INTERVIEW: World’s First Blockchain Commodity Exchange Binkabi
I had the pleasure of interviewing Quan Le, CEO of Binkabi, who is developing not just one but 2 world’s firsts: a blockchain-based commodity exchange and a cross-border commodity marketplace with smart bartering.
Name: Quan Le
Position: CEO and Founder
Thank you so much for doing this with us! What is your “backstory”?
I and my co-founders met when we worked together on the impact of the global financial crisis back in 2008 at PwC London. As you know the global financial crisis also gave birth to bitcoin and the blockchain revolution that we are currently experiencing. In fact when the genesis block of bitcoin was created on 3 January 2009, when the Times ran a headline ‘Chancellor on brink of second bailout for banks’ we were working on reforming the banking sector in Nigeria. The country had suffered from a spill-over of the global financial crisis which culminated in a crash in commodity oil price, leading to a dry up in liquidity …
After this episode I then set up an agriculture technology firm – growmoreX – which brings proven crop know-how from Vietnam, the country of my birth, and latest agtech such as drones to advise on greenfield crop production projects in West Africa. The firm was set up on a simple premise that what works in Vietnam ought to work in West Africa, given similar agro-ecological conditions [insert image]. That premise was proven right: over the last 7 years, we have worked on nearly 100,000ha of land across most of West Africa with some of the most well-known food and agriculture companies.
Then since 2015, there has been another oil crash which severely limits countries like Nigeria in their ability to trade, due to the lack of USD. Not only that these commodity-based economies suffered from the low prices of their key export – crude oi – their inability to trade had a double negative effect on the economy and the life of ordinary people.
At the farm level, what I noticed is that high yield and production output are not the guarantees of prosperity for farmers in developing markets. Vietnam used to import rice back in the 1980s but now has become one of the largest exporters of this commodity whereas West Africa, with similar natural conditions, is still large importers. However producing as much as farmers in Vietnam or as little as farmers in Africa, they are still poor, relatively or absolutely, compared to the rest of the economy. This is due to what we call Frictions, Funding and Fairness issues in the commodity supply chain.
So Binkabi set out to solve those issues. Binkabi is developing a protocol for building blockchain-based commodity marketplaces. The protocol is powered by BKBi, a membership and discount token that aligns interests governs performance and creates network effects by rewarding active participation.
Binkabi offers two complementary solutions: Barter Block, a proprietary smart bartering mechanism and BinkabiDEX, a decentralised commodity exchange platform. Both of these solutions are built upon Binkabi’s commodity tokenization protocol whereby physical commodities and processes in the commodity supply chain are tokenized. The protocol also covers commodity standardisation, which is badly needed by supply chain stakeholders.
Can you share an interesting growth story that has happened to you since you became a leader or started your company?
In our vision, we were only getting into commodity tokenization – the process of putting commodities on the blockchain – in Phase 2. Barter Block, which solves the issue of too much non-value adding intermediation in trade and the over-reliance on USD, were developed first. Whilst Barter Block would enable countries to retain a higher share of international revenue of agrifood products (for example, for both coffee and cocoa, producing countries retain less than 10% of the global revenue of end products), its impact on farmers are less direct as the solution aims at commodity importer and exporters.
To have a more direct impact on the life of the farms, we need to start with them. This is where BinkabiDEX comes in. It is a protocol to build commodity exchanges in emerging markets. After all, out of 28 exchange projects in Africa, only 2-3 are working. The costs of setting up and operate these exchanges are too high but the initial revenue is low. BinkabiDEX acts as a common technology layer but arguably even more importantly the common liquidity layers as new exchanges can benefit from a global order book. Binkabi protocol allows commodities to be issued on the blockchain through tokenizing warehouse receipts. After that, the commodities are traded on a decentralised platform. At any point in time, the commodity-backed tokens – what we called commodities on the blockchain – can be redeemed for actual commodities already stored in an accredited warehouse. But how can this process benefit farmers? It benefits them in the following 3 ways (1) they can sell to a larger (more highly liquid) market (2) if they don’t want to sell immediately – due to commodity price swings in a year – they can use the commodity-backed tokens as collateral to borrow money from banks or P2P markets and (3) storing commodity properly reduce post-harvest loss significantly. All these lead to higher income by farmers as proven by countries with well-functioning commodities exchange. In time farmers will also benefit from price hedging, locking in their prices even before they start cultivating.
So we are now launching not 1 but 2 world’s first blockchain based commodity trading products. Barter Block has been opened to early adopters https://app.binkabi.io and BinkabiDEX, the commodity exchange platform is being piloted with our partners in Nigeria.
What advice would you give to a founder or CEO who is just starting their journey?
Unlike many other projects which start with the technology then look for a problem to solve, we start from the problems that we experienced first-hand then piece together relevant technologies, blockchain among others, to come up with solutions to those problems. So even in blockchain space, where there has been a lot of hype (recently somewhat cooled down), you can’t really practice ‘Build and they will come’ strategy. You need to have a clear go-to-market strategy.
It is important to have a clear vision, but be flexible in terms of adapting the solutions to the market needs as you experience them. This includes timings of your product as in our case.
