What are the signals of R3CEV Blockchain consortium splintering

What are the signals of R3CEV Blockchain consortium splintering

R3CEV has reduced the amounts it projects to raise from banks members in its first round of equity funding. This reduction is from $200 million to $150 million.

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R3CEV has reduced the amounts it projects to raise from banks members in its first big round of equity funding. This reduction is from the initial $200 million to $150 million. The reduction has necessitated a change in the structures of the deal where the structures are already being changed. This information has been revealed by Anna Irrera who now has a new job with Reuters in New York. This is not good news especially considering that Goldman Sachs started to leave R3CEV and then it was followed by Santander. One defection can be termed to be nothing and a second can be termed to be coincidence, but if it happens for the third time it will be a trend and R3CEV cannot afford a third defection.

R3CEV was one of the biggest Fintech stories in 2016. This signaled that banks were accepting Blockchain and making it respectable through getting rid of Bitcoin and proceeding to make it permissioned where only banks can participate. The 2016 was the year that permissioned Blockchain got to rode to the top while at the same time Bitcom got to fall deep except for just a few believers. But as we move to 2017 we see skepticism about Permissioned Blockchain and Bitcoin getting more traction. This shift is shown by the R3CEV news. However, this does not necessarily mean that the defections at R3CEV are primarily caused by this.

From implementing permissioned blockchain there is a massive payoff which is meant to eliminate settlement latency in capital markets. This can result to huge cost saving and Business Process Elimination. Simply this could give bank equal efficiency with a newly born digital startup. Therefore there is adequate motivation for the banks. R3CEV had the idea of a cooperative that would be owned by the banks and would deliver the Settlement Latency prize. This precisely what MasterCard and Visa did in another era. The Chaordic Organization business model is explained by Dee Hook of Visa in this paper.

Some of the main issues at R3CEV might have been just haggles over what percentage the management and founders get against the banks. This could be resolved through negotiations especially considering the size of the payoff. But, there are issues related to structure that were also in play.

Looking at the B3i in insurance we understand that the payoff from eliminating Settlement Latency in insurance is bigger even than the one from eliminating the Settlement Latency in Capital Markets. This is the primary reason why Munich Re, in October, Allianz, Zurich, Swiss Re and Aegon launched the Blockchain Insurance Industry Initiative (B3i). By looking at it one notices that it looks like R3CEV. But there is a major difference which is that B3i was created directly by reinsurance/insurance companies without having any profit seeking company in between.

There is no coincidence in that Goldman Sachs was the first in leaving R3. The fact is that they are the best in technology when compared with other Wall Street banks and they are also shareholders in Digital Asset Holding which owns Hyperledger. Hyperledger was started on December 2015 by Linux Foundation as a cross industry collaborative effort with an objective of supporting blockchain based distributed ledgers. As far as the banks are concerned, Linux Foundation is an independent and trusted entity. In case you need a place to hash out protocols and standards, then Hyperledger is an ideal alternative to R3CEV.

The primary point is that banks want to use Blockchains to eliminate Settlement Latency in capital markets. However, these banks do not mind or care who will provide these services. The banks do not mind whether it is a start up or an already existing intermediary. Owning shares in the start up if it is R3CEV, it is only icing on the cake. SWIFT is described by many people as a dinosaur mainly because it is far bigger than R3CEV. It has more than eleven thousand members in two hundred countries while as on august 2016 R3CEV has fifteen members. SWIFT can easily make it simple for its many members to use Blockchain and it seem determined to do so.

I hope that Richard Gendal Brown who is the CTO at R3CEV continues blogging about bitcoin and blockchain. Whenever I want to understand something complex in this field he is my usual go to source and I suspect there are many others who also rely on him. He has the ability to explain complex subject in a very simple manner. Currently on his blog he is writing about how Corda from R3CEV is going open source. This might be helpful even though it may be too late since all things which are significant in Blockchain is already open source.