Frequently Asked Questions

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General

  1. Create a distributed, semi-private, approval based global network of commodity supply chain participants including actors such as farmers, miners, producers, traders, freight providers, warehouse keepers, insurance providers, quality testing providers, inspectors and manufacturers
  2. Create a distributed, immutable, verified and consensus based repository of commodities (agris, metals, energy) which all network participants can query as per their access rights and roles
  3. Create an online marketplace where commodity buyers and sellers can meet, enter into spot & forward contracts and also procure services to fulfil the physical contracts
  4. Create an online marketplace where commodity traders can apply for trade and collateral finance which can then be matched with investors willing and capable to take exposures to such loans
  5. Use blockchain as a key technology component in all the above business projects in order to enable parties who do not necessarily trust each other to do business together or collaborate for joint business
  6. Use IoT as a key technology component in all the above activities to determine the geo location and other physical attributes of the physical commodity and track the supply chain from origination until it is consumed in the manufacturing process
  7. Use Machine Learning as a key technology component in all the above activities to generate real time, meaningful, actionable and practical insights for all the network participants

Blockchain technology is still in its nascent stage. Though successful use cases have been made in the areas of cryptocurrencies and tokens, its viability for business operations is still dependent on several new advancements in science and technology. Many a times these new developments in science and technology is closely related to the business domain where it would be used. Our focus on the commodity trading, financing and supply chain management has naturally led us to focus on R&D of technology which helps us as an individual company and the commodity supply chain sector as a whole in terms of improved efficiency, better levels of trust among the parties involved and the required transparency for regulators and governmental agencies. Some of the specific areas we dedicated our efforts were in:

 

  1. Developing a public-private cryptographic key management infrastructure which works on blockchain records - Though existing mechanisms are available they work on a typical client-server architecture and there is no evidence or literature on how to make the same available on a distributed ledger system. Encryption of data is important for our business as well as for the industry as commodity traders will never agree to share the data on a distributed system if everyone on the network (including their competitors) can access it.
  2. Querying the data on blockchain – Though data is stored on blockchain, querying it can be quite problematic and time consuming particularly if one wants to look at the history of a transaction. For example, we maintain a registry of commodities on the platform, that is who owns what inventory at what location and at what time. Querying for the current status of a commodity is ok, but querying for the historical ownership chain for a specific commodity can be quite tedious and time consuming (upto 5 minutes) given where the blockchain technology is currently. We had to develop our own querying engines to reduce the querying time to a manageable 10 seconds.
  3. Developing a hybrid application – We believe that the blockchain technology is not yet fully mature to be used into a mission critical production applications as of today. Therefore we have chosen the high level design of our application to be hybrid. The user front end and application business logic is run on a traditional client-server web architecture whereas blockchain is used as a trusted repository of verified commodities, loan transactions and physical contracts. All legal documentation is stored on blockchain. We follow a microservices architecture approach which allows us to move services incrementally towards a distributed architecture. For example, the change in commodity ownership logic currently runs on a central server, however once we are satisfied with the way smart contracts work, we should be easily be able to move that piece of logic to blockchain

The warehouse keepers perform a critical function in the transaction process since they are the parties in actual possession of the commodities used as collateral and they perform a range of functions such as:

  • Confirming the presence and quantity of the commodities sought to be collateralized pursuant to a verification request from the Satoshi platform;
  • Highlighting the presence of a prior encumbrance on the commodities sought to be collateralized;
  • Marking the commodities as secured pursuant to an instruction from the Satoshi platform;
  • Flagging any deterioration in the condition or market worthiness of the commodities on the platform as per established process
  • Releasing the commodities in their entirety or part for
    • use by the borrower pursuant to a release instruction by the platform, upon borrower fulfilling all his obligations under the loan, or
    • liquidation by Satoshi and/or their designated agents pursuant to an instruction to the said effect by the platform, upon the borrower defaulting on his obligations under the loan.

 

Borrower default may occur due to the following factors:

  • Market factors – a fall in commodity prices, leading to sale at a loss (below loan value) or a request for the loan to be rolled over (in expectation of price recovery)
  • Company factors – Management issues or restructuring, leading to loss of control over supply chain
  • Government factors – Trade restrictions leading to import/export controls that prohibit sales or impose significant levies
  • Fraud – Borrower or staff within have sought to defraud lenders

Forms of Security

  • Warehouse Receipts – evidence of ownership of assets held within storage facilities
  • Clearing Systems – evidence of title of assets within a clearing system, such as LIFFE Guardian
  • Alternatives – if the above options are not available then other evidence of title may be available to Satoshi, such as bill of ladings or quality certificates, failing that a legal charge may be established over general balance sheet items of the borrower

Recovery Process

  • Notice of payment due, three days before final due date
  • Notice of default, one day after final due date, giving borrower 15 days to pay; and simultaneously
  • Appropriate steps taken to freeze security
  • Notice of pending recovery proceedings, 14-days after due date
  • Appropriate Recovery proceedings commenced, 15 days after due date

 

The smooth functioning of the transaction process and sanctity of the transaction data is ensured by the presence of the underlying blockchain system whereby the entire set of transaction data including lender, borrower and warehouse keeper information is stored on nodes and each stakeholder will be the owner of a node.  The full blockchain ledger will be replicated on this node. The blockchain ledger will contain a) The registry of commodities (i.e. who owns what at what time and place) and b) all the transactions between any of the stakeholders. All the data would be cryptographically encrypted and can only be encrypted by the relevant party’s private keys. All contract documentation is stored in IPFS (a distributed file server) to ensure that the records are immutable and undisputed.

