Skuchain implements the emerging DLPC standard for Standby LC’s and Guarantees
As a pioneer in applying blockchain to trade and supply chain, Skuchain recognized early on that multiple business networks will form based on geographies, business relationships, products and raw materials. With a ringside view of distributed ledgers technologies as they entered the fray, it was clear to us that there would not be a ledger technology to rule them all. We saw that complex supply chains, would need interoperability across business networks and the ledger technologies used.
Skuchain joined the Bankers Association for Finance and Trade (BAFT) to advance the use of distributed ledgers for trade instruments in banking. At the time, Skuchain had developed the Brackets smart contract governance system, which was later used in the first letter of credit transaction on blockchain by CBA and Wells Fargo in 2016. On joining BAFT, we proposed the formation of a working group to define interoperability guidelines for letters of credit on distributed ledger. As captain of this working group I received feedback from interested banks and BAFT members emphasizing a broader goal of digitization across a range of trade instruments. This resulted in a recharter of the working group into the Distributed Ledger Payment Commitment (DLPC) working group.
By publishing best practices for the implementation of the Payment Commitment component of trade instruments, the DLPC WG is facilitating adoption of digitized versions of instruments ranging from drafts to open account to complex letters of credit. By standardizing a central self contained component of trade instruments, encapsulating the key legal considerations relating to negotiable instruments law, the DLPC WG is enabling implementers of digitized trade instruments to advance interoperability as well as time to market.
The BAFT DLPC specification provides best practices for the:
- Recorded format of DLPCs on a DL
- Legal rules binding DLPC participants
- Operational guidelines for DLPC participants
The BAFT DLPC specification:
- Facilitates standardized implementations of Payment Commitments across different types of digitized trade instruments
- Enables transacting across blockchain platforms
- Facilitates aggregation and trading of DLPC assets across trade instruments
The DLPC WG has the participation of legal experts who are on the Uniform Law Commission and an ABA (American Bar Association) Committee is helping the WG formulate the rulebook that will bind DLPC participants. As such, it is expected that the DLPC rulebook will be the gold standard incorporated into business network rulebooks to support negotiable payment commitments on a distributed ledger.
The DLPC WG has received support from some of the distributed ledger trade platforms and is actively reaching out to all trade platforms to make them aware of the value of adopting the DLPC best practices. In addition the DLPC workgroup is coordinating with other standards efforts such as the ICC Digitization of Trade Finance Working Group, to support mutual goals.
Skuchain has taken the first step in creating DLPC compliant trade instruments by making it’s recently announced Standby LC/Guarantee pilot, compliant to the draft DLPC specifications. Skuchain looks forward to making its implementations of trade instruments compliant with DLPC WG’s final specifications when they are released.
Author: Ranga Krishnan, V. P. Technology, Skuchain; Captain, BAFT DLPC working group