It is something of an attention-grabber when someone who builds solutions on distributed ledger technology (DLT) says, “We are not a blockchain company”, however that is exactly how Tim Grant, co-founder and CEO of DrumG, starts our conversation. “We are a company that builds on blockchains; not one blockchain, but the right one – we build ledger appropriate solutions,” he explains. “We would never say ‘our blockchain is better than yours’. What we say is ‘our ability to choose the right blockchain and build on it, is better than yours’ – there’s a significant difference.”
DrumG, which was formed in mid-2017, has recently released its first product, Titanium Network, and will shortly add a second. Titanium is built on Enterprise Ethereum, “Our analysis showed it was the best fit” and seeks to, as a recent presentation by the company put it, “return control of OTC consensus data to the banks”.
What this means in reality is the opportunity for banks to access consensus market data at a fraction of the cost – data, as Grant is keen to point out, that these banks actually generate in the first place. “Banks are paying millions of dollars for an end-of-day or end-of month pricing service that takes their data, collates it, and redistributes it back to them,” he observes. “Basically they are paying all this money for a glorified spreadsheet that they use to calculate regulatory capital and client valuations.
“We looked at this and it was such an obvious ‘get it done’ opportunity,” he continues. “We initially partnered with Credit Suisse, but we are now going to the next group of banks to get them to join the network. At a fraction of the cost, these firms can securely access the same data in an auditable fashion.”
As one example of the efficiencies to be gained in one small area, Grant points to the “challenge process” around consensus data. “Firms can now challenge the consensus data if they feel it is inaccurate,” he explains. “Previously this was done by email and could take some time, but with all the data on one solution this can happen in real time – and it is fully auditable.”
The big change that has allowed DrumG to build such a solution has been the advance of Enterprise Blockchain – a development that was in its infancy just six months ago. Reiterating the ledger appropriate ethos of the firm, Grant explains that it has created a rigorous evaluation framework, which involves involves more than 50 measured criterion, both qualitative and quantitative. “This allows us to ensure the right solution is deployed to overcome the specific challenge,” he says. “Firms should not be looking to develop solutions to solve complex problems based upon one Enterprise Blockchain, they should take a more targeted approach, which is where, with our pedigree, we can help them.”
Interestingly, Grant believes that the cost reductions, while significant – DrumG claims operational spend can be reduced by up to 10 times – are the least exciting part of the solution, instead he points to the opportunities to scale. “Everyone is more aware than ever about the value of their data and the need to control how it is used,” he says. “They want the ability to analyse the data in more ways and quicker fashion and that is what Titanium gives them. As more firms join the network the value increases.
“Firms on the network can conduct analyses to help them better understand their trading operations and because it is much more cost efficient, what was previously the preserve of a few firms can now be accessed by anybody on that network,” he adds.
While Grant describes the firm’s first solution as “pretty straightforward”, there is no denying it offers the opportunity for significant efficiency gains, thanks to blockchain technology. The idea was identified when he was cutting his teeth on blockchain at R3, where he was running the R3 Lab and Research Centre. “We were helping banks figure out real solutions using DLT and it was then we identified the gap in the market,” he says. “We did the analysis of how many brokers’ data was required to get sufficiently good enough coverage and to get the biggest bang for your buck and it was obvious that the right place to start was in FX. It works across asset classes of course, but our analysis showed that you need a minimum five or six brokers’ data to get a good enough observation and that nicely matches the top group of dealers in the FX market. By starting in FX we are able to get data from a relatively small group of institutions that handle something like 70% of the market volume.”
Breaking Down Silos
Without doubt the network creation aspect of DrumG’s value proposition is the key, however so too is its ability to break down silos. As Grant puts it, “A lot of value can be found at the intersection of previously walled gardens.”
Essentially the transparency and silo-less approach brought by DLT-based solutions plays to the theme of a converging world – one in which solutions have to be multi-faceted and mutualised. “This is a new paradigm, one without silos,” Grant posits. “We are enablers, we don’t claim to do things better, we claim to do things differently – new business models, new ways of doing things. We are empowering our network clients by giving them the choice over where their own data goes, who can see it and use it, in a framework within which they get paid for its use.
“This framework is transparent enough that users know they are getting paid a fair price for a fair job – it’s the trust network effect,” he adds.
In terms of scalability, one area that may be of interest to banks struggling to deal with expanding the distribution of their single dealer platforms is the ability to deliver products via a DLT framework. Grant acknowledges this was not something DrumG initially looked at when it first studied the deployment of DLT in financial markets, but he sees opportunities. “Individual products from a bank’s platform can be delivered to clients via DLT,” he observes. “There are incredible opportunities available when you have the network.”
The scaling opportunities are also there for DrumG, which is already working on a second solution that provides a post-trade reconciliation network for market participants such as hedge funds and prime brokers. Again, reiterating DrumG’s ethos about the firm building in a ledger appropriate fashion, the evaluation process is currently underway to select the right technology (and the early whisper is it may be based upon R3’s Corda Enterprise platform), and it will enable users to access a validated, auditable and permissionable view of transactions, on which they can conduct their post-trade operations.
As the firm builds more networks, Grant stresses that they will all be interoperable, meaning the network effect is potentially multiplied many times. “If someone is on one of our networks they should be on all of them,” he observes.
The word “disruption” is over-used in the financial markets industry, however this does seem to be a case when its use is appropriate. “Titanium was delivered in months, which we believe demonstrates the value we can deliver,” says Grant. “There are now more than 20 of us at DrumG and we have a deep knowledge of both financial markets and the technology that can help them operate more efficiently.
“Our ethos is to apply intellectual rigour and objectivity to the choice of technology needed to deliver real solutions that deliver value to our network clients,” he adds. “Too often firms seek to solve yesterday’s problems with today’s technology – we believe in using tomorrow’s technology to solve today’s problems.”