s complexity creates. The tolerance for error is low, and the fragility of paper-based documentation increases this risk. Vast paper trails lead longer wait time for payment, increased insurance costs, and increased opportunities for fraud. Greater risk means stakeholders are less willing to invest , thus perpetuating the cycle of reliance on ineffective paper systems — even as the business grows and scales.

95%

The percentage of data transmitted during a single commodity trade cycle that adds no value or revenue to the transaction.

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Commodity trade finance’s paper-based system is represented in the exhibit above: The buyer and seller agree that the delivery will take place on a specific date and the price and terms of the delivery.

The documents needed to support this transaction can include:

1. Bill of lading: Document issued by shipping company attesting that they hold the commodities on behalf of the owner.

2. Certificate of origin: Oil is often produced in a controversially sourced country (must not be sanctioned by the U.S.).

3. Certificate of quantity and quality: A third-party inspector is needed to take sample upon loading and discard and produce chemical specification test.

4. Certificate of insurance: For insurance during transportation.

5. Letter of credit: Guarantee of payment from an international bank.

• To assure the seller

• To get funding for the buyer

Now imagine doing this at scale. There are hundreds of these transactions every day, with forward trading up to seven years. It takes 90-120 days to book the shipping of a commodity, request trade finance, collect documents, provision the documents to the buyer, and facilitate payment— a lengthy process at best, one that komgo is now disrupting, digitizing, and streamlining in a significant way.

DIAGRAM: THE INTERNATIONAL TRADE ECOSYSTEM BEFORE BLOCKCHAIN

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Solution Story Streamlining efficiencies for the trade and commodities finance sector with blockchain

THE FORMATION OF KOMGO

komgo is a secure, decentralized, and open platform enabling seamless data communication between commodity trade institutions, corporations, inspection companies, and third parties. Until today, the industry has been slow to change, and initial stakeholders needed to have significant market “muscle” in order to accomplish widespread adoption.

After a series of proven use cases around soya beans and crude oil, 15 of the world’s largest banking and commodity companies officially announced the formation of komgo, a blockchain-based trade financing platform and network.

DEVELOPMENT OF THE KOMGO PLATFORM

komgo partnered with ConsenSys and Kaleido to develop their blockchain solution and ‘productize’ itself for a large number of participants at a rapid pace. The komgo platform restores confidence and provides assurances to banks that temporarily own commodities as collateral on their loans. Enterprise blockchain enables a tamper- proof KYC record that meets Anti-Money Laundering (AML) regulations; it uses a shared ledger to improve access to accurate information across the ecosystem, and it provides private data exchange based on permissions.

THE CASE FOR CONSENSYS AND ENTERPRISE ETHEREUM

komgo chose to partner with ConsenSys as the engineering and infrastructure leader of the enterprise blockchain ecosystem. The ConsenSys team brought tremendous value through strategic advising, solution design, blockchain architecture, platform development, solution deployment and full production, and customer success. ConsenSys leveraged its substantial blockchain and industry expertise to successfully launch the komgo platform on time in December 2018 and continue its accelerated development.

komgo chose to build on Enterprise Ethereum to benefit from its open- source and interoperable platform. These capacities enable other industry players to participate in the same blockchain-based system—without the complicated channel architecture of solely private chains which could stifle adoption and detract from the initiative’s goals.

90%

of the trading commodity finance market is backing komgo. This will bring liquidly to the platform and will generate traction.” – Souleïma Baddi, Chief Executive Officer of komgo.

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THE CASE FOR KALEIDO’S BLOCKCHAIN-AS-A-SERVICE

The komgo platform, designed and developed by ConsenSys, incorporates Kaleido, the leading fully- managed enterprise blockchain-as-a service provider. Kaleido drastically simplifies the use of permissioned blockchain, allowing komgo to launch on time and manage its network at a fraction of the cost of bespoke blockchain networks. To accomplish this endeavor on their own, komgo would have required a large group of dedicated blockchain experts to spend months and millions on custom coding a solution from scratch. Kaleido’s full-stack blockchain-as-a service platform with built-in governance tools, a marketplace of services, and ready-made technology integrations sped up the process for komgo’s vision. ConsenSys built the komgo decentralized solution with Kaleido providing the blockchain enterprise infrastructure and platform capabilities to meet the diverse needs of network participants.

“Kaleido’s ready-made full-stack platform approach allowed us to meet our aggressive milestones and eliminate as much as 80% of the custom coding typically required for a blockchain project of this magnitude.”

– Toon Leijtens, Chief Technology Officer of komgo.

Why Enterprise Ethereum? • It is capable of supporting public, private, consortium, and hybrid blockchain

configurations for use cases and applications across every industry

• It is backed by the largest and most established blockchain ecosystem. Over 300,000 software engineers, product developers, and enterprise delivery experts are building the infrastructure, developer tools, core blockchain applications and resources to facilitate solution creation, delivery, and support.

• Its architectural specifications effectively satisfy enterprise-grade requirements for privacy, security, performance, scalability, and interoperability.

• Its native tokenization capacity empowers business to reap the benefits of secure, scalable and rapid asset transfers, fractionalized ownership of real-world assets, tokenized micro-economies and accountable, transparent governance systems.