Application of blockchain should mitigate against fraud, simplify the evidence and provision of security and allow accurate real-time pricing of security

The major risk of default however, remains a fall in prices, so maintaining prudent LTV controls will be crucial within the blockchain environment.

Satoshi holds all client money in a segregated trust account set up with an established bank or a Money Service Provider. We have a detailed segregated account policy and related implementation processes conforming to industry best standards

Satoshi’s revenue model is based on a percentage of the interest income earned by the lender. In case of a partial default by the borrower in fulfilling its obligations, Satoshi will not receive its percentage income share until all dues of the lender in relation to that loan have been paid off.

Satoshi recognise the importance of regulatory compliance and implementing effective controls for managing compliance.  We have therefore taken the following steps:

  • The Board takes primary responsibility for compliance
  • A certified compliance officer will look after compliance on a day-to-day basis and report s directly to the board
  • All staff has received training in key compliance issues
  • We also engage an external compliance consultancy to help with meeting our compliance obligations in areas such as:
  • File checks
  • Provision of compliant policies and procedures
  • Compliance audits
  • Assistance with complaints
  • Compliance training
  • Compliance help desk
  • Regulatory updates

Area/Serial Dependency

Event

What could go wrong

Critical Status

Probability

Impact

Risk Mitigation measures

Operations

1

 

Late Payment

Clients misses a contractual payment

H

L

M

·    Arrears Procedure is invoked.

2

 

Default

Client is unable to meet contractual commitment

H

L

M

·    Recovery procedure is invoked to realise the value of security held and recover outstanding monies. 

·    Loans out are restricted until recovery is complete

3

Physical Assets and Documents

Physical damage or theft

 

H

L

M

·    Premises where physical assets and documents are stored have fire-proof safes and cabinets, CCTV coverage and sophisticated alarms. 

·    Insurance cover is held to recover lost value.

4

Systems

Systems are no longer adequate to run the business and ensure compliance

H

M

M

·    Commission additional functionality from existing supplier or engage a more appropriate supplier

 

 

 

Area/Serial Dependency

Event

What could go wrong

Critical Status

Probability

Impact

Risk Mitigation measures

Continuity

5

Key Staff

Key staff are tempted away by competitors or other industries

H

L

M

·    Keep rewards competitive.

·    Offer Share Options to encourage a longer-term view

·    Give class-leading training including cross training with other functions

6

Key Staff

Key staff member resigns or is asked to leave

M

L

M

·    Allocate tasks to cross-trained staff

·    Invoke Non-compete clause in Employment Contract

·    Nurture external contacts of the departing staff member

·    Recruit replacement

·    Consider an interim contractor

7

Key Staff

A key staff member is absent on long term sickness/maternity

 

M

L

M

·    Recruit interim replacement

·    Allocate tasks to cross-trained staff members

·    Key man Insurance may help to defray costs

8

Communications

Telephone system failure

M

M

L

·    Contact system provider to restore

·    Use Mobile phones until restored

9

Premises

Premises not available

M

L

L

·    Initially staff work from home

·    Temporary or permanent new premises are obtained

·    Fit out and occupy

·    File insurance claim

·    Repair existing premises and re-occupy

10

Computer System

Externally hosted systems are not available

 

H

L

H

·    SLA is set at > 95% uptime

·    Maintain contact with service provider until resolved

·    If necessary, revert to manual procedures that mirror system workflows and update when external service is restored

11

Computer System

Locally hosted systems are not available

 

H

L

H

 

·    Anti-malware software is installed on each device and automatically updated daily

·    Daily backups are taken and stored offsite

·    Replace defective hardware, re-install operating system & restore data from backup

·    Remotely wipe the drives of stolen / lost equipment

14

Bank

Banking security breach

 

H

L

L

·    Access is limited to Directors and certain administrative staff

·    Anti-malware software is installed to catch Phishing exercises

·    Awareness training for new intrusion methods

·    Daily bank reconciliation

15

Bank

Lost or stolen cheque book or credit card

 

L

L

L

·    Contact bank, inform and cancel card or cheques

·    Order new card or cheque book.

 

Regulatory

 

 

 

 

 

 

16

Data Held

Digital Client Information is lost or corrupted

M

L

L

·    Restore from Backup

·    Update to last entry

17

Data Held

Client or staff digitally held information is accessed by an unauthorised entity

H

L

H

·    Cut all external access immediately

·    Establish extent of the unauthorised access

·    Advise all affected parties as soon as possible

·    Remove all malware

·    Restore clean backup and update to last entry

·    Advise relevant authorities

Area/Serial Dependency

Event

What could go wrong

Critical Status

Probability

Impact

Risk Mitigation measures

18

Data Held

Physical documentation is mislaid

H

M

H

·    All documentation is copied and handed back or returned by secure insured courier

19

Financial Crime

Fraud and /or Money Laundering

H

M

H

·    External verification of individuals and assets

·    Trade body updates on the latest schemes

·    Suspicious transactions are referred to the appropriate authorities for approval

·    No one staff member can action any money movement

20

Conduct of Business

Failure to comply with regulatory obligations

H

M

H

·    Continuous internal and external monitoring of business conducted

·    Regular training

·    No single person can authorise a transaction

21

Conduct of Business

Complaints

H

L

H

·    Website and documentation set out the procedure and contact details

·    Senior Management ensure that regulated procedures are scrupulously followed.

·    Compensation is given if the complaint is upheld

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