Juzhen Financials, a startup led by China UnionPay veteran Lilin Sun, has raised $23m (¥153m) to develop clearing and settlement solutions based on distributed ledger technology.
The Series A funding was led by Wanxiang Holdings and included support from its blockchain-focused investment subsidiary Fenbushi Capital. The funding marks the largest investment round raised yet by an Asia-based blockchain startup, CoinDesk data reveals.
As a result, the Shanghai-based startup becomes one of the best positioned blockchain firms to seek to collaborate with banking incumbents on solutions for post-trade, with its potential market including broker-dealers, custodian banks, clearinghouses and exchanges.
But while Juzhen’s goals are similar in intent to other international firms including New York’s Digital Asset Holdings and London’s Clearmatics, Lilin noted that he believes China is in need of its own solutions provider.
Lilin told CoinDesk:
“If you want to change the infrastructure, it takes a long time. It’s a lot of engineering work, and you have to understand the culture. We understand the Chinese market.”
Founded in 2014, Juzhen has long been working to determine how distributed technologies could offer solutions to problems in China’s financial markets, even before Lilin said it shifted its focus to blockchain technology.
Lilin said he has long been interested in applying peer-to-peer technologies to finance, beginning with his use of eDonkey Network, a file sharing service created by Ripple and Stellar founder Jed McCaleb. (If that sounds too-early-to-be-true, at one point in the conversation, Lilin even delightedly showed a selfie of himself with McCaleb).
“Lot of mistakes still happen in post-trade every day, but with blockchain, it’s easier to balance, faster and more accurate,” he said.
Lilin also asserted that Juzhen is seeing traction with its ideas, amid a broader uptick in interest in the technology among China-based financial firms.
So far, Lilin said Juzhen is already working with partners including online banking giant Webank and the regional blockchain consortium ChinaLedger, both of which spoke at last week’s Global Blockchain Summit in Shanghai.
China’s advantage
But while Juzhen’s goals may seem ambitious, Lilin is optimistic about its prospects given that he believes China offers an accommodating regulatory climate for startups.
Whereas in the US regulation “comes first”, Lilin said that China encourages innovation before deciding on the best rules to implement. Echoing comments made by executives from blockchain startup Circle, Lilin noted that this is why he believes mobile payments have so far taken off in China, but struggled elsewhere.
Overall, Lilin described his strategy with Chinese regulators as one that will keep the government “close but not too close” as it works to scale its offerings.
“We are talking to an number of Chinese government departments and we are involved in several workshops and discussions,” he said, adding:
“We’re trying to be friends, but keep them at arm’s length.”
The comments follow new public statements from China-based financial institutions in which they called for collaboration with regulators to help advance applications of the technology.
Pace of change
But while the new funding means Lilin can allocate more resources to personnel, it also means that it must work to address the technological limitations of blockchain that are still pressing today.
Lilin acknowledged, for example, noted that most China-based financial institutions (like their international peers) are worried about privacy and confidentiality, and that today, technological solutions to these concerns are still being sought.
As part of this push, Lilin said that he will fund academic research on financial cryptography, and that his firm has asked 10 university groups to submit ideas as part of a bid to collect new ideas on the subject.
“We will continue to spend resources on the research of cryptography,” he said.
Lilin indicated that he believes solutions could be found through the creative use of hardware as part of a distributed ledger system, and that he intends to explore this intersection as his firm moves ahead with its roadmap.
Image via Pete Rizzo for CoinDesk