Binkabi, an Africa-focused blockchain startup, is set to pilot what
it says will be the world’s first commodity exchange on blockchain.
it says will be the world’s first commodity exchange on blockchain.
The firm will first launch the exchange in Nigeria, having entered a
partnership with TAK Agro, a local agricultural conglomerate. But
ultimately the goal is to expand, one country at a time, into a
pan-African platform.
partnership with TAK Agro, a local agricultural conglomerate. But
ultimately the goal is to expand, one country at a time, into a
pan-African platform.
Formed in 2017, Binkabi has to date focused on developing one of its
core products, Barter Block, which it is currently implementing with a
number of commodity traders in partnership with Ecobank and will be
fully launched early next year.
core products, Barter Block, which it is currently implementing with a
number of commodity traders in partnership with Ecobank and will be
fully launched early next year.
Powered by blockchain technology, Barter Block matches trades moving
in opposite directions (for example, an export of cashew nuts from Côte
d’Ivoire to Vietnam and an export of rice from Vietnam to Côte d’Ivoire)
for the purpose of settlement, allowing bilateral trades to be settled
in local currencies, thus saving FX costs.
in opposite directions (for example, an export of cashew nuts from Côte
d’Ivoire to Vietnam and an export of rice from Vietnam to Côte d’Ivoire)
for the purpose of settlement, allowing bilateral trades to be settled
in local currencies, thus saving FX costs.
Now, in partnering with TAK Agro, the startup is taking the next step
towards its vision to empower commodity supply chains to conduct more
profitable and fair trade through blockchain technology. The hope is
that the new commodity exchange would give producers in poorer emerging
countries more power to hedge price risks and better access funding
solutions.
towards its vision to empower commodity supply chains to conduct more
profitable and fair trade through blockchain technology. The hope is
that the new commodity exchange would give producers in poorer emerging
countries more power to hedge price risks and better access funding
solutions.
While many countries in Africa have previously attempted to set up
commodity exchanges, “the reality is that most of these exchanges have
failed, because of lack of liquidity, but also the cost and lack of a
supportive legal system to setting up and running them”, Quan Le, CEO
and co-founder of Binkabi, tells GTR.
commodity exchanges, “the reality is that most of these exchanges have
failed, because of lack of liquidity, but also the cost and lack of a
supportive legal system to setting up and running them”, Quan Le, CEO
and co-founder of Binkabi, tells GTR.
He adds that while 28 countries across Africa currently have
commodity exchange initiatives, only two have succeeded: South Africa
and Ethiopia.
commodity exchange initiatives, only two have succeeded: South Africa
and Ethiopia.
This is a problem blockchain can help solve. The idea behind the new
exchange is to lower the entry barrier for people wanting to trade
commodities: instead of depending on brokers or paying expensive fees
for a spot on the traditional trading floor, the decentralised platform
will be a place for anyone, anywhere in the world to trade commodities
in the form of digital tokens.
exchange is to lower the entry barrier for people wanting to trade
commodities: instead of depending on brokers or paying expensive fees
for a spot on the traditional trading floor, the decentralised platform
will be a place for anyone, anywhere in the world to trade commodities
in the form of digital tokens.
How does it work? When a farmer or depositor brings a commodity into a
warehouse, a warehouse receipt is issued and converted into a token
which can then be traded on the blockchain platform. This is what
Binkabi calls the “tokenisation of commodities”.
warehouse, a warehouse receipt is issued and converted into a token
which can then be traded on the blockchain platform. This is what
Binkabi calls the “tokenisation of commodities”.
“It makes the commodity tradable instantly, and you can also use the
token as collateral to borrow money from a bank,” Le says. “More people
can engage in it, and really make the market very liquid.”
token as collateral to borrow money from a bank,” Le says. “More people
can engage in it, and really make the market very liquid.”
The pilot will see the tokenisation of 50 to 100 tonnes of four
agricultural commodities – rice, maize, sorghum and soybean. These will
be traded over a six-week period by 30 to 50 “blockchain enthusiasts”
taking part in Binkabi’s ‘emerging traders programme’.
agricultural commodities – rice, maize, sorghum and soybean. These will
be traded over a six-week period by 30 to 50 “blockchain enthusiasts”
taking part in Binkabi’s ‘emerging traders programme’.
