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Goldman Sachs, JPMorgan Invest in Axoni's $32 Million Funding Round

Enterprise-focused blockchain startup Axoni has completed a $32 million Series B funding round led by Goldman Sachs and Nyca Partners.

Also participating in the round were Andreessen Horowitz, Citi, JP Morgan, Wells Fargo, Y Combinator and Digital Currency Group, among others. The round raises Axoni’s total venture capital funding to over $55 million to date, according to the firm.

Coffers now full, the New York-based Axoni said it plans to use the funds to continue developing both its data synchronization technology and its ethereum-compatible smart contracting language, AxLang, as well as increase the number of products relating to its auditable distributed ledger-based network, dubbed AxCore.

Greg Schvey, CEO of Axoni, added in a statement that the firm will seek to expand the number of enterprises that use its distributed ledger technology.

“The adoption of distributed ledger protocols in capital markets resembles the early days of adopting TCP/IP for distributed enterprise applications,” commented C. Thomas Richardson, head of Market Structure and Electronic Trading Services at Wells Fargo Securities.

Axoni raised $18m in a Series A round led by Wells Fargo in late 2016, with investors such as Goldman Sachs, JP Morgan, Andreessen Horowitz also taking part in that funding effort. The firm revealed that Citi had later contributed an undisclosed amount in May 2017.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Axoni, Clearmatics Claim Milestone for Blockchain Interoperability

Two of the most prominent startups in enterprise blockchain are teaming up to tackle the hard, but now seemingly inescapable problem of interoperability.

At Consensus 2018 this week, Clearmatics and Axoni demonstrated how a financial derivative can be issued via a smart contract, trigger a payment and then instigate a cross-chain atomic transfer of value between two distinct networks. This marked the first time a derivatives contract has been originated on one enterprise blockchain and settled on another.

The milestone is important because interoperability is now emerging as a key design goal of distributed ledger technology (DLT).

While the financial world may be moving from a state of many ledgers to fewer ones, blockchain architects have come to realize that trades, deals and transactions will probably never be originated, processed and settled by a single, monolithic system.

Robert Sams, the CEO of Clearmatics, told CoinDesk:

“Facilitating end-to-end processing from point of trade to settlement, we need to make the assumption that that process is going travel through multiple systems, rather than a single monolithic settlement system, distributed or otherwise.”

The collaboration is significant also because of the clout of the players involved.

Axoni, based in New York, is working with a wide range of leading financial institutions and infrastructure providers to move trillions of notional value in U.S. dollars onto blockchain tech across a variety of asset classes.

Meanwhile, its partner in the demo, Clearmatics of London, is working with a consortium of banks and financial institutions to create digital fiat that is fully collateralized by cash at the corresponding central bank and transferable on a distributed ledger.

Axoni has also been doing a lot of work in the derivatives space and other areas of post-trade processes, while Clearmatics is focused on the settlement side of things, so the pairing was an obvious fit (both are building technology based on ethereum-derived architecture).

“If we can collaborate appropriately and facilitate linkage between those networks, what you end up with is a highly automated, highly transparent process all the way from trade agreement through to settlement finality,” said Greg Schvey, the CEO of Axoni.

Lessons from crypto

Stepping back, it’s fair to say blockchain interoperability is at the R&D stage.

To make sense of the problem involves a lot of requirements based on use cases and the domain applications, which all have to be considered together. Sams emphasized that the interoperability demo was just a proof of concept – but an important one, because it drives the spirit of open source collaboration.

“Interoperability needs to be tackled in a open and collaborative fashion and built around open standards and open source implementations,” he said, adding:

“There will probably be multiple types of interoperability solutions – not many, but more than one.”

The same spirit extends to the public blockchain community, where a lot of cutting-edge work is being done on the very technical aspects of the topic.

“There’s a lot of overlap between cross-chain atomic swaps in the cryptocurrency space and the stuff that we are doing,” said Sams. “Even though the domain application is entirely different, the underlying technological primitives are very similar.”

The contract in question was modeled using Axoni’s domain-specific language, AxLang, and then settlement finality of the resulting cash payments was achieved across different permissioned, ethereum-compatible ledgers.

Clearmatics’ contribution to the demo was Ion, an open source interoperability protocol, designed to perform atomic cross-chain transactions.

Lingua franca

The AxLang smart programing language used here was developed by Axoni to make working with smart contracts in an enterprise setting a sure thing, so to speak.

Axlang is based on Scala and enables formal verification of smart contracts, a rigorous mathematical method used to prove the correctness of computer programs. It can also compile to both the Java and the ethereum virtual machines.

However, developers are often asked, why another programing language?

Schvey said that doing lots of work with large-scale application design on blockchains revealed certain requirements not being met by Solidity, the first step into programming smart contracts among the ethereum community.

In particular, Solidity lacks formal verification, which is the ability to have mathematical proofs that the code written has compiled properly, Schvey said.

“Being able to check for certain error vectors is a very powerful concept, especially if you are deploying a large scale multi-party infrastructure with a lot of value going through it,” he said.

Indeed, the proof of concept marries two hard technical challenges: interoperability and formal verification. And there’s an important connection between the two, Sams pointed out.

“Imagine an end state of distributed market infrastructure where you have an end-to-end process flow, occurring through multiple systems,” he said.

