XDC Network: The Blockchain Revolutionizing Trade Finance

XDC Network, Blockchain, and Trade Finance: An Introduction

Trade finance is a centuries-old industry and the processes involved haven’t really changed much since the 19th Century. Like many other industries that rely on antiquated, slow, cumbersome, and manual processes, there is a massive opportunity to revolutionize trade finance with blockchain technology.

Blockchain has the potential to make the trade finance industry more efficient by addressing many of its current issues, including replacing the opaque, complex web of transactions with a transparent and immutable record.

Blockchain also has the potential to disintermediate supply chains and significantly reduce the number of checks (customs etc.) that an international shipment has to undergo.

According to the co-founder of XDC Network, Atul Khekade:

Tokenization and Digital assets bring various benefits to the legacy paper-based Trade Finance industry. Cross-border sensitive data related to trade finance transactions can be turned into non-sensitive tokens for the MSMEs (Micro, Small & Medium Enterprises), corporates, and lenders to enable data sharing across borders by complying with laws of the land. Tokenization of trade instruments brings liquidity from alternative asset investors to the trade finance market.

There is a lot of opportunity for any blockchain that can successfully solve these issues in trade finance. According to Deloitte, in 2015 alone the trade finance market was worth more than 10 trillion USD.

One of the blockchains that focus specifically on the highly lucrative trade finance space is Xinfin’s XDC Network. In the remainder of this article, we’ll take a look at what XDC Network is and how it works.

What is XDC Network?

Xinfin’s XDC is a “third-generation” Delegated Proof of Stake blockchain (dPoS). XDC’s XdPoS uses real-time voting to elect a pool of validators, which means that the time it takes for the network validate a transaction is reduced due to the fact that not all the nodes in the network are required to reach a consensus for each transaction.

Its XdPoS consensus mechanism means XDC Network also consumes very little energy compared to proof-of-work blockchains. XDC Network can also scale to thousands of transactions per second.

Founders

XDC Network (then known as the Xinfin Blockchain) was founded by Atul Khekade and Ritesh Kakkad. Atul has over 14 years of experience in the tech industry and was instrumental in creating the first-ever permissioned blockchain system for a group of top Asian banks.

Ritesh is a serial entrepreneur with over 20 years of experience in cloud hosting, setup, and internet infrastructure. He has been recognized by Microsoft and BBC for his work.

In 2018, Xinfin took part in the Abu Dhabi Global Market (ADGM) Reglab, a fintech sandbox in the UAE’s capital.

XDC Network is a Hybrid Blockchain

Xinfin describes the XDC Network as a “hybrid blockchain“, which has elements of both public and private blockchains. This essentially means that the blockchain is not open to everyone, but still retains certain features of public blockchains such as “integrity, transparency, and security”. Participants can also decide which transactions remain private and which are made public.

KYC Compliance

KYC (Know Your Customer) compliance is also embedded into the XDC Network. This is obviously one of the elements that make it a hybrid blockchain, rather than a fully public blockchain (where it is theoretically possible for anyone to participate or run nodes in the network). Each masternode operator and validator on the XDC Network is required to provide KYC documentation before being accepted to participate.

XDC 2.0 and Blockchain 4.0

An updated version of XdPoS will launch this year on the XDC mainnet. This update will make the blockchain even more secure. At present, XDC Network is Byzantine Fault Tolerant, which means that if one-third of the nodes were malicious the network would not be compromised.

XDC 2.0 will go one step further and have the ability to detect and slash malicious nodes instantly. For malicious nodes, the 10,000,000 XDC that is required to run a masternode will also be burned. In addition, because of KYC the owner of the malicious node can be cryptographically identified and prosecuted for their actions.

The XDC 2.0 whitepaper states that the “key to mainstream blockchain adoption and usage, especially in the financial services sector, is to build accountability to blockchains.”

This, it is claimed will make the XDC Network the first blockchain to properly incorporate accountability, This is “blockchain 4.0”.

XDC Network Ecosystem and Partnerships

Ecosystem

There is a growing ecosystem of applications being built on the XDC Network. Some are trade finance related, however, developers are also using XDC’s fast and sustainable blockchain for other use cases, such as NFTs, DeFi, education, and precious metal tokenization.

TradeFinex

TradeFinex is one of the most well-known applications built on the XDC Network. TradeFinex is a decentralized platform that allows peer-to-peer contracting between various participants in the trade finance industry, including financiers, suppliers, and beneficiaries. TradeFinex provides a decentralized platform for these parties to manage invoices, letters of credit, and bills of lading – significantly disintermediating and thereby streamlining the trade finance process.

Impel

Impel is an ISO 20022 compliant financial messaging service that aims to be an alternative to the likes of SWIFT and SEPA. Impel is built on the XDC Network’s hybrid blockchain.

StorX

StorX is a decentralized cloud storage solution that is built on XDC Network.

Partnerships

XDC and r3 Corda

In 2021, it was announced that XDC would act as a “public bridge” and a settlement coin for r3’s DLT Corda. R3 is a consortium of major financial institutions and Corda is a permissioned blockchain, designed specifically for enterprise use cases.

IFTA

In mid-2020 Xinfin became a member of the International Trade and Forfaiting Association (ITFA). IFTA is a “worldwide trade association for companies, financial institutions, and intermediaries engaged in global trade, forfaiting, supply chain, and receivables financing”. Members of IFTA include Credit Suisse, JP Morgan, Bank of China, BNP Paribas, Abu Dhabi Commercial Bank, BNY Mellon, r3, Soc Gen Factoring, Alianze Global Investors, and Citibank (to name just a few).

Copper

In January 2020, Copper, an institutional custody & prime brokerage firm, announced that it would be the institutional custodian for XDC Network.

Final thoughts on the future of XDC Network

XDC Network presents a promising solution for the issues currently faced by the trade finance industry. Its hybrid blockchain model, along with its emphasis on KYC compliance and accountability, makes it an attractive option for businesses looking to streamline their trade finance processes while maintaining security and transparency.

As we mentioned previously, trade finance is an antiquated, centuries-old industry that is ripe for disruption by blockchain technology.

As blockchain continues to advance and disrupt traditional industries, it will be interesting to see how XDC Network and other similar platforms will shape the future of trade finance.