ModulTrade - Democratizing global trade with Blockchain technology
Trade Finance IS adopting blockchain technology
“Blockchain holds considerable promise, but all too often it fails to find sustainable use cases.
Trade finance is one significant exception” . — The CAPCO Institute journal of financial
A whole new approach, informed by blockchain logic, could bring the very transformation an
established yet restricted business is crying out for. Placing the end-to-end trade finance process
on a new platform would have a very clear objective: to offer all exporters and importers fast
and easy access to credit issuance and advisory services. This is a radical but obtainable shift. An
open, automated, and transparent trade finance platform, which replaces cumbersome trust
mechanisms with automatic checks and assurances, is now a technical possibility.
MSMEs become a part of Global value chains (GVC) supported by e-commerce development
The opportunities for MSMEs in the global marketplace and value chains are enormous : it 9
exposes them to a large customer/buyer base, as well as opportunities to learn from large firms
and from engaging and surviving in up and coming sectors of the global marketplace.
“The development of e-commerce promises to expand export opportunities for SMEs and give
them a global presence that was once reserved for large multinational firms.“ - WORLD TRADE
REPORT, 2016 Selling through digital channels can productivity gains that the McKinsey Global 10
Institute (2013) has estimated at between 6 and 15 per cent.
Technology and regulations are democratizing banking industry towards Fintech
Another catalyst for this kind of disruption is the Second EEA Payment Services Directive ( PSD2 ) 11
whereby Fintech providers will become Account Information Service Providers ( AISPs )
themselves which makes it easier, faster and less costly to handle customer's' payment
transactions and account related data.
PSD2 will allow the MTP (ModulTrade Platform) to interact with customers’ accounts
within secure processes without banking intermediaries thus increasing efficiency and
lowering transactions costs.
MSMEs face many barriers and capacity constraints due to their relatively small size. Globally, it
is estimated that approximately 56% of MSME trade finance proposals are rejected, compared to
only 7% for multinational corporations. 12
ModulTrade addresses the needs of MSMEs by eliminating the main barriers for entry into
● Lack of trust.
● High entry costs.
● Complexity of trade-related operations.
Lack of trust remains a significant problem for MSMEs and prevents them from being active
players in the global trade network. The economical meaning of this trust issue could be
summarized in the following question:
● Will the Buyer pay upon the Seller sends goods to the Buyer?
This question was answered by existing banking system which created Trade finance
instruments , like Letters of Credit and Bank Guarantees.
High entry costs and complexity of trade related operations
Traditionally, the trade finance business has targeted exporters and importers of a
certain size, with only mid-range to larger players being able to afford trade finance
services . 13
Today’s trade finance business has to face the following key challenges:
● Increasing cost pressure: Letters of Credits ( LCs ) are associated with high costs for both
the bank and clients, while dispute resolution and limited scale create additional
pressures due to a relatively high fraction of manual processing and a yet untapped
customer base. Trade finance providers can gain strategic advantages if they
succeed in finding fundamentally new approaches to delivering the service to their
● Poor customer experience : from a bank’s point of view, the key customers, exporters,
and importers often suffer from a poor end-to-end customer experience. Not only does
the issuance of LC-backed trade finance transactions require high coordination efforts
among exporters, importers, and issuing and advising banks, often represented by
individual legal counsel, the settlement of the transaction follows overly complicated and
manual processes, long waiting times with low transparency, and a relatively high
residual settlement uncertainty. For example, importers still face the delivery risk of
fraudulent shipments, even if the transaction is backed by an LC, and have to proactively
and manually track all stages of the agreed delivery terms.
The solution proposed by ModulTrade
ModulTrade aims to eliminate the main barriers for entry into global trade as well as:
● bringing together a comprehensive range of services for the full B2B trade cycle;
● helping MSMEs meet, commit and execute trade globally easily, in a trustful and
efficiently manner; and
● Introducing the MTRc (M odulTrade token ) as an efficient instrument of value exchange
in ModulTrade ecosystem.
MVE also aspires to be an innovative global platform that will easily facilitate
participants’ access to 3rd parties providing some or more of the following trade related
● Trade Financing
● Tax and bookkeeping
● Custom brokerage
MVE aims to be the place to easily develop new digital solutions for global trade , the most
obvious use cases being:
● Supply chain tracking on ModulTrade’s Platform
● Digital Thread for Additive Manufacturing (DTAM)
● IoT solutions for invoice factoring.