• Its built-in incentive structure drives increased network alignment, heightened operational efficiency and organic growth.

• It offers the best enablement tools for blockchain solutions with rapid deployment mechanisms, full suite support services, and reduced cost models.

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THE PATH TO PRODUCTION

The komgo platform launched in December 2018 and is quickly accelerating adoption in 2019. The functionality includes a comprehensive range of products and services offered through integrated and user-friendly dashboards:

• Support for private and shared transactions using evidence from documents stored with cryptographically verifiable notarization

• Automation and digitization of Letters of Credit through smart contracts, decreasing friction to access trade finance

• Interoperability with third parties, including partner commodities platform, VAKT, and client systems through open API 3.0 standards

• Hybrid deployment ranging from fully managed service to self-hosted options to support the needs of a broad spectrum of clients

HOW THE KOMGO PLATFORM WORKS

komgo rolled out two initial products:

• A digital letter of credit, allowing commodity houses or other platforms to submit digital trade data and documents to komgo with customer banks of their choice.

• A trusted decentralized network to exchange documents on a secure and private basis.

komgo’s shared data platform digitizes letters of credit. From there, traders can request for the issuance of letters of credit to match deals made with sellers. This eliminates the need for endless data input, reconciliation, and verification. It injects better visibility and fraud protection into the trade financing process.

Moreover, the blockchain-based ledger allows komgo stakeholders to digitally attach verifications of cargo shipments to specific letters of credits, reducing the susceptibility of fraud while banks temporarily own a commodity shipment. By focusing on letters of credit early on, komgo’s solution is built to address the needs of all parties in commodity trading. Involving banks and corporations early ensures their voices will be heard sooner and these solutions will be built into the core komgo infrastructure to support continued adoption across industries.

“komgo will offer significant improvements in terms of user experience and turnaround times, all of which are important when servicing the commodity trading industry.”

– Kris van Broekhoven, Global Head of Commodity Trade Finance, Citibank.

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komgo’s first live business use case is to perform KYC between companies. komgo itself does not own any database. Instead, the blockchain-based KYC process allows users to retain ownership of their data and enables only these users to determine and allow selected actors to retrieve a copy on a need-to-know basis. Data is shared using end-to-end encryption allowing the user of the data to verify the validity of documents by inspecting cryptographic fingerprints on the blockchain. The innovation on komgo’s platform comes from radical data transparency and immutability previously impossible without blockchain technology. Only with complete confidence in the data can a company continue participating in a commodity trade with other entities.

GOALS ACHIEVED

After 2 years of proofs-of-concept and pilots, komgo incorporated in August 2018 and launched its live platform four months later on 20 December 2018. komgo is connected to another live Ethereum platform, VAKT, a blockchain-based post-trade processing platform for commodities. The first letter of credit was issued on the komgo platform on 21 December 2018—a first for the commodity trade finance industry.

komgo catalyzes the world’s commodity trade network by facilitating a global ecosystem that optimizes physical commodities financing and the acceleration of industry operations. In the short-term, komgo will enable cost reduction in document verification, and its network of trust will help the industry mitigate the risks of fraudulent documents. In the long-term, however, implications are much more significant. While streamlined operations are estimated to create potential cash-flow gains of 30-40% across the entire production chain, industry-wide adoption of komgo is expected to reduce the cost base between 20-50% with the possibility of further improvement as the project matures.

komgo will seek to further expand its product offering in 2019 and will continue to grow its network to hundreds of participants.

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“We are now entering a new era of simple and inclusive access to blockchain technology to advance stronger, more collaborative,

business relationships previously out of reach. We are thrilled to see leading commodity trade finance banks and commodity

houses come together to create komgo, which will radically simplify and accelerate trustworthiness, auditability, and

accessibility to trade financing across the industry.” — Joseph Lubin, Co-founder of Ethereum and Founder of ConsenSys.

ABOUT CONSENSYS SOLUTIONS

ConsenSys Solutions brings blockchain to business. We are the engineering and infrastructure leaders at the forefront of the enterprise blockchain ecosystem. We work with Forbes Global 2000 companies, startups, non- profits, and world governments to build, test, and deploy high-value public and private blockchain solutions. We are present across global markets, including the US, UK, Ireland, France, UAE, Hong Kong, Singapore, the Philippines, and Australia. We offer education, strategic advisory, development, and implementation services along with opportunities for joint ventures and co-creation.

For more information, visit www.consensys.net/solutions

ABOUT KALEIDO

Kaleido, a ConsenSys Enterprise Business, is dedicated to making blockchain radically simple for organizations to adopt so that our societies will fully benefit from decentralized models and new trust systems. Kaleido is collaborating with cloud leaders Microsoft Azure and Amazon Web Services to offer its Blockchain Business Cloud, a full-stack SaaS platform and dedicated blockchain marketplace to accelerate the entire enterprise journey from exploration, proof of concepts and pilots to live production business networks.

For more information, visit www.kaleido.io

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komgo Case Study | A ConsenSys Solutions Project

When you decide to build on Ethereum, you need to be with the ‘best-in-class.’ ConsenSys holds this position. Over the course of the build of the platform, we’ve seen huge engineering capabilities from the team.”

— Souleïma Baddi, Chief Executive Officer of komgo.