Matrix raises $23 million to bring blockchain-based post-trade processing technology to China

Reporter: Pencil lead

Matrix Financial, a startup led by former China UnionPay veteran Sun Lilin, recently received US$23 million (RMB 153 million) in funding to develop clearing and settlement solutions based on distributed ledger technology.

The Series A round was led by China Wanxiang Holdings and supported by Distributed Capital, a blockchain technology investment firm under China Wanxiang Holdings. According to CoinDesk data, this round of financing has set a record for Asian blockchain startups so far.

Therefore, the Shanghai startup, as a blockchain-related company, will be in a unique position to better seek collaboration with existing players in the banking industry to develop solutions related to the post-trade process. Its potential market targets will include securities dealers, custodian banks, clearing houses and exchanges.

But while Matrix’s goals are broadly aligned with those of New York-based Digital Asset Holdings (DAH) and London-based Clearmatics, Sun said he believes China needs its own solution providers.

Sun Lilin told CoinDesk:

"If you want to change the infrastructure, it will take a long time. There are a lot of engineering tasks involved, and you have to understand the culture. We understand the Chinese market very well."

Founded in 2014, Matrix Financial has long been researching how distributed technology could be used to solve problems in China's financial markets, even before Sun Lilin said the company turned its attention to blockchain technology.

Sun Lilin said he had always been interested in using peer-to-peer technology for finance, starting with his use of eDonkey, a file-sharing tool created by Ripple and Stellar founder JeD McCaled. (If that sounds a little premature, during our conversation, Sun Lilin even happily showed a selfie of himself with McCaled.)

“There are still a lot of errors that happen every day in the post-transaction process. But with blockchain, it will be easier to balance the accounts, which will increase speed and accuracy.”

Sun Lilin said that Matrix Finance saw the appeal of the blockchain concept, and Chinese financial institutions were gradually becoming more interested in the technology.

Sun said Matrix has so far started working with a number of partners, including online banking giant WeBank and regional blockchain consortium ChinaLedger. Both organizations spoke at last week’s Shanghai Blockchain Global Summit.

China's Advantages

However, although Matrix's goals seem ambitious, Sun Lilin is very optimistic about its prospects because he believes that China's regulatory environment for start-ups is very suitable.

In the U.S., regulation is done upfront, while Sun said China encourages innovation before deciding on the best rules to implement. Sun also agreed with comments made by executives at blockchain startup Circle that this is why mobile payments have taken off in China but have struggled everywhere.

Overall, Sun defines his strategy with Chinese regulators as maintaining a "just right" relationship as the business grows.

“We are engaging with a range of Chinese government agencies and are involved in a number of working groups and discussions,” he said, adding:

“We want to be friends, but keep it just right.”

"The comments echo some public comments from Chinese financial institutions, which have called for industry to work with regulators to develop applications for technology."

The rhythm of change

However, although the new round of financing means that Sun Linlin can invest more resources in human resources, it also means that Matrix must focus on solving the technical limitations that are still restricting blockchain today.

Sun Lilin admitted that most Chinese financial institutions (like international financial institutions) are concerned about privacy and confidentiality issues, and there is still a need to seek relevant technological solutions to alleviate these concerns.

As part of the effort, Sun said he will fund academic research into financial cryptography, and his company has asked 10 university organizations to submit their ideas as bids on the topic in an effort to scout for new ideas.

"We will continue to invest resources in cryptographic research," he said.

Sun said he believes some solutions can be found by cleverly using hardware as part of a distributed ledger system, and he intends to continue exploring the intersection here as his company’s work progresses along its roadmap.