ModulTrade’s Value Ecosystem (“MVE”) — the economic catalyst for democracy in global trade
Leveraging on smart-contract blockchain-based technology, ModulTrade will build a value
ecosystem for global trade, i.e. a digital networked value structure that is real-time,
global, connected, digital and cost-effective, with features to support further fintech
solutions developed by third parties. This solution will enable MSMEs to increase their
revenues whilst reducing the costs of global trading. It will also enable third party
developers / service providers to gain access to a wider target of users / clients, while
reducing development and user acquisition costs. In this framework, the MTRc will be
used as a key for the users to connect to the global trade network and to transact in
MVE aims to connect participants to trade globally via four main components:
1. Blockchain based Smart-contract multi-sided platform (MTP) : to replicate banks’
trade finance instruments (Letter of Credit and Guarantee) and to offer MVE participants
this service in a trustful and cost-effective way while also connecting them to other
services like logistic and insurance;
2. Trade related services platform : to simplify trade execution via 3rd party service
providers (e.g. payments, logistic, financing, tax, bookkeeping);
3. Trade & Reputation network : to facilitate monetary transactions of MVE participants
within their reputation capital being a function of users reputable collaboration within
4. Marketplaces : to find reliable counterparties globally and to make optimal choices of
goods & prices.
ModulTrade smart-contract platform (“MTP”) — the backbone of
The main function of MTP will be to replicate banks’ trade finance instruments such as Letters of
Credit ( LC ) and Bank Guarantees.
MTP will provide this functionality to MSMEs at a negligible price (cost of smart-contract
execution on blockchain) if compared to 4-15% of the transaction amount charged by banks at
Current processes of B2B trade transaction based on
Letter of Credit issued by banks
In this example of trade process banks provide trust into B2B trade cycle as a 3rd party with the
“proven” reputation which community can trust. Banks guarantee that upon goods are delivered
money will be paid to the Seller.
Banks take charge for providing Trust and for avoiding Manipulation.
Trade process supported by MTP smart-contracts
“ Blockchain solves the problem of manipulation and trust. ” — Vitalik Buterin, Moscow, 2016
1. Buyer and Seller agrees on the trade and create a Smart-contract in the MTP
2. MTP blocks money on the Buyer’s account to guarantee the payment upon delivery
a. MTP instructs bank to reserve funds on the Buyer account/Credit card; OR
b. MTP reserves funds in cryptocurrency within the smart-contract
3. The Seller sends goods via logistic company and submits Tracking number to MTP
4. Upon Buyer’s receipt of goods, (Tracking delivery matches the address of the Buyer
indicated in the Smart-contract) MTP instructs release of payment to the the Seller
Evolution of MTP
The next development stages will include integration of 3rd party service providers on the level
of active participants of the blockchain network forked by MVE . This integration will include
functional agents such as:
● Insurance providers
● Trade financing lenders
● Logistics and shipment providers
Technical concept of ModulTrade solution
A simplified Letter of Credit protocol
The purpose of a ModulTrade smart contract is to lock funds from a Buyer and release them to a
Seller upon delivery of a Product to the Buyer.
The simplified workflow of the contract is as follows.
1) The Buyer deposits funds into the smart contract which acts as an escrow agent.
2) Funds are locked in the smart contract until release conditions are met.
3) Funds are released to the Seller upon successful delivery in a specified time horizon.
4) Funds are released to the Buyer if no delivery occurs in a specified time horizon.
In conditions when funds are blocked in a smart contract which acts as an escrow agent, the
ultimate goal of the parties becomes to release the blocked funds from the contract to
themselves as soon as they both agree that the trade has been successful. In this case, the
ModulTrade smart contract plays a role of trusted middleman helping to eliminate a costly trust
counterparty, traditionally, a bank or a marketplace agent. However, in the absence of a
middleman, it is only the counterparties themselves who know if their interests have been
respected. This brings a number of counterparty risks which should be handled accordingly. For
1) Deposit from the Buyer was received, the Shipping Agent received the product, but failed
to deliver it to the Buyer on time or at all.
2) Deposit from the Buyer was received, but the Seller didn’t send the product on time,
didn’t send it at all or sent a wrong product.
3) The Buyer claims that he or she received wrong/improper product while the Seller
shipped the proper product.
Who should receive what if one of the above cases takes place due to an unintentional error or
intentional fraud? Who decides on the fair outcome?