As part of the partnership, TAK will provide the physical assets and infrastructure, while Binkabi will provide the technology.
Getting banks involved
Binkabi’s local banking partners for the project are Sterling Bank
and Unity Bank, who will take on the role of clearing banks. While the
first pilot will not involve any financing, the intention is that the
financial institutions will get involved in this at a later stage.
and Unity Bank, who will take on the role of clearing banks. While the
first pilot will not involve any financing, the intention is that the
financial institutions will get involved in this at a later stage.
“The banks want to see how it works in practice, to adapt their procedures to lending to this,” says Le.
Financing warehouse receipts in the form of digital tokens is
something that would draw interest from the banks, explains Edward
George, head of Ecobank UK and head of group research. But, he adds, the
blockchain-based system will only be successful if it can gain the same
level of trust that the current paper-based warehouse receipts have
today.
something that would draw interest from the banks, explains Edward
George, head of Ecobank UK and head of group research. But, he adds, the
blockchain-based system will only be successful if it can gain the same
level of trust that the current paper-based warehouse receipts have
today.
“If you do it in a way that banks are comfortable with, absolutely
they will finance it, and they would definitely gain so much in terms of
managing risk better,” he tells GTR.
they will finance it, and they would definitely gain so much in terms of
managing risk better,” he tells GTR.
As such, George believes the use of blockchain could be a
“breakthrough” to delivering an efficient exchange that will have the
potential to “transform agribusiness” on the continent.
“breakthrough” to delivering an efficient exchange that will have the
potential to “transform agribusiness” on the continent.
“Theoretically it’s far superior to the existing system, because
blockchain is designed for fragmented information and that’s exactly
what a value chain is, particularly for commodities,” he says. “Trade is
all about documentation – it has to all be correct before anything can
move. The problem is that if there is any kind of dispute, it can often
take weeks to assemble all the documentation to assume who said what.
Digitally you can do it in seconds. So if you digitise it, you massively
speed up the process.”
blockchain is designed for fragmented information and that’s exactly
what a value chain is, particularly for commodities,” he says. “Trade is
all about documentation – it has to all be correct before anything can
move. The problem is that if there is any kind of dispute, it can often
take weeks to assemble all the documentation to assume who said what.
Digitally you can do it in seconds. So if you digitise it, you massively
speed up the process.”
After the pilot, Binkabi will run a number of other tests to refine
the design and technology. It is currently obtaining a licence to run
the exchange in Nigeria, and will look to start trading in Q1 next year.
the design and technology. It is currently obtaining a licence to run
the exchange in Nigeria, and will look to start trading in Q1 next year.
“Nigeria is encouraging commodity exchanges to be set up,” Le says.
“Of course once we begin the paperwork, we will see how it pans out, but
it looks like the macro environment in Nigeria is right at the moment.”
“Of course once we begin the paperwork, we will see how it pans out, but
it looks like the macro environment in Nigeria is right at the moment.”
The plan is then to expand to other countries. The idea, Le explains,
is to have a common infrastructure that individual exchanges can easily
“plug into”, making it straightforward and cost-effective to set up new
exchanges.
is to have a common infrastructure that individual exchanges can easily
“plug into”, making it straightforward and cost-effective to set up new
exchanges.
“We would like to have a common technology, including the same
standards for commodities, tokenisation, trading and settlement,” he
says. “Another common layer is the liquidity pool. The buyers who are
buying cashew nuts from Nigeria would also like to buy cashews from
Ghana and Côte d’Ivoire. With every new exchange coming on board, not
only do they benefit from the existing liquidity pool, they also
contribute to it.”
standards for commodities, tokenisation, trading and settlement,” he
says. “Another common layer is the liquidity pool. The buyers who are
buying cashew nuts from Nigeria would also like to buy cashews from
Ghana and Côte d’Ivoire. With every new exchange coming on board, not
only do they benefit from the existing liquidity pool, they also
contribute to it.”
The platform will ultimately integrate with Barter Block.