Finally, as they say ‘no revenue – hobby; revenue – fantasy; profit – rationality; cash – reality” it is crucial to spend your cash well to last until you are externally funded. The problem of blockchain projects who raised so much money in 2017 is however different – too much cash without a product led to complacency and hubris. The current correct in crypto is a reflection of this.
Why is your company utilising blockchain technologies and how is this making a difference to others? How are you making an influence in your sector?
The issues in the commodity supply chain in emerging market that we are trying to solve – Frictions, Funding and Fairness – are due to lack of trust. Take frictions, for example, where we are solving the issues of middlemen, over-reliance of USD or paper-based trading processes, the reason why people go through middlemen is that fundamentally they don’t trust each other, especially in cross-border trade involving emerging markets. Blockchain – the Trust machine – is ideally suited to solve this trust issue. So Barter Block, our cross-border trading platform, uses smart contracts to increase the integrity of many trading processes such as performance bond and performance ratings which are crucial to ensure parties adhere to contracts.
On the other hand, the tokenization of commodities can’t be done without the blockchain. BinkabiDEX is a fully on-chain trading and settlement platform. What is practically important in our case is that BinkabiDEX is decentralised, meaning that it is designed so no one solely owns it. Talks of pan-African commodity exchanges have remained that – talks – as countries can’t decide on where to put the exchange and how it’s funding the set-up and operations would work. By adopting the Binkabi platform, commodity exchanges can be established quickly, cost-effectively in each country whilst increasing their chance of success from plugging in common technology, quality standardisation and liquidity pools.
There are 3 main ways in which Binkabi helps create value or making an influence on our ecosystem:
- Unlock ‘liquidity premiums’ in commodities and supply chain assets: for example by tokenizing commodities we open up opportunities for commodity producers to sell to larger/more liquid market therefore able to earn more. Another example is that Binkabi can put assets otherwise lying idle (such as warehouse facilities) into productive assets through commodity tokenization protocol. These warehouses act as custodians for commodities that have been tokenized.
- Increased access to financing at more reasonable costs: currently interest rate in emerging markets are over 20% per year. Through better information and collateral – commodity-backed tokens can be used as collateral to obtain bank/P2P loans – commodity producers and other supply chain players are able to access funding at more reasonable rates with our banking partners. This will help enhanced productivity, which ultimately leads to economic growth and more profits for the ecosystem.
- Reduced frictions in commodity trading such as over-reliance on USD (7-10% loss in value due to exchange conversions), non-value adding middlemen and paper-based processes that are highly prone to frauds and errors.
Can you share what you believe will be the “Top 4 Blockchain Trends Over The Next 3 Years”
- The technology will continue to mature and the current issues such as scalability (number of transaction per second) privacy or usability will be significantly improved. It will be possible to create decentralised application or dApps that are a lot more user-friendly whilst retaining the special feature of the blockchain technology.
- The ICO and crypto markets will continue through mini-crash and correction but eventually, a more mature ICO model, perhaps more regulated, will emerge. The vast majority of the current projects will be wiped out due to market, regulatory clean-ups or simply fail to gain any tractions with real users (see above)
- The enterprise use of the blockchain technology will vastly increase but full decentralisation will take more than 3 years to achieve, depending on use cases. Most of the current and near-term use cases focus on improving efficiencies/cutting costs rather than a transformational business model. There will also be more ‘reverse ICOs’, the process in which a rather mature company embarks on the road of decentralisation and issue tokens.
- More application of the technology to the real economy. We are one of the pioneers here but there will be many more joining. The world’s physical assets are around $250 trillion which is more than 1000x larger than the current crypto markets. We believe that crypto investors will increasingly want exposures to real-world assets such as commodities for yields but also to balance their portfolios. Commodity-backed tokens are volatile but they are not necessarily correlated to other crypto assets as they are backed by some of the world’s most traded resources and life essentials.
What are the medium to long-term objectives that you’re focusing on at your company and how will you achieve this?
Our vision is to empower Binkabi commodity network to become fairer and more profitable through collaborative efforts of our members leveraging blockchain technology.
Barter Block is being launched in Vietnam and West Africa. In time we would expand to the rest of Southeast Asia and rest of Africa. Other regions will then follow. That is not to say we are not covering other regions now. Trades between the above target corridors and other regions will still take place in the meantime, but we will be able to deploy more resources or work with partners once we are proven in the initial target corridors mentioned above.
With BinkabiDEX, we aim to be the common technology and liquidity layers as explained above. We have formed partnerships with a couple of exchanges and are in talks with a number of others. Given the speed of development, we are confident that this objective will be achieved.
We will also integrate the two platforms due to their complementary nature. We will also develop or integrate with other technologies such as identity, traceability and IOT, legally enforceable smart contracts or state-backed cryptocurrencies. Currently, cryptocurrencies are not allowed as a medium of payment in many jurisdictions. We will always work with existing legal and regulatory framework whilst contributing to policy agenda. That’s why the native token in our network, BKBi, is not a medium-of-exchange/payment token but for membership, platform fee discount and performance guarantee. It encourages active participation and creates network effect but at the same time ensuring that the right behaviours are rewarded and wrong behaviours discouraged.