Ethereum Swaps Tool Added to Microsoft's Blockchain Sandbox
ConsenSys has added a new decentralized application (Dapp) to its Ethereum blockchain-as-a-service toolkit available on Microsoft’s cloud computing platform Azure.
Called the Ethereum Total Return Swap (eTRS), the application aims to serve as both a functional and an example use case that will allow internal tech teams at Microsoft Azure clients to better understand and utilize the toolkit, first announced in October.
Marley Gray, Microsoft’s director of technology strategy for financial services explained that the offering part of the tech giant’s ongoing partnership with ConsenSys, noting that eTRS aims to "demonstrate the power" of the Ethereum blockchain through a step-by-step guide for how a swap agreement can be facilitated on the platform.
Gray told CoinDesk:
”This solution allows our customers to stand up a complex reference implementation on the blockchain that can fundamentally change how the swaps market functions. […] The ability to rapidly develop and express existing financial products using this platform can help ignite innovation in the industry.
Gray said that eTRS will allow clients to create swap agreements as well as monitor the risk valuations, funding and pricing of the swap in real time. The offering was previewed as part of Microsoft Connect 2015, a conference held from 18th to 19th November in New York.
In statements, ConsenSys said that the offering will illustrate how the Ethereum blockchain can complement bitcoin by expanding the capabilities of blockchains beyond value transfer to “next-generation applications”.
Founded in 2014, ConsenSys describes itself as a distributed Dapp “production studio” focused on offering a developer sandbox for the Ethereum network that enables those using its tools to build without working with the core protocol.
The startup, which claims 60 members worldwide, also works to create second-level applications built on Ethereum that showcase how it can be leveraged for use cases such as peer-to-peer lending, identity and reputation, while also serving as separate products as part of its “hub-and-spoke model”.
On the surfact, ConsenSys’s take on total return swaps functions similarly to existing agreements, wherein one party makes payments to another based on the return of a reference asset.
Unique to the cryptoswap offering, however, is that ConsenSys uses elements of the Ethereum blockchain that allow for referencing client accounts, technology it says will help fulfill know-your-customer (KYC) and anti-money laundering (AML) requirements digitally.
ConsenSys CFO of enterprise capital markets James Slazas suggested the release will help highlight the potential cost savings Microsoft’s clients could capture by building similar applications with its toolkit, which is based on its work building identity tools into the Ethereum blockchain itself.
"It's not just to use but to get their minds thinking about, if I had a global system for decentralized identity, that means I don’t have the cost of onboarding new clients, so I can change the level of client we take on, because the cost reduction occurs," Slazas said.
In eTRS, Ethereum is then used to automate collateral requirements based on the price of the assets used. The creditworthiness of those involved in the transaction will, in turn, be updated on a reputation system that is adjusted based on performance.
"Finally, we will reconcile the counterparties accounting records with triple-entry accounting on Ethereum, whereby the third journal entry is recorded on an immutable blockchain drastically reducing the possibility of fraud," the company explained.
Similar to a number of startups seeking to use blockchains to lower transaction settlement times, ConsenSys said its “cryptoswaps” have t+0 settlement, completing days faster than the industry standard t+3.
Slazas explained that the eTRS was launched in conjunction with the Microsoft Connect conference so that the ConsenSys team could make its offering more “relatable” to potential enterprise users.
“We highlighted each of the areas that the blockchain is having impact. The eTRS isn’t just you and I call each other and agree to some terms to get [a swap] settled,” he explained.
He went on to describe how he introduced eTRS as a project designed to work with bank customers and that had gone through KYC processing.
“We are able to use that reputation and identity to enter into the transaction. That makes trading much more streamlined and it has an impact on banks,” he continued, adding:
“It wasn’t ‘Hey we’re trying to sell the Dapps to these banks.’ It was more to be able to show them what could be done.”
Slazas said that as many as 50 individuals attended the live demonstration.
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