After nearly two years in the pandemic, CEO and Founder Siddhartha Siddhartha and the Intain team ran an audit of their platform and found more than $3.75 billion in assets live on the database.
Since Intain’s founding in 2018, the goal was to build the “boring blockchain” plumbing that runs the transactions for every structured finance deal in the world.
Siddhartha said after weathering the first crypto winter without launching a token and gaining 20 partners last year, that possibility is within reach.
“If you look at the lending industry, anything that is in vogue in tech gets adopted in lending, from AI underwriting, 20-second loans, digitization, etc. But the moment that loan enters the capital market cycle, it just starts moving on Excel sheets and emails,” Siddhartha said.
“So it’s almost like the windward and leeward sides of technology: all tech is at the front end in lending, and there is absolutely nothing in the backend.”
Truth and data automation
Siddhartha’s said Intain hopes to solve that problem, onboarding the old Excel sheet system through rails into a private but single-truth ledger system that opens up secured finance data to more than just easy deal flow.
He explained the team did not set out to build a blockchain platform but instead used blockchain tech to run the data layer with AI and analytics on top.
Intain enables partners to onboard structured finance deals onto their ledger for real-time data visualization, portfolio tracing, and automated smart contracts that Siddhartha said create a proprietary market for structured finance deals.
“Our objective is to make the whole structured finance process completely transparent, trustworthy, and efficient.”
He said he now aims to build out a retail element. While striving to be the number-one structured finance platform, the team built a defi tokenization element for securitized loans for crypto traders.
Intain outlasts hype train
More than a decade after the 2008 financial crisis, structured finance is still stuck in the past, Siddhartha said. For every transaction, the industry plays ping pong between the trustee, investor, and broker. All that becomes a thing of the past with blockchain, Siddhartha said, a system varified and searchable by anyone with the keys to their “siloed database.”
But after building the idea back in 2018, where has he been: Outlasting the hype train that infected the crypto space and building Siddhartha said.
Instead of offering tokens and a retail investor ICO, Intain went the infrastructure route for trad fi institutional use in a very niche way.
“We launched in the US early 2019 at the structured finance Vegas conference; we signed on the first partner later that year, and we went live in 2020,” Siddhartha said. “We have kind of outlasted others that tried to approach this problem, and after initial struggle convincing people, now we have the momentum.”
The platform saw 20 clients onboarded in 2021. Siddhartha said deal flow volume doubled twice, from $2 billion at the end of Q3 in September to about $3.9 billion in the period that ended December 31.
Why blockchain for database-like tech?
Siddhartha said capital raising is very inefficient in the U.S. in structured finance. To automate it, you need three things, Siddhartha said.
“Number one is one version of the truth, which means that the service, the trustee rating agency, investor; everybody should agree on what the facts of the matter are. That is something that blockchain provides us,” he said. “The second that blockchain provided is immutability, and the third; auditability. We are using blockchain in our data layer for these three features, but not really building a blockchain platform.”
Say a firm has issued 50,000 loans to securitize as collateral to raise money; they need a party to verify those loans. With Intain, that happens automatically, and investors can see on the marketplace “these are 50,000 genuine loans,” Siddhartha said.
That’s where the AI engine comes in; to read the loans and match them against the data. Siddhartha said as loans are “tranched out” or structured into different “pools” based on risk, time to maturity, or other factors. Intain automatically categorizes tranches through smart contracts that make it easy for the industry to work with.
Auto smart contract tranches
“Let’s say we’ll have a loan pool of 10,000 loans: the safest loans would get invested into by insurance companies, mutual funds may invest into the middle tranche; the bottom tranche, sometimes called the equity tranche, may get invested into by hedge funds,” Siddhartha said. “I’m purely simplifying this, but all these structures are written in our platform as smart contracts.”
When real-world services like banks and insurance companies interact with these loans to collect monthly payments, they use separate software that does not make things easier.
To build the smart contracts, Siddhartha said the team learned from European regulator ESMA, who released best practices for each asset class, from credit cards to commercial real estate loans. At the press of a button, the contracts calculate how much money each tranch owner gets in the payout based on ESMA data.
That means things are automated, and investors or loan services can easily search the loans at a glance: the system looks more like a marketplace. Data on any searchable metric imaginable, like the borrowers in the tranch that live in Florida or are exposed to Russian assets, stores automatically in the ledger.
“I may want to figure out if COVID cases in New York are very high of what is my exposure to New York loans, I can figure that out,” Siddhartha said. “But it also could be that the borrower is in New York, and I’m worried about the COVID cases, but the property is in Florida, where the real estate prices may be dropping? So I can drill down based on the state of the borrower or the state of the property: I can do any analytics that I want to perform.”
Intain uses Hyperledger Fabric
Intain runs on Hyperledger Fabric after being pursued by many different blockchain architectures, like Altri. Siddhartha said they have worked on the Hyperledger platform since version 0.9 since 2018, a private permission blockchain.
“It’s a private permission blockchain, so we don’t face the challenges ethereum, etc., face. It’s easy to bring parties onto our platform because nothing is public. And it’s not as inefficient or slow as many public blockchains are,” Siddhartha said. “When we tokenize any of these pools and list them for investment, that will be through public blockchains, but our whole administration will be on private blockchain.”
Future plans for world domination
Intain aims to be the default platform in the industry by the end of 2023, and Siddhartha said they are in line to meet that goal.
The hardest part is convincing a world of new crypto lovers why they chose the boring, plumbing infrastructure route. He said the new challenge is designing a defi platform to encourage new, crowdfunded investment in structured financing deals.
“We are talking to four of the top five trustees; one of the top five trustees is already on a platform. So that is something that we should be able to achieve in about a year and a half to two years,” Siddhartha said. “This isn’t innovation for us. This is 2019’s 2020’s innovation. So now we work on the problem: Can I take these tools and tokenize it and get a completely new set of investors who are providing capital to the lending industry.”
The idea is to build a system that normalizes a $10-million transaction, tokenized out to online investors. The team plans to launch a defi pilot by the end of Q2 this year, by June, Siddhartha said.
“How the adoption there would happen, I don’t want to put a timeline one because it a completely different area,” Siddhartha said. “But that’s our view, be the default administration layer in trad fi, and then use that infrastructure as a bridge to take trad fi issuers into the defi world to get capital.”
Defi and the end of post modernism
Eric Mitzel, VP of North America Sales and Client Solutions, said that the blockchain industry has grown. As a result, blockchain platforms have become routine but crucial trust layers.
“There is an incredible amount of investment in decentralized finance in the blockchain, and we don’t need to be part of it at the moment, as building credibility through delivering results is crucial,” Mitzel said. “We have taken careful strides to implement a pragmatic use of blockchain that acts as a bridge into the existing world of structured finance, served by agents and trustees within the industry.”
In opposition to the idea that tradfi does not want defi investors mucking up their organized tranches, Siddhartha said the tricky part of defi investing would be convincing crypto natives to get involved.
“Actually, the friction is the other way around: Because of the crypto boom, the defi investor is somebody who’s tasted blood. They are almost looking for 15-20% returns,” he said.
“The lender who’s raising capital is looking to raise capital at 3-5% percent. The challenge here would be how do you get a defi invested: Somebody who’s just so used to eating steak, how do you get them to eat broccoli?”