Google’s Schindler Invests in UK Automated Reasoning Startup
David Rosskamp, general partner at venture capital firm KRW Schindler, said Aesthetic Integration, the startup that won the UBS Future of Finance challenge last year, provides the missing piece that will allow software to eat the world over the next decade.
Grant Passmore, co-founder and co-chief executive of Aesthetic Integration, told Markets Media: “The UBS win raised our profile and we were contacted by Philipp Schindler’s venture capital firm about a month after we won.”
Philipp Schindler, Google’s chief business officer, backs KRW Schindler. Rosskamp told Markets Media that Schindler & Schindler makes a small number of hand-picked investments in Europe in technologies that are fundamental i.e completely new and that will create long-term breakthroughs in the industries they target.
Aesthetic Integration uses Formal Verification techniques to test critical software such as components of trading infrastructure and algorithms or smart contracts, which automatically operate on distributed ledger technology, and has just raised £1m in a seed round. Formal Verification uses automated mathematical techniques to ensure system specifications are consistent and designed correctly, and then uses the same techniques to test whether the actual production system is consistent with its design, and has been used in safety critical industries such as the airline industry.
Rosskamp said: “This is the first time we have seen a quantitative and scientifically precise way of using reasoning to verify algos. This enables full security compliance for the first time.”
Although Aesthetic Integration has launched in finance, Rosskamp said the firm has designed a platform to allow Formal Verification to be used very easily. Therefore it has the potential to be utilized in any industry where software design is critical, for example, self-driving cars.
“This is the missing piece that will allow software to eat the world over the next decade,” Rosskamp added. “The democratization of formal reasoning so that it can be used by ordinary guys, rather than just PhDs, will make the world a lot safer so it is a very compelling long-term proposition.”
The risk of faults in software was highlighted when hackers exploited loopholes in the Distributed Autonomous Organization’s smart contracts and stole digital tokens worth millions of dollars, raising security concerns about the possible adoption of distributed ledger technology by the finance industry. The DAO smart contract had to be rolled back to before the hack, tarnishing the technology’s reputation of immutability.
Rosskamp said in a blog that the difficulty of establishing trust poses a fundamental handicap to the widespread adoption of distributed ledger technology and that entrepreneurs that tackle such risks can create entire markets from scratch.
“Taking this to heart, we have invested into two companies that address the two central risk pillars: illicit activities (Elliptic) and algorithm functionality (Aesthetic Integration),” wrote Rosskamp. “These are the missing elements for establishing trust, adopting and democratizing distributed ledger technologies in a wider context.”
Passmore said that before the DAO fiasco the blockchain community had often approached building smart contracts with the same ‘hack things together’ mentality as, e.g., building a web app. However seeing how easily mistakes in smart contract code can lead to catastrophic losses, the community is maturing. He continued that the lesson of the DAO hack is that smart contract development must be approached rigorously with engineering discipline, more akin to building a safety-critical control algorithm than building a web app and as a result Aesthetic Integration has developed Imandra Contracts.
“Imandra Contracts brings major advances in algorithm analysis (‘formal verification’) to smart contract development and regulation, allowing users to understand what a smart contract does, why it does it, and what can possibly go wrong,” added Passmore “We’ll launch Imandra Contracts in September at Ethereum DevCon2 in Shanghai.”
He continued that Imandra Contracts has two levels of analysis – the first is the analysis of high level intent, ensuring the high level contract design meets its specification. Before this contract can be run, it must be converted to low-level byte-code. “The second analysis is at the byte-code level, analysing the actual byte-code that will be executed on the blockchain,” said Passmore.
Imandra Contracts uses similar Formal Verification techniques as Imandra Markets, which allows financial firms to verify and test critical components of their trading infrastructure as algorithms and systems have become increasingly complex.
Denis Ignatovich, co-founder and co-chief executive of Aesthetic Integration, told Markets Media: “We are in discussions with a handful of major banks and connectivity firms to launch Imandra Markets shortly.”
For example, trading venues can convert regulatory filings and trading rules into mathematically precise specifications and code which can be analysed using automatic reasoning to test fairness and whether trading behaviour matches the marketing materials. Or an investment bank which trades on hundreds of venues can quickly check how each platform operates while investors can easily test how their trades would behave on different venues.
“Precise exchange simulators are always in demand. With Imandra Markets you will get them straight out of the bag,” added Ignatovich. “More importantly, you will be able to automatically reason about the virtually infinitely many possible interactions between your systems and the exchanges.”
Ignatovich continued that clients will be able to verify designs of their systems and thoroughly test them with quantitative coverage metrics, generate compliance reports, and on-board their clients much faster.
“Imandra Markets will allow the industry to encode and maintain libraries of properties that algorithms must comply with expressed in a mathematically-precise way, enabling use of cutting-edge formal verification tools,” said Ignatovich. “This will be a game-changer for the industry as it’s getting ready for MIFID II requirements.”
MiFID II, the new regulations covering financial markets in the European Union, come into force at the beginning of 2018 and will bring big changes to the market structure of trading across asset classes, in addition to setting standards for the operation and testing of algos.
“We are building an ecosystem where finance as an industry can come together to share complex client-facing information,” added Ignavotich. “This is not limited to connectivity between an exchange and a bank or a hedge fund as any large financial institution today runs on numerous legacy systems that must communicate with one another. Untangling this mess is critical for everyone.”
Ignatovich explained that Aesthetic Integration’s goal is not to own or maintain thousands of specifications and models, but to provide a network for the relevant community to meet and exchange information.
“Financial systems are constantly changing, so it’s impossible for any single organisation to keep track of the specific changes,” Ignatovich said. “The key for us is the right incentive structure that will entice experts and system-owners to ensure models they create and maintain are relevant to the community. Think of this as Apple App Store or Spotify for mathematically-precise financial algorithm specifications.”
More on fintech:
- Financial Industry Looks to Automated Reasoning
- Writing a Smarter Contract
- OPINION: When Smart Contracts Go Bad
Are trades executed in line with the intent of the orders?
Cowen estimates at least 6 basis points saved per block trade, more for less liquid securities.
eFinancialCareers reports that low-vol markets favor man over machine.
Offering scrapes public quotes to create firm prices.
The firm has slated three more block trading solutions for MiFID II.