Inside R3CEV's Plot to Bring Distributed Ledgers to Wall Street
About a year ago, R3CEV founder David Rutter and partner Todd McDonald traveled to California to survey the growing landscape of digital currency startups for potential investment opportunities. After days of meeting with numerous companies – in addition to back-and-forth trips on the highway – Rutter says that he had a moment of deja vu.
“I had seen it before where a lot of money – a lot of California-based venture money – was being thrown at PowerPoints and half-baked ideas about how this new technology was going to change finance as we know it," he recalled.
A 30-year veteran of Wall Street and former CEO of Electronic Broking at interdealer broker ICAP Plc, Rutter said that what came out of that trip to California was a decision to eschew the ideas of radical change enabled by cryptocurrencies to instead look for problems that could potentially be solved by the use of a distributed ledger.
He told CoinDesk:
“The journey we decided to take was to build a knowledge base on what's out there so we can go talk intelligently to big banks about the potential and get their perspective and try to build a thesis around where blockchain technologies could make a mark.”
In a new interview, Rutter and McDonald outlined how R3CEV has been playing a quiet yet concerted game to bring blockchain technology to the world’s largest banks and financial institutions.
The difference between R3CEV and other distributed ledger startups, however, might lie in the strength of its team. The company boasts IBM executive architect Richard Gendal Brown, Open Mustard Seed chief architect Patrick Deegan, bitcoin industry pundit Tim Swanson and former Bank of America, Citi and Wells Fargo employee Raja Ramachandran among its advisors.
Solutions for problems
In interview, both Rutter and McDonald suggested that it's too early to say how Wall Street institutions and financial companies might one day introduce or integrate blockchain technologies.
R3's approach has involved hosting roundtable discussions with interested banks, seeding proof-of-concept initiatives and working directly with institutions on exploration projects.
Specific projects teased by R3 include a peer-to-peer streaming network for US Treasuries. Rutter noted during the interview that among the potential uses of the technology for banks would entail same-day settlement of trades for Treasuries and other securities.
Part of this process has meant operating somewhat in the background – a strategic choice that Rutter attributed to the team's desire to work rather that seeking any kind of limelight.
"There’s an awful lot of hoopla out there about what's going on in the space, and our view is that we want to make substantial progress that we can speak to," he said.
R3 isn't the only firm in the space looking to capitalize on rising interest in blockchain technologies among the financial sector.
Digital Asset Holdings, led by former JPMorgan exec Blythe Masters, recently unveiled a number of product initiatives that includes same-day settlement systems, and companies like Hyperledger, Ripple Labs and others have long targeted the financial sector as a key client demographic.
At stake are the millions of dollars – if not billions – worth of new business models and financial products built using the technology. As such, players in the space are moving to establish influence among the institutions that could find see big changes in the decades ahead if blockchains and distributed ledgers see broader usage.
Challenging Silicon Valley
Whether bitcoin or another implementation of the protocol will be utilized by one or another bank is still very much unclear.
Rutter and McDonald stressed that they strive for a degree of agnosticism when looking at distributed ledger tech, eschewing the bitcoin maximalist view broadly propagated by others in the industry.
McDonald characterized R3 as taking as a "balanced approach", one in which bitcoin as well as other iterations of the technology are equally weighed when looking at particular implementations or use cases.
He went on to suggest that this view stands in contrast with the thinking of some in Silicon Valley:
“They see it as kind of a skeleton key for all the world’s problems, to be applied to everything. We think there’s a lot of interesting aspects around bitcoin and proof of work blockchain and we continue to look at different applications for it.”
The key, the two stressed, was approaching applications from the perspective of a financial institution looking to experiment and integrate, rather than with how the technology could be used to augment the institution from the outside.
These days, it seems harder to find a bank or financial institution that hasn’t committed resources to exploring bitcoin and its underlying technology.
Numerous banks have made public their experimentations, and working groups and trade organizations have weighed in on how blockchain technology, if applied, could bring about lasting change to the financial system. Even central banks like the Monetary Authority of Singapore have begun devoting financial resources to exploring the blockchain.
Many banks and financial institutions, it seems, are still in an exploratory phase, wherein the risks and rewards are being weighed on a case-by-case basis.
“The thing for us is, we try to approach this in a way where we try to understand what the pain points are the for banks and where they’d like to see help and then, look and articulate a potential strategy using distributed ledgers to bring value.”
Rutter noted that, for a number of those on Wall Street, the ascendence of bitcoin has sparked a broader movement to embrace cryptographic solutions in finance.
"I think that it’s possible that these new technologies will provide ancillary benefits," he said. 'They're not specific to the distributed ledger, but people are thinking of applying mathematical, cryptographic solutions to existing problems.”
Notable is the speed at which financial institutions worldwide have moved to understand the potential of distributed ledger usage, and the potential applications therein.
“I think the education process and the interest has grown extremely rapidly in the past six months," McDonald said.
Wall Street image via Shutterstock