After receiving US$13.7m in previous funding rounds, the San Francisco-based startup Chain Inc. announced on Thursday that it has raised another US$30m in equity funding, and this time from some of the biggest names in the financial sector, including Visa, Nasdaq, Citi Ventures, CapitalOne, Fiserv and French telecom Orange.
"Applied intelligently, blockchain networks fundamentally improve how assets move between parties, and we are thrilled to be partnering with the organizations we believe are best positioned to capitalize on the inevitable changes in market structure that are on the horizon."
- Adam Ludwin, Chain CEO
The Chain platform was created to enable banks and financial institutions to create, issue, store and transfer digital assets on private networks purpose-built for a given market. These networks typically will not use bitcoin as a currency but are based on the bitcoin blockchain and protocol, and can also be interoperable with other open digital currency networks, including other Chain clients.
“We’re a small technology company, and we are trying to [bring] this big network change to the world of financial services.”
Chain is also considering the use of sidechains, or other blockchains that connect to the Bitcoin public blockchain to share its' value while being tailored to specific uses or industries. “Ultimately, this question of the public Bitcoin blockchain versus a private permissioned ledger is somewhat like VHS versus Betamax,” Ludwin has stated.
While at first it may sound unlikely for legacy banks and payment networks to fund their own disruption, Blockchains will be much cheaper for everyone to use than older financial instruments like credit cards. The banks, Visa, MasterCard, and American Express all collect 1% to 3% of domestic credit and debit transactions, generating more than $70 billion a year in fees in the U.S. market alone. “That’s a tax on all payments,” Wedbush analyst Luria told Forbes. “With Bitcoin that goes practically to zero.”
“The days of [banks] holding onto people’s money a little bit longer and benefiting from that, or charging people fees and high margins on exchange rates, are going to end,” predicts Susan Athey, Board member at Ripple Labs and professor of the economics of technology at Stanford’s business school.
Eric Piscini, a principal in banking tech at Deloitte, gives a slightly different view of this, citing intentional auto-deconstruction. “The big financial companies need to be involved early to identify where blockchain will eat their profits, and then they must decide, ‘Should I cannibalize myself instead of waiting for someone else to cannibalize me?’”
“What will matter most for existing financial institutions is whether or not they act in time and adapt to the new world of shared ledger technology.”
Chain launched with 15 employees and three founders in 2014, immediately working with banks and other leading institutions. US$43.7m in backing and a list of investors packed with big banks and financial institutions puts Chain on the forefront of Bitcoin-finance industry relations, but there is competition in the sector.
ItBit, the first bitcoin exchange to open on Wall Street, announced an upcoming product it calls Bankchain. Rather than using the public Bitcoin blockchain, it will use its' own permissioned ledger to do many of the same functions that Chain does, so it has yet to be seen if this business model is a threat to Chain.
San Francisco-based Ripple Labs also uses its own protocol and permissioned, distributed ledger that is not an actual blockchain. Their different internal structure may be of competition to Chain for the purpose of Forex and perhaps internal settlements.
Former JP Morgan executive Blythe Masters' Digital Asset Holdings appears to be more in competition with Chain than the rest, have aquired permissioned ledger company HyperLedger. The company recently announced that a portion of it’s latest US$5m funding round has been issued utilizing distributed ledger technology.
Despite plenty of competition, It's not much of a mystery why Chain is the company that so many financial behemoths are reaching out to in the Blockchain space. Chain made some key deals early on.
In June, Nasdaq announced that it has chosen Chain as a technology partner for its Private Market. As Ludwin recently told Nasdaq.com in an interview, “We believe in the power of blockchain technology to transform how financial assets are transferred, but it has to be done with the right partners to ensure it gets off the ground.”
"This Nasdaq Private Market project aims to simplify the overwhelming challenges private companies face with manual ledger record-keeping.”
- Bob Greifeld, Nasdaq CEO
With a plan to go fully live in November, Nasdaq will offer blockchain-based trading for shares of pre-IPO private companies, including Uber and Airbnb. Greifeld hinted about the many opportunities using the blockchain, saying “[Blockchain] is the biggest opportunity set we can think of over the next decade or so.”
"Chain is collaborating closely with us to increase efficiency in the capital markets," said Brad Peterson, Chief Information Officer, Nasdaq. "We see their platform helping us accelerate our time-to-market across our various blockchain initiatives. We are excited to further our partnership with them through Nasdaq's investment in the company."
Popular gift card service Gyft, with its 300 big-box retailers and restaurant chains, announced that it is using Chain as well. CEO Vinny Lingham says that it offers Gyft a cheaper, more secure solution that will allow Gyft to sign up thousands of small merchants, alongside it’s current larger merchants today.
“Ludwin knows what he’s doing, and the technical team is really sharp as well.”
- Vinny Lingham, Gyft CEO
Another backer is French telecom company Orange, which suggested it might be looking at a way to integrate the technology into its mobile offerings. "We believe in the disruptive potential of the blockchain. Becoming a key partner and investor in Chain will help us to learn faster and perform tests around this technology," said Orange's Deputy CEO Pierre Louette.
"We are seeking to carve out multiple use cases in our range of businesses to improve our services and propose new ones to our customers."
- Pierre Louette Orange Deputy CEO
Global payments, processing, and risk management mainstay Fiserv is another investor that saw an opportunity in Chain. "Blockchain technology presents a new opportunity to enhance the financial services experience," stated Fiserv CEO, Jeff Yabuki.
"Our investment in Chain reflects our commitment to innovation in financial services, and we look forward to working collaboratively with the Chain management team to drive this important technology forward."
- Jeff Yabuki, Fiserv CEO
Credit giant Capital One's venture capital arm couldn't resist backing Ludwin and his team as well. "Chain provides a developer-centric technology platform that is as intuitive as it is powerful," stated Adam Boutin of Capital One Ventures.
"As we have begun exploring the tremendous potential of blockchain technology, the Chain team has served as a great strategic thought partner, including co-hosting an internal hack-a-thon that produced 12 different solutions in 48 hours."
- Adam Boutin, CapitalOne Ventures
Visa also partnered with Chain. Jim McCarthy, the executive Vice President of innovation and strategic partnerships at Visa said that "Visa's investment in Chain underscores our long-standing commitment to explore technology, like the blockchain, that could have the potential to advance secure and convenient digital payments for our clients and their customers.”
He went on to categorize this investment as “an extension of the work that the company has done with other technology partners such as Apple, Google, Samsung, Stripe and Square.”
Approaching new markets is another reason Visa is interested in Chain. “Business-to-business spending or business-to-government spending is a much larger pie where we have very little penetration,” McCarthy continued, “and that might lend itself to an area where it can leverage the blockchain.”
Citi, the largest bank grabbing a slice of the Chain pie, seems to be getting involved to test out the blockchain across a whole range of innovations. "Blockchain technology represents a fundamental, generational shift for financial services, and Chain's platform is enabling and accelerating this transformation," stated Ramneek Gupta, Managing Director of Global Venture Investing at Citi Ventures.
"We hope to leverage Chain's platform to rapidly test and develop applications as part of Citi's multi-faceted blockchain strategy which has the potential to greatly enhance our customers' experience well beyond just currencies and payments."
- Ramneek Gupta, Citi Ventures
All of Chain's investors will be meeting twice a year in what has been named the “Blockchain Working Group.” Meetings will be composed of the latest developments in distributed ledger technology, and each company will have the opportunity to present to each other and also get updates directly from a Chain officer, since the companies themselves will not be joining its board.