Initially, ModulTrade is going to mimic the logic of a letter of credit and its original trade contract
will ensure that sellers are getting paid unless they continuously misbehave and their reputation
slumps. Further, elaborate protocols based on mutual consensus outlined below will be added.
A family of consensus-based protocols
Generally speaking, it is only possible for the parties to withdraw funds from the contract when
consensus about the fair payouts has been reached. Since only parties themselves know if their
interests have been respected, it is them who should reach consensus. This process can
naturally happen off-chain or on-chain, but the resolution always happens on-chain when both
parties submit non-contradictory payout claims to the contract. If all parties behave honestly,
they all will approve correct withdrawals to each other and the contract will terminate correctly
and with zero balance. If one of the parties does not approve the fair withdrawal, applicable
funds shall be locked until they reach an agreement. The parties are motivated to reach an
agreement as they will lose more otherwise, because of the reputational deposits pledged as
Such protocol acts both as incentive to behave honestly and as a deterrent for behaving unjustly.
This protocol, however, does not resolve all potential misbehaviours and abuses. ModulTrade
aims to resolve such cases by extending the protocol with reputational deposits which parties
have to place depending on their reputation score. This will further incentivize fair behaviour of
With reputational deposit, the parties risk losing more if they behave dishonestly, while losing
nothing otherwise. It is logical that some may regard reputational deposit as an unwanted,
though temporary, burden. Specifically to mitigate this perception, on early stages, ModulTrade
and its ecosystem partners are going to act as guarantors of trusted trade by offering parties an
option to make reputation deposit for them for an agreed fee.
ModulTrade solution is technologically scalable. Long-term platform scalability due to
current technological constraints of Ethereum is an issue that can be addressed in several
ways each of which is feasible, secure and realistic. In the event, the most appropriate
method will be decided depending on the tests to be carried out together with pilot
customers and first partners, as well as depending on the user growth rate after the first
One of the major current technological constraints of every Ethereum-based solution is
scalability: at the moment (June 2017), Ethereum can handle from 7 to 13 transactions per
second in case of relatively light smart contracts . This is clearly a bottleneck for any application 17
that aims at growing to a considerable number of transactions. There are certain approaches
that ModulTrade can employ to handle this issue and we believe that scalability should not be
regarded as a serious obstacle. Further we explain why.
In case of ModulTrade, two metrics matter most: a) the average number of transactions per
second and b) the maximum reasonable latency between transactions of the same contract.
Transaction latency is not an issue for ModulTrade. The types of contracts that the platform is
going to support typically allow up to 1 day latency. In future, when ModulTrade taps into
markets and processes that require faster execution, latency requirements can potentially be
raised to several hours, but unlikely to single minutes. This allows us to ease up platform
requirements on the number of simultaneous transactions.
If we disregard for the moment MTRc trading on crypto-exchanges as this activity is external to
the platform, we can use the following formula to estimate the average number of transaction
Average TPS = users * contracts-per-user * transactions-per-contract / contract-life-time
● A target of 10mln users by year 10 that use ModulTrade platform on a regular basis (i.e.
executing 1 contract per week on average).
● About 10 transactions (initiation, funds transfers, delivery status checks, insurance
conditions check and so on) required per each contract on ModulTrade.
● Contract lifetime can be from 1 day to 2 weeks, i.e. roughly 1 week on average.
● Transactions uniformly distributed over time.
Average TPS = users * contracts-per-user * transactions-per-contract / contract-life-time
= 10mln * 1 contract per week * 10 transaction per contract / 1 week lifetime
= 10mln * 0.143 contracts per day * 10 transactions per contract / 7 days =
= ca 2mln transactions per day = ca 24 transactions per second
This TPS, estimated for a target of 10 mln active ModulTrade users in year 10, is more than what
Ethereum supports today, although this current scalability bottleneck is expected to be resolved
by Ethereum Community with a reasonable advance. Be it an increase in gas limit, migration to
proof-of-stake or another improvement, it is vital for the mere existence of Ethereum as a smart
Nevertheless, there are a couple of alternatives that ModulTrade is able to employ in case of
exponential growth and without reliance on Ethereum. They are migration to another blockchain
or, alternatively, bringing some less trust-critical parts of the smart contract execution off chain.
