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InvestX: A large-scale enterprise blockchain project to raise and manage share equity
A large-scale enterprise blockchain project to raise and manage share equity
At the start of 2018, InvestX approached Equal Experts looking for help building a blockchain platform. InvestX comes from a corporate finance background and was experienced in the world of mergers and acquisitions. It saw a unique opportunity to use blockchain technology to develop the next generation of equity crowdfunding platforms, to support small and medium-sized (SME) British businesses.
About InvestX
InvestX delivers access, liquidity, and innovation to the private equity asset class through investments in late-stage private equity.
Industry
Finance
Location
UK
Challenge
Assessing platform viability
Thanks to high transaction costs, raising new equity for small and medium size businesses is currently so difficult that it essentially removes it as a funding option. In fact, access to this entire asset class (shares in UK SME businesses) is closed to all but specialist investors.
The overall goal of the InvestX project, therefore, was to assess the viability of a platform to reduce the overall transaction costs – and the technology required to create it – both for businesses looking for funding and investors looking to invest.
Solution
Blockchain and Equal Experts
At Equal Experts, we’ve been developing ongoing capabilities in different kinds of nascent technologies. As part of this initiative, we’ve sponsored and collaborated with blockchain consultancy BlockRocket.tech. This collaboration has allowed us to educate, consult and deliver distributed ledger technology-based solutions.
At the start of 2018, ICOs (Initial Coin Offering) had become an established way of funding projects using tokenisation. Using this new form of crowdfunding, products and companies could now be funded and launched by selling tokens (bought using cryptocurrency and traditional currency). The ICO market exploded in late 2017, raising $10 billion for projects, and gathered pace into 2018. In 2018, 2,284 ICOs reached their conclusion and investors could choose from hundreds of projects spanning all imaginable verticals. Investx approached then engaged us to see if they could tap into this to raise money themselves by developing their own ICO offer with the plan to use the ICO to fund platform development.
Equal Experts helped InvestX plan and design a large-scale enterprise blockchain project that would enable them to manage share equity. Importantly, we delivered a token, with supporting smart-contracts, to facilitate a token generation event. This token sale would pre-fund the bigger project and also grow an engaged community early around the product.
As with all propositions, this core engineering was supported with consulting to help develop a whitepaper, associated artefacts, and strategy.
The product
InvestX wanted to build a liquid marketplace for crowdfunding with share equity, in an open and transparent manner. Currently, centralised share management authorities are often the single point of trust (and often, failure). Blockchains are distributed ledgers, so provide the ideal vehicle to trustlessly track allocation of share distributions.
We performed a detailed analysis on private and public blockchains to ensure feasibility, as many factors come into play such as transaction costs and speeds. To further prove the design and assumptions, we then developed a proof-of-concept system with smart contracts handling full share distribution tables.
The solution would use the underlying token, used in the initial sale, to allow small and medium enterprises to offer share equity in return for funds. All transactions and core executing code would be undertaken on a public blockchain for full transparency and auditability. Each fund-raise would use its own smart contract to manage the distribution table of equity, and plug into the larger ecosystem to provide liquidity and the pool of investors with a common currency. Projected fees and transaction costs were significantly lower than traditional existing share management systems. A wallet was designed to show how InvestX wallets could be used to hold your tokens and share holdings in one simple interoperable interface.
As a delivery partner, we consulted on blockchain and distributed ledger technology, and built bespoke self-executing test-driven smart-contracts along with the necessary tooling and process. We also helped the client understand tokenomics (the art of creating and managing virtual currencies), and supported the deployment and management of a live blockchain solution.
Smart contracts engineering
Delivering software can be expensive and risky. Systems often need bug fixes and iterative releases to ensure products are performant. As a professional software engineering team, we naturally use test-driven development, build pipelines, and various other tooling to ensure code is of the highest quality.
Developing code for a blockchain via smart contracts or similar constructs presents new challenges. For example, fixing bugs with a release is no longer a simple roll-out. Smart contracts are immutable by their nature and are deployed only once. New patterns are emerging to aid upgradability, but the fact remains it is not easy to change blockchain code once it is public and in the wild. Therefore, quality code and planning implementations are even more paramount than in centralised development. Test-driven software built by experienced engineers could be the difference between success and catastrophic failure.
Security testing is vital in almost all software. However, special care and attention needs to be taken with smart contracts, not only because they hold data, but also because they potentially hold large sums of money in the form of cryptocurrency. With that in mind, during the process we undertook an internal in-depth security analysis and testing piece looking at all known attack vectors and exploits within the ethereum virtual machine.
Alongside smart contract development, InvestX also required operational insight into how the processes deployed on chain were operating. We built a suite of tools to provide insight into the smart contract, looking at the events and transactions which were taking place. To support this we built a serverless cloud-based API and web application, which allowed InvestX’s management to have access to the data they cared about and make interactions with the core smart contracts via signed transactions.
Results
The future
In this instance, market conditions dictated that Investx didn’t receive the funds required to proceed to the build phase, however decentralised technology adoption continues to grow and receive investment across the world. Enterprise organisations have started to investigate cutting through the hype to analyse use-cases where true value can be derived.
Blockchain technology is not the panacea for information technology, but there’s no doubt it has the potential to add real value to existing and new solutions – if used correctly.
We at Equal Experts have partnered with BlockRocket.tech and are actively investing in research and implementation on private and public blockchains and distributed ledgers. Between us, we understand what it takes to deliver a hardened solution into a production environment, manage the associated risk, and add value through innovation.