Gerry Tsoukalas

Gerry Tsoukalas, The Wharton School of the University of Pennsylvania

Blockchain and the value of operational transparency for supply chain finance

We examine how blockchains, which were originally designed to provide verifiability of digital goods transactions, can be ported to provide verifiability of physical goods transactions. We identify some of the unique implementation challenges and propose ways to mitigate them. To exemplify, we describe an open-source blockchain platform we developed, termed b_verify, and one of its use cases in agricultural supply chains. We then develop a theory showing how the proposed blockchain-enabled verifiability of physical goods transactions can be leveraged by firms to signal their creditworthiness through their upstream inventory orders, and thereby finance their supply chain operations more efficiently. Although signaling is in some cases possible even in the absence of blockchain technology, we show that it comes at the cost of larger operational distortions and increased financing costs in equilibrium. Our theory suggests the benefits of blockchain adoption would be greatest for high quality (creditworthy) firms procuring perishable and/or illiquid input inventory, and those facing considerable information asymmetry vis-a-vis their financiers, SMEs and startups in particular.