Three-year-old blockchain bond solution LedgerEdge has been shut down according to the co-founder and controlling shareholder David Rutter, as first reported by The Desk. Rutter is also the co-founder and CEO of enterprise blockchain firm R3.
In 2015 he started another company LiquidityEdge which built a digital trading ecosystem for the US Treasuries market. Four years later he sold it to MarketAxess for $150 million. The following year, 2020, Rutter decided to target the corporate bond market and hence founded LedgerEdge.
The rationale behind the startup was to enable buy and sell-side firms to share pre-trade data on a peer-to-peer basis, giving users control over their own data. With many other platforms sell side firms upload their pricing data and the trading platform then owns it, selling it, including back to the trader.
Instead, LedgerEdge enabled sell-side firms to avoid sharing their prices in a blanket fashion. Using smart contracts they could target their offers.
At launch last year, there were 45 firms in the UK Multilateral Trading Facility (MTF) and 70 globally that were using it or being onboarded. But getting them to use it on a regular basis proved a challenge.
Allowing more time to get traction required more capital, and the funding environment has tightened. Also if you compare it to LiquidityEdge which had a profitable exit after four years, LedgerEdge was already three years old.
There have been a few warning signs. Earlier this year there was the exit of founding CEO David Nicol with Rutter stepping into the role.
Nicol told Ledger Insights some time ago that the solution was built together with the market, but perhaps the pain point it addressed wasn’t sufficiently pressing for regular adoption.
At the time we wondered whether the solution would have bothered with DLT had the team not come from R3. Blockchain meant that each sell side participant owned their own data, but the blockchain nodes were centrally hosted. To ease onboarding friction, users accessed the system either via API or using a screen interfaces. Although entering data via screens was intended as a temporary measure, it proved popular.
The rationale behind the system seemed sound. However, it struck us that a centralized system might have achieved something similar. It could have legally given ownership of the data to the party that uploaded it. And the targeting of offers could use any software language, not necessarily a smart contract.
Potential concerns about data privacy and snooping are more relevant in a centralized system. However, if one party is hosting all the blockchain nodes, some trust is required there as well. Doubtless, we are overlooking a key rationale for the use of DLT.
Meanwhile, the last year or so has seen the shuttering of a few enterprise blockchain projects. These include bank-backed trade finance platforms we.trade and Marco Polo, IBM and Maersk trade solution Tradelens, insurance industry-backed B3i, and the ASX’s CHESS settlement system.