Have you wondered how blockchain networks with great involvement from financial institutions fail? Here is a short story of how one such firm left million in debt, unable to achieve the market fit. The Irish High Court has decided that Marco Polo, a blockchain network meant to streamline international trade finance procedures, is insolvent. In my opinion, I believe that the failure followed the 2022 bankruptcy of we.trade.
With total debts of 5.2m Euros, the investment firm behind the network had liabilities beyond its assets by 2.5m Euros. The system included over 30 banks, including ING Ventures and Commerzbank. Due to poorly organized value propositions to solve the day-to-day company concerns, both firms could not attain the market fit. When I researched, I realized that the new digital trade sector was given a boost when container shippers opted to embrace electronic bills of lading, despite these hurdles. Let us discuss more about how the insolvency happened.
An Insight Into the Downfall of Marco Polo & We.trade
Marco Polo and We.trade shared common goals but pursued them in distinctive ways. They were two projects that utilized blockchain technology to change the conduct of international trade. Marco Polo was established in 2017 by a group of financial institutions and technology firms like R3 and TradeIX. The project aimed to improve trade finance efficiency using a distributed ledger to digitally record trade finance instruments, including invoices and purchase orders. The goal was to enhance trade finance’s effectiveness, openness, and safety through automation and digitalization of these procedures.
Marco Polo failed to acquire traction despite its lofty objectives and an extensive list of collaborators. Lack of product-market fit was a major factor. Several companies are still reluctant to utilize blockchain technology due to interoperability, security, and scalability issues. Integration with Marco Polo is complicated since many trade finance procedures are documented in papers and require manual processing.
In contrast, the European banking giants formed their joint venture We.trade in 2018. Those three banking firms were:
1. HSBC
2. Deutsche Bank
3. Societe Generale
We.trade, like Marco Polo, sought to improve the efficiency and openness of trade financing through the use of digital technology. We.trade prioritized the ease of conducting business between SMEs over multinational firms. It had a bright beginning but ultimately failed to achieve widespread adoption. A poorly conceived value proposition was likely a contributing factor. We.trade was uncertain how SMEs would benefit from the platform’s capabilities, despite the fact that they were designed to facilitate commercial transactions.
Despite the good intentions and long lists of partners, neither Marco Polo nor We.trade saw much success because of a failure to find a niche in the market or a poorly conceived value proposition. The platform’s costs were also greater than what many MSMEs were prepared to pay, rendering it less competitive than conventional methods of obtaining trade financing. These examples should serve as warnings to companies considering using blockchain to challenge established markets.
Learn How Electronic Bills of Lading Drive the Future of Trade Preventing Fraud Acts
The use of eBLs (electronic bills of lading) would significantly stimulate the growth of the digital trade sector. Bills of lading are official documents that confirm the delivery of goods and the terms of their transportation. For several years, bills of lading have been paper documents handed along from one client to another during shipping.
Paper documents are difficult to transmit and can easily get lost or destroyed in transit. They also have the added disadvantage of being bulky and expensive to transport and store. On the other hand, digital electronic bills of lading may be sent immediately and safely online in a jiffy. In addition to saving money, this method of transferring commodities eliminates the necessity of physical storage and transit. However, legal and regulatory barriers and worries about the safety and integrity of digital papers have slowed the widespread use of electronic bills of lading.
Blockchain-based solutions and other technological advancements have made it feasible to produce legally binding electronic bills of lading. These are very secure and impossible to alter, thereby preventing fraud acts. The digital trade industry stands to gain considerably from the widespread use of electronic bills of lading in the years to come. Most important of all, electronic bills of lading can improve the efficiency and accessibility of international trade by lowering the time and expenses connected with the transfer of commodities.
Also Read: From Pioneering Fintech to Scandal: LendingClub’s Rise, Fall & Ascend
All You Need to Know About Navigating the Challenges of Blockchain Tradetechs
Blockchain-based commerce technology firms are struggling for a number of reasons:
Low Adoption Rate
One of the greatest difficulties for blockchain trade technology firms is the general public’s reluctance to use the technology. Many businesses are unwilling to embrace blockchain technology, despite its obvious advantages, because it would require them to overhaul their current infrastructure and procedures. Blockchain trade techs may struggle to acquire traction in the industry due to skepticism about the reliability and security of the technology.
Regulatory Instability
Regulatory instability in the blockchain industry may face uncertainty as governments and regulatory agencies around the world struggle to determine how best to regulate the technology. Therefore, it may be challenging for businesses to raise capital and expand. According to the court judgment on the Marco Polo Network, Bank of America was reluctant to invest in blockchain technology after the FTX collapsed.
Insufficient Scalability
Blockchain technology has limited scalability, which is a major drawback. Businesses that perform a lot of transactions every second may run into a problem with the current state of blockchain technology. This may happen due to its transaction limitations. Due to this restriction, companies working in blockchain-based commerce technologies may find it challenging to compete with competitors.
Exorbitant Costs
Blockchain-based commerce technologies are pricey to develop and implement. Because of this, newer, smaller enterprises may find it challenging to penetrate the market and contend with more established ones. In addition, businesses on a tight budget may find the expensive cost of maintaining a blockchain network impedes adoption.
Interoperability Issues
The lack of interoperability among multiple blockchain networks is another problem for blockchain-based trade technology firms. This can hinder the efficiency of blockchain by making it harder for businesses to collaborate and share information. The adoption of blockchain-based commerce technologies may be hampered until interoperability improves across different blockchain networks.
The Takeaway
The difficulties encountered by blockchain-based trade techs are highlighted by Marco Polo’s unexpected insolvency and the failure of many other blockchain trade financing enterprises. I have observed that in order to survive, businesses in this industry must quickly develop market-fitting, scalable solutions to face the day-to-day business challenges before they run out of funds. Although the introduction of electronic bills of lading has recently boosted the digital trade sector, my analysis is that: commercial viability is still an open question for the industry. Low adoption rates, regulatory instability, scalability constraints, high prices, and incompatibility are only a few obstacles. Businesses must continue to manage these hurdles to prosper.