Supply chain management has historically been a challenge due to issues such as increased costs, consumer demands, financial risk, volatility, and more. Unfortunately, the COVID-19 pandemic has created even bigger problems for supply chains around the world.
A recent survey conducted by the Big Four firm Ernst & Young in late 2020 puts this into perspective, finding that 97% of automotive and industrial product companies found the pandemic was having a negative impact on their business. The EY study also found that 64% of reviewers believed that the digital transformation of global supply chains will accelerate due to the pandemic.
While this is only a prediction, some traditional suppliers have already started using blockchain technology to automate the review of the workflow and enable more efficient supply chains. For example, the freight technology provider ConsolFreight recently entered into a partnership with Centrifuge, a decentralized, asset-backed lending platform, to enable the financing of personal protective equipment in the millions.
Ernesto Villa, founder of ConsolFrieght, told Cointelegraph that the company’s customer, BioBX, will need to import and ship personal protective equipment to school districts in California during the COVID-19. However, due to the complexity and risks involved in importing PPE, BioBX made every effort to ensure this delivery. According to Villa, through the collaboration between Centrifuge and ConsolFreight, BioBX was able to raise approximately $ 800,000 to ship two glove containers to California schools:
“Most companies do not want to finance PPE deliveries because these orders are too big for our customers’ balance sheets. Therefore, we have technologized the entire BioBX supply chain and at the same time financed your shipping (receivables) via Centrifuge’s liquidity pool called Tinlake. This is a great example of how decentralized finance can be combined with real assets. “
Enterprise DeFi is becoming a reality
Centrifuge and ConsolFreight tokenized and subsequently funded various business processes for BioBX, allowing the company to access funds that were normally inaccessible for several days.
Kevin Yu, founder of BioBX, told Cointelegraph that traditional letters of credit keep funds on hold for the entire duration of the letter of credit. However, Yu mentioned that ConsolFreight enabled BioBX to unleash that cash flow quickly.
To put this in perspective, Martin Quensel, co-founder of Centrifuge, told Cointelegraph that the company uses real assets like LCs or waybills as tokens and then places those assets as non-fungible tokens on a blockchain network. These NFTs are then converted into smart contracts and placed in Centrifuge’s liquidity pool called “Tinlake” which is tied to the MakerDAO protocol. Tinlake then re-executes those assets to create fungible ERC-20 tokens for investors. Quensel stated:
“Investors can then invest in this pool and receive an ERC-20 token in return. There is also the possibility that DeFi and Token could be bought by individuals as the Tinlake pool is connected to MakerDAO. “
The Tinlake Protocol ultimately enables an asset manager like ConsolFreight to secure collateral as NFTs and fund an asset with a stable coin like Dai. While this sounds like a foreign word to traditional companies, Yu said BioBX was able to gain complete clarity about the supply chain and logistical events during this process.
Investing in real assets adds value to DeFi for businesses
In addition to adding value for companies using DeFi mechanisms to automate supply chains, investing in real assets has also become attractive for private investors.
Quensel says it can be problematic for investors just holding crypto assets when trying to correlate between the underlying collateral of Dai, MakerDAO’s stable coin:
“Adding token real world assets as security for Dai, such as B. Corporate Assets, is key to its long-term stability and acceptance as it addresses the two main challenges the DeFi ecosystem is currently facing: stability and volume. “
Quensel further noted that having a diversified pool of assets with different risk parameters will offset some of the inefficiencies of Ether (ETH) overcollateralization while increasing overall volume and value. He said this is well suited for “investors who want to diversify and protect their crypto assets by moving parts of them from crypto assets to real assets while investing in crypto.”
Challenges for the introduction of DeFi in companies
While decentralized corporate finance has the potential to disrupt global supply chains, a number of challenges remain.
For example, standards for financing real assets are still unclear. Paul Brody, global blockchain leader at Ernst & Young, previously told Cointelegraph that the company would like to give its enterprise customers the ability to take advantage of these DeFi markets as soon as standards emerge.
Fortunately, the development of DeFi corporate standards is in full swing. For example, the baseline protocol is an emerging standard for efficiently automating workflow review. John Wolpert, co-founder of Baseline Protocol and group executive for enterprise mainnet at ConsenSys, told Cointelegraph that such standards are expected to reduce verification costs to the point that recurring calls will fund something that small and medium-sized providers can afford. “If providers don’t have to worry about if or when to get paid, they can help keep the economy moving by making capital safer and faster,” he said.
Wolpert added that corporate DeFi standards are important in eliminating a profit motive that can occur with competing platforms. According to him, this would share a system better maintained than Commons:
“Essentially, if you can benefit from feature delivery, others will find that you can make a profit and try to convince others to buy their version. This is right and right for most things. But take the Internet – you don’t want two different versions there, you want all of them that contribute to the same system. “
Anaïs Ofranc, leader of the Oasis Open working group on standards and specifications, told Cointelegraph that when adopting DeFi companies, companies and investors alike need to be convinced that their existing business needs can be met faster and more cheaply while keeping the security level is preserved and trade secret to which they are used. As such, Ofranc noted that the key question then is how to convince both parties on a large scale:
“One answer could be standards. Both target groups work in environments in which compliance with standards offers the required level of security and reliability. One assumption could be that providers of decentralized financial solutions for the mainstream of DeFi companies must consistently and measurably offer the same or a higher level of guarantee. “
Standards aside, optimism remains for the future of DeFi as a company. Kyle Thomas, founder and CEO of Provide Technologies – a company that enables the tokenization of real assets – told Cointelegraph that the opportunities to improve the modern treasury business and optimize cash management using financial instruments will encourage large companies to: Participate in the company’s DeFi ecosystem.
With that in mind, Quensel noted that decentralized technology will play a critical role in traditional finance going forward. “You can send millions of dollars in funding over a blockchain network. This is not possible with conventional banking systems. “