UBS Blockchain Partner Clearmatics Taps Investors for Funds

  • Route 66 Ventures, Tellurian Capital among investors
  • `Billions' of costs in play with blockchain, UBS's Murphy says

Clearmatics Technologies Ltd., the company working with UBS Group AG on a blockchain-based digital coin to redesign the global payment system, completed its first round of funding.

Route 66 Ventures LLC, Tellurian Capital Management LLP and Nyca Partners are among the investors, Robert Sams, founder and chief executive officer of London-based Clearmatics, said on Wednesday. The backing is the latest sign of interest in using blockchain, the software behind bitcoin, to make transferring and tracking the ownership of bonds, loans and other assets faster and cheaper and to minimize operational risks.

“As a hedge fund ourselves, we can see the very significant benefits that this new digital settlement coin and the related distributed ledger market architecture will bring to the table in securities trading,” said Jean-Marc Bonnefous, managing partner at London-based Tellurian Capital.

UBS engaged Clearmatics in September to help develop a digital coin based on blockchain to settle trades and make cross-border payments. The Swiss bank, the world’s biggest manager of money for the rich, wants to team up with other financial institutions and regulators to develop a product for the industry that would be backed by real-world currencies and central bank accounts. 

Potential Uses

Clearmatics, founded in February, has shown the concept to other companies and it has been well-received, Sams said.

Even so, blockchain startups are proliferating, and it may be years before the technology leads to widescale change in the industry. Visa Inc., Nasdaq, Citi Ventures and others recently invested $30 million in Chain Inc., while Banco Santander SA in July sank $4 million into Ripple Labs Inc. Both startups are based in San Francisco.

Blockchain is an open-source software code that uses advanced encryption to record bitcoin transactions. Banks are seeking different applications. Powered by a network of computers, it allows two parties to exchange information securely within minutes, with no need for a third party. At present, banks rely on workers to verify and process transactions, an expensive business that can take days.

UBS has identified 20 to 25 potential uses for blockchain, also known as distributed ledger technology, said Oliver Bussmann, the Zurich-based bank’s chief technology officer.

Real-World Applications

Chris Murphy, global co-head of currencies, rates and credit at UBS, said blockchain represents a fundamental rethinking of the business process that could replace swathes of wholesale and retail-banking activities.

“Across the industry, there are billions of costs that could be at play here,’’ Murphy said in an interview in Zurich last month. He is eager to stay close to developments, he said.

UBS decided early on to abandon a purely in-house model for innovation and become part of the fintech “ecosystem,’’ as Bussmann describes it. In April, the bank installed a team of specialists in Level39, a collective workspace for technology startups in London’s Canary Wharf.

Early Stage

The Level39 team, led by Senior Innovation Manager Alex Batlin, a computer scientist, is also working with the Swiss-based Ethereum Foundation on using its blockchain for so-called smart contracts. These are computer programs that automatically execute commercial agreements, for example a bond that periodically pays interest to a holder.

“Many of these startups have interesting ideas but some don’t quite know how to apply it to real-world business problems,” Murphy said of the industry in general. “The way we’re thinking about engaging is very much a partnership, where we offer them some advice on the application of their technology but leave development to them.’’

The first order of business is to develop a standardized architecture for private ledgers, as opposed to the public one used for the bitcoin, according to Bussmann. UBS was one of the first of more than two dozen banks that joined forces with R3 CEV, a New York-based startup, to set up a blockchain for participants. The other founding members were JPMorgan Chase & Co., Goldman Sachs Group Inc. and Barclays Plc.

“We are in the very, very early phase stage,’’ he said. “The race from my perspective is still open. We are putting our eggs in different baskets.’’

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