“It’s obviously going to be very important that at the semantic layer, a system taking over a process from another system, and vice versa, understands and can demonstrate exactly what the business logic is that they are consuming or producing for another system to consume.”

Two roads image via Shutterstock

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JPMorgan, Goldman Sachs Trial DLT in Equity Swaps Pilot

A group of major financial firms including JPMorgan Chase and Goldman Sachs has conducted equity swaps over a distributed ledger (DLT) system.

Using the AxCore distributed ledger platform from startup Axoni, the pilot – which also included BNP Paribas, Credit Suisse and Citi – saw the banks process equity swaps from start to finish.

The trial looked at the potential of DLT to streamline the way swaps are made.

By carrying out trades across a network where all parties use the same valuation data and share the same books, in theory, payments can be processed nearly instantaneously and disputes over transactions will be less likely.

Greg Schvey, CEO of Axoni, said in a statement:

“Equity swap data is infamously complex and difficult to manage, making it a terrific fit for distributed ledger technology.”

Following on from a proof-of-concept from late last year, the pilot tested tasks like trade creation, amendments, swap aging and dividends. The pilot also tested factors external to the trades, such as network performance and privacy, although it was conducted entirely a test environment. None of the trades were real and no money changed hands, according to Bloomberg.

Axoni used a standardized data structure for the swaps, built in collaboration with the International Swaps and Derivatives Association (ISDA). The collaborators also put together a governance framework to be used on a production network.

In May, Axoni closed a $20 million Series A round that saw participation from banks such as Citi and investors like Andreessen-Horowitz.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Axoni.

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DTCC Milestone: $11 Trillion in Derivatives Gets Closer to the Blockchain

The company that today settles the lion’s share of U.S. securities is moving its flagship blockchain project out of the testing phase.

Revealed in an exclusive interview with CoinDesk, the DTCC reports that it has completed an early version of a blockchain that could one day support the trade of $11 trillion-worth of credit derivatives. The milestone signifies a major development for the clearing house, one that also marks a continuation of the largest effort yet to adapt an existing financial infrastructure to a blockchain.

First revealed in January, the goal of the project was to upgrade the infrastructure underpinning the DTCC’s centralized Trade Information Warehouse (TIW) for over-the-counter derivatives, reducing the time it takes to clear derivatives trades from weeks (in some cases) to nearly instantaneously. To do that, the DTCC partnered with computing giant IBM, enterprise blockchain consortium R3 and venture-backed blockchain startup Axoni.

Now, with such a large-scale implementation complete, the partners are reflecting on the lessons learned.

Ahead of a scheduled launch in the first quarter of 2018, the DTCC’s chief technology architect Rob Palatnick sought to frame any obstacles ahead as a sign of progress.

He told CoinDesk:

“The exciting thing is that there’s continued comfort in the progress of the overall application and environment. There are always challenges, but we call it the ‘noise of progress’.”

Side effects of ethereum

For the first time publicly, Palatnick also revealed that Axoni’s AxCore protocol was originally derived from the public ethereum blockchain, and that the DTCC’s system uses the same Solidity smart contract language that powers its applications.

However, AxCore has been modified to include a modular consensus mechanism that lets it tailor services to the specific needs of the DTCC, as well as submit real-time reports to both regulators and other counterparties.

“This is a huge improvement in situational awareness for individual firms, regulators and the industry as a whole,” an Axoni representative said.

And, unlike ethereum, the DTCC implementation of AxCore does not include a token – though both Axoni and Palatnick confirmed the system is still powered by a form of “gas,” implying a parallel to the way transaction fees are paid on the ethereum blockchain.

While ethereum is the most-widely used blockchain protocol for developing these enterprise-grade implementations, the DTCC said complications arose because of that.

For one, ethereum’s business logic is not as sophisticated as DTCC required – primarily in that Solidity has difficulty recognizing decimals, yet credit derivatives swaps need to work in fractions.

Palatnik said:

“There’s lots of exceptions with everything, there’s lots of nuances, and that meant things like the capabilities of the technology and the capabilities of using the smart contract language of ethereum needed to address business functionality.”

Early on, to address that, the DTCC thought much of the actual business processes workflow would need to be conducted “off-chain,” largely reducing the role of the blockchain itself to storing settled data. In this way, “we wouldn’t do a lot of the business logic in the smart contract language itself,” Palatnik said.

But after several months of building, the developers discovered they were actually introducing more complexity by conducting this workflow off-chain than they were removed by using a blockchain in the first place.

“We ended up backtracking and moving a lot more of the business logic on-chain,” Palatnick said, noting that figuring out what information needs to go on-chain and what processes must happen off-chain was a challenge.

Moving forward

But much of this behind-the-scenes work could soon go live.

For example, Palatnick said that the open-source community will be able to examine Axoni’s DTCC implementation following the completion of the project. Before then, though, additional tests and a series of integrations – both with the TIW itself and external parties – need to be executed.

The DTCC is currently working with regulators to align Axoni’s built-in reporting database with regulatory requirements. According to Palatnick, the reports have to be as good as existing ones, and that the companies involved are making sure that happens.

Above that, R3 and its network of over 100 global financial institution members are working with standards-making bodies to create “standards around what data should look like on a distributed ledger,” he said.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Axoni.

DTCC booth image via Michael Del Castillo for CoinDesk

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