Migrating to another blockchain
The other blockchain could be either a more traditional private or public permissioned
blockchain (e.g. Hyperledger) or blockchain-inspired technology such as Corda, or a new
blockchain architecture with vertical and horizontal scaling such as EOS.
Depending on the chosen method, MTRc tokens might remain on Ethereum and a cross-chain
gateway can be developed for interoperability. No hard fork of MTRc contract would be needed.
However, if the chosen method would require transfer of MTRc funds from Ethereum to another
blockchain (unlikely but theoretically possible event), a carefully defined, open and verifiable
process will be used to transfer the funds and MTRc funds will continue belonging to their
Bringing some parts of the smart contract off chain
Another alternative of addressing scalability problem is bringing certain less trust-critical parts of
smart contract work flow off chain. For example, contract negotiation is the primary candidate to
be off chain. Third party services such as
insurance or risk hedging can be partially or completely
off chain, or on another blockchain.
There will be a limited supply of 100 million MTRc in total. Part of it will be distributed
through Pre-sale and Token sale in 2017-2018.
● up to 10,000,000 tokens will be distributed during the Pre-sale .
● up to 20,000,000 tokens will be distributed during the Token Sale .
No more MTRc distribution will be done after the Token Sale ends.
The price of MTRc is set as follows:
Token price: 1MTRc = 1ETH/700
During the sale period the following pricing mechanism will be applied:
The number of tokens allocated to each subscriber will be determined at the end of the Token
During the Token sale MTRc
tokens will be distributed in the
following way: Distribution 30%
(Pre-sale-10%, Token sale 20%);
Product development 20%;
Ecosystem creation 32%; Team
15% ( 5% will be distributed
within 6 months after the
Token sale is finished, 5% will
be released after the 1st year,
5% — after the 2nd year );
Use of the proceeds
The proceeds collected during Token sale will be invested in developing 19 the Modultrade
project in the following way:
The Token sale floor and cap amounts in Pre-sale and Token sale were defined based on
● The floor amount corresponds to the development of the Modultrade platform
which will be fully operational but geographically developed in 3 countries.
● The Cap amount is based on different scenarios linked to MVE development
timeline and corresponds to the full development of the Modultrade platform,
including additional features and with a Global geographical development.
Modultrade is the result of a team collaboration. The 4 MIT team mate founders decided to
move forward on the original idea of trade finance. This decision gave birth to Modultrade in
April 2017. In the meantime, a team of talented and highly skilled professionals joined the
startup and contributed, with the founders, in shaping the vision and putting together founding
documents and prototype to move ahead with the idea.
Professional Consulting and Legal support of the Token sale
From the outset, ModulTrade engaged Ramparts European Law Firm, an independent law
firm based in Gibraltar and ITIRIV, consultants in The Token Sale space in order to ensure
that the concept of the Token Sale was performed under the best possible governance.
● An audit of the Token sale process by independent audit organization will be
carried out prior to the Token sale. This independent audit organization will also review
the process during the Token sale and validate it.
● An independent supervisor will be appointed to validate that development
expenses linked to Token sale funds are in line with the plan . The quarterly reporting
issued on Modultrade.com will include a status on expenses based on Token sale funds
and a status on technical and geographical Modultrade development.
● No more MTRc token will be created after Token sale.
● An MTRc committee will analyze the MTRc utilization and will provide
recommendations to the community for further MTRc development . As the MTRc is
needed to trade on MT platform, its usage on the platform will be closely monitored.
● A quarterly reporting on MTRc rate and MTRc utilization will be published on MT
● Project reporting system: periodic internal and external reports on the project status
(the monthly external reports will be published on the Company’s website).
● ERM (Enterprise Risk Management) framework: to identify, monitor and manage the
key project risk factors (business and operational) and to assess the sustainability of the
● Strategic Advisory Board to set project guidelines and controls.
ITIRIV have worked with ModulTrade Team in order to establish the following:
Suitability, Establishment and Compliance procedures for ModulTrade and the token sale •
determining the suitability of ModulTrade business using blockchain• Determining the
appropriate jurisdiction for the token sale.
Creating the token sale proposition • white paper (guidance and approval)• business plan
with milestones and technology build program schedule• Project management of token
issuance in conjunction with The ModulTrade technical team
Joint coordination of Announcement, Pre-sale and Launch of Token Sale • drawdown on
token/coin value raised based on a milestone commitment in Charter of the token sale company
(TSC)• Marketing advice in order to ensure that The Token Sale falls out of scope of securities