When Will Blockchain Have a Significant Impact on Syndicated Lending? [Poll]
27 April 2017
I attended the LSTA’s annual loan ops and settlement conference last week to poll the industry on when they think blockchain/distributed ledger technology will have a significant impact on syndicated loans. Estimates varied from “18 months” to “never.”
Following is a brief breakdown of blockchain/distributed ledger technology:
- What ablockchain is (in laymen’s terms).
- What impact it will have on loans.
- When– if ever – a blockchain/distributed ledger solution will take root.
Blockchain – a decentralized database – is an enabling technology, not a wholly baked solution. This means that applications need to be built on top of it for the technology to be impactful. According to Christine Scaffidi, Misys’s Commercial and Syndicated Lending Operations Manager, three core elements differentiate blockchain from traditional centralized models:
- How is the data stored?
It is distributed across different nodes.
- How is the data validated?
Through decentralized, consensus algorithms.
- How is the data encrypted?
Each individual packet of data is encrypted.
Impact on the loan industry
Conference panelists indicated that the most impactful development within the loan industry would be to use “smart contracts” to automate asset-servicing functions. A smart contract can link or map human prose to computer prose in a syndicated loan. For example, when issuing a letter of credit, you can embed within the code the condition upon which funds will be released, essentially allowing for self-executing contracts. Because the blockchain database is decentralized and no one person controls it, loan dispute reconciliation can happen more accurately.
Loan industry poll
At the Intralinks booth we asked conference attendees when they thought a blockchain/distributed ledger solution would realistically take root. Here were the results:
Kylie Horner is an Associate in Strategy and Product Marketing at Intralinks. She is part of the team responsible for determining go-to-market strategies for the debt capital markets and alternative investment businesses. Prior to joining Intralinks, Kylie worked in marketing and communications at ACTIV Financial, a financial information technology firm. She graduated from the University of Colorado at Boulder with a degree in Journalism, and a specialization in global media.