The commodity market infrastructure is traditionally considered more conservative from a technological viewpoint. The use of a blockchain imbues innovation in this sector. Application of DLT is considered among the most potent opportunities to simplify the current business processes from working with letters of credit and using a single document flow to instantly settle complex transactions and create derivatives directly on a ledger. There is a wide range of applications of Distributed Ledger Technologies (DLT) in commodities.
- Shorter settlement cycles, reduced amount/cost of paperwork. It is shown that blockchain platforms will be able to enhance the efficient settlement transactions that will bring the boon for the market of gas and power. What is more, a wide range of participants across the entire value chain of oil and other commodities can economize significantly on the cost of paperwork if a DLT stack be used for clearing and ultimate settlement.
- Absence of fraud and tremendous opportunities for any investor. Distributed ledgers can prevent the forging of digital letters of credit. The will be stored in a common database, open to all participants – a distributed registry, updated in real time. Also, commodities could be easily tokenized, which opens opportunities to a wide range of investors with minimal taxes and even the absence of any fees, while classical ETF on commodities could offer “great” deals to investors which include taxes up to 37% and an expense ratio up to 3.81%.
- Transparent and efficient tracking. Blockchain platforms provide successful solutions for tracking commodities’ way from mine to customer. That makes the logistics chain clearer, faster and more efficient.
Financial giants such as ABN AMRO, BNP Paribas, Citi, Societe Generale, Crédit Agricole Group, SGS, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank and Natixis , Shell and one of the largest oil traders in the world, Gunvor, have already implemented blockchain into operations with commodities. According to Forbes journal, the mass introduction of blockchain technology will occur in an interval of 4-7 years.
The Benefits at a Glance
- Transparent records of complicated transactions
- Tracking of commodities from “mine to customer”
- Reducing of fraud
- Tokenizing Commodities with Blockchain
- Trading of Commodities
