One morning last week, I saw this post by CTRM Center, and I left a brief comment to the question, ‘Is blockchain the future of CTRM?’. But later I thought it deserved a closer look and wanted to take a deep dive into the question posted and its implications to CTRM software – I promise to keep it simple.
Whilst it’s true that for the past 5+ years, since the surge of cryptocurrencies – and in turn blockchain – everyone seems to be scrambling to find ways to utilize blockchain, sometimes to the point of the proverbial ‘hammer in search of a nail’. But can one system do the job of the other? Let’s start by defining what ETRM / CTRM is and looking at how certain technologies serve the commodity markets.
Trading and related lifecycle management of trades
Risk management which can be divided into:
- Market risk
- Operational risk
- Credit risk
- Regulatory risk
Management of each of the above mentioned
We can disregard credit risk within this context because most ETRM / CTRM systems have basic functionality for this, and they often rely (through acquisitions or partnerships) on third-party solutions for full service. As we know, the pillars of blockchain or DLT (distributed ledger technology) and their inherent advantages are traceability, transparency, immutability and decentralization. These characteristics are well suited to collaborative smart contracts. Similarly, for the physical commodity market, the value of blockchain-based solutions would help operations and logistics, especially to trace commodities through the supply chain.
Which brings us to one of the most compelling reasons that drive ETRM / CTRM technology adoption: market risk analysis. This is a key ETRM / CTRM feature and one where blockchain fails to provide any value. Also known as systematic risk, market risk and related analytics are heavily math-driven and blockchain lacks the characteristics required to provide accurate risk assessment.
As blockchain-based solutions continue to make waves in the market, are we moving towards an inflection point whereby blockchain drives Trade and Operations Management and ETRM / CTRMs will be sold and deployed under a new moniker: ‘Market Risk Management & Analytics’?
The focused use of current ETRM / CTRM systems will require flexible platforms that not only integrate with blockchain solutions but also provide the layer of risk management to trade management and operations/supply chain management platforms, consolidating all market risk and analytics.
This is not the future: this is today. CTRMCloud offers a platform that is well suited to meet these demands. How do we do it? We’d be happy to start that conversation with you.
CTRMCloud offers CTRM as a service, allowing for data to be collected, analyzed and reported in near real time from all areas of the business. Contact us to learn more.