Financial technology firm Axoni is proving that the promise of blockchain may live up to the hype.
Axoni, a provider of enterprise blockchain technology that was founded in 2013, raised $32 million in a Series B financing in August. The funding round was led by Goldman Sachs and fintech-focused venture capital firm Nyca Partners. Other investors included well-known venture capital investors Y Combinator and Andreesen Horowitz as well as financial firms such as Citigroup, J.P. Morgan, NEX Group and Wells Fargo.
The success of the funding round suggests that these institutions believe Axoni has a real shot at developing practical applications for blockchain technology in market infrastructure. Several of the banks have been involved in pilot projects and proofs of concept to test Axoni's platform for processing trades and managing the life cycle of derivatives, and the company is currently involved in three projects that are moving from pilot into production.
Credit Default Swaps: In January 2017, Axoni was selected in partnership with IBM and R3 to help the Depository Trust and Clearing Corporation move its Trade Information Warehouse to a blockchain platform, where a shared ledger can reduce the cost and complexity for products such as credit default swaps. The warehouse currently provides lifecycle event processing services for roughly 98% of all credit derivative transactions in the global marketplace, according to DTCC. Mas Nakachi, vice president of strategy and business development at Axoni, calls the effort “one of the largest blockchain projects in any industry, not just in financial services.”
Equity Swaps: In November 2017, Axoni completed a successful pilot with seven swap market participants to use blockchain technology to manage equity swap transactions and related post-trade events. A distributed, peer-to-peer network reconciles swaps and provides synchronized data across the entire lifecycle of the products. The technology aims to reduce operational costs and errors, and allow real-time data access for market participants and regulators.
Foreign Exchange: Axoni is working with NEX Group on a post-trade data network for foreign exchange trading. The goal is to use Axoni’s platform to provide a "fully synchronized view" of trades across multiple industry participants, thereby eliminating inefficient and costly reconciliations.
“We are excited to see how far Axoni have come since we first began working with them in 2016,” said Andrés Choussy, CEO of NEX’s Traiana arm, in a press release after the latest funding round. "Through our ongoing collaboration, they have proven the ability of their technology to perform at the scale of the FX markets, and we look forward to further expanding our work with them–including with new asset classes–in the near future."
"Helping everyone access the same state of a derivatives transaction via a common ledger is a very natural use for blockchain," Nakachi said. "Fundamentally, blockchain is all about state replication on a peer-to-peer basis."
All three areas show how the blockchain technology can help reduce complexity and increase transparency in derivatives markets, said Axoni’s Nakachi in an interview with FIA.
“Helping everyone access the same state of a derivatives transaction via a common ledger is a very natural use for blockchain,” Nakachi said. “Fundamentally, blockchain is all about state replication on a peer-to-peer basis.”
He adds that while Axoni is in constant dialogue with potential partners on blockchain technology, the company's success in raising more funding in the recent Series B round doesn’t necessarily mean a race to explore a wider scope of products “just to print proof of concepts.” Nakachi stressed that the startup differs from others in the space by focusing on relatively few products instead of broad experimentation, with a clear goal of moving its initiatives from testing into the real world.
“We don’t do a lot of projects, but the ones we do we’re serious about moving from pilot programs into production implementations,” Nakachi said.
Axoni was co-founded in 2013 by brothers Greg and Jeff Schvey, who also founded TradeBlock, a global provider of institutional trading tools for digital currencies. The company has been steadily winning converts among major banks for its work on enterprise blockchain solutions, and as the latest funding round showed, some of those banks are eager to join the ride. Wells Fargo, which co-led the company's $18 million Series A financing in December 2016, came back for more in the latest round.
"The adoption of distributed ledger protocols in capital markets resembles the early days of adopting TCP/IP for distributed enterprise applications," said C. Thomas Richardson, head of market structure and electronic trading services at Wells Fargo Securities. "We continue to be impressed with Axoni's ability to facilitate such adoption by identifying use cases that could benefit from blockchain technology."