R3 CEV launched with nine founding members in September 2015. Helmed by David Rutter, a former executive at interdealer broker Icap, the firm set out to develop blockchain technology for the financial services industry.
Rutter put together an unmatched group of large financial institutions. At its recent peak, the consortium claimed 73 members, including many of the world’s largest banks and insurance companies.
Earnst & Young recently valued R3 CEV at $150 million to $250 million, based in part on its annual membership fees and expected revenues from commercial products. An undisclosed source told Fortune that membership costs $100,000 per year, among other details.
Goldman Sachs, one of the first nine members, and Banco Santander SA recently declined to renew their membership, and the following day Morgan Stanley joined them, according to the Wall Street Journal.
“As with any project of this scale and scope, we always expected the make-up of the consortium to change over time. Developing technology like this requires dedication and significant resources, and our diverse pool of members all have different capacities and capabilities which naturally change over time.”
- R3 CEV
While Santander’s reasons for leaving are unclear, Fortune reports that Goldman Sachs decided to exit the group after failing to agree on terms of a prospective fundraising deal. R3 began seeking $200 million from members in May, in exchange for equity in the firm.
The consortium’s 42 original member companies could participate in the deal, a source told Fortune. In addition, 31 other members of R3’s development lab would have the opportunity to contribute.
Reuters reported that more than 90 percent of its original 42 bank members have expressed an interest to join the Series A round, while Morgan Stanley and the National Australia Bank have also declined. Banks that choose not to participate in the funding round were welcome to remain members of R3 and help develop blockchain technology by sharing research.
Despite the departures, other banks continue to join R3. The third largest Dutch bank, ABN Amro, joined the consortium in November. In the same month, R3 added their first Chinese member, the China Foreign Exchange Trade System.
On top of equity deals and adding consortium members, R3 has been actively conducting various types of blockchain trials. In September, the consortium tested a shared blockchain for syndicated loans. In November, an especially busy month, the consortium first held a major Identity Registry trial between its members, developing a shared KYC service with 10 global banks.
R3 then launched a blockchain lab in Singapore, and partnered with the Monetary Authority of Singapore (MAS) to launch what it calls an “Asia blockchain center of excellence.” The startup rounded out the month by open-sourcing their distributed ledger system, Corda.
“Our mandate, from our member banks, was that whatever base platforms we selected, built or adopted had to be open. We’re delivering on this commitment with the open-sourcing of Corda on November 30.”
- R3 CEV
Goldman Sachs has shown their commitment to the emerging blockchain field through several other initiatives. The bank was a major investor in the $50 million funding round for Circle Internet Financial Ltd. in 2015. More recently, the bank has been seeking patents on two inventions in the blockchain space, one for foreign exchange trading and the other for its own digital currency.
Both Santander and Goldman are also investors in Digital Asset Holdings (DAH), a rival blockchain consortium headed by Blythe Masters, a former J.P. Morgan top exec. The New York-based blockchain startup was founded in 2014, but it didn’t start out as a consortium of any kind.
DAH’s product is software that uses distributed ledgers to settle trades in mainstream financial markets, and they’ve been working on their own brand of digital assets. The company has amassed over $60 million from a group of major banks, including Goldman Sachs and a handful of other R3 members.
As one of the most high-profile blockchain tech startups, due to the fame of CEO Masters, the startup has received wide support, including from the core bitcoin community. DAH has stated recently that they will open-source their codebase, and they hope to create a “cross-industry open standard for distributed ledgers.”
R3 CEV recently announced that they are making their Corda distributed ledger software open source, and have already donated it to the Hyperledger project in order to help ensure interactivity and openness for the sake of innovation.
The Linux Foundation’s Hyperledger project is an open initiative that aims to develop a robust, open-source codebase for enterprise blockchain applications in all industries to use together. The project aims to speed up the adoption of blockchain technology at an enterprise level. With over 100 members from major banks, stock exchanges, universities and corporation, including several members of R3.
“The confluence of emerging distributed-ledger approaches, which enable a consortium to jointly bear these costs; the adoption of open application program interfaces (APIs) to allow third parties to access data; and evolving demand for individuals to control their personal identity holds the potential to reshape the fundamental tenets of digital identification.”
Long Finance and PricewaterhouseCoopers (PwC) recently explored blockchain tech and recommended that firms, especially in the insurance field, form a consortium to work together.
PwC extolled the virtues of a banking consortium, listing benefits such as reduced compliance costs and better efficiencies in the customer on-boarding process despite KYC laws. The firm asserted that the existing process is, “extremely redundant” and urged blockchain consortiums to be employed to solve the problem.
Blockchain consortia are popular internationally, as well. Last November, a London-based consortium called the Post Trade Distributed Ledger group formed, and now lists 37 major banks and the London Stock Exchange as members. A Russian blockchain consortium, modeled after R3, was announced at the XXV International Financial Congress in St. Petersburg last July.
In China, 11 financial organizations cofounded the Chinaledger Alliance in May 2015, in order to collaborate on Blockchain technology. A separate group in China called the Financial Blockchain Shenzhen Consortium (FBSC) formed in July, with 31 finance and technology firms in the country.
Japan also has there own consortium. Just last month SBI Holdings announced “The Japan Bank Consortium to Central Provide Domestic and Cross-border Payment.” The rise of the consortium model prompted Microsoft to introduced Project Bletchley, which offers the ability for anyone to create and deploy consortium blockchains with ease from their Azure cloud platform.