A pioneering software entrepreneur believes the nearly five-year-old blockchain company has found a way to open up the $1.2 trillion diamond market to a wider group of investors.
Cormac Kinney sees the Diamond Standard as a way to remove major barriers to gemstone ownership and investment. Diamond Standard’s patented technology is designed to create a more transparent system that allows investors to track the supply chains and subsequent ownership of the world’s ultimate bling more easily and efficiently.
Kinney noted in an interview with CoinDesk that the diamond market is “larger than almost all other precious metals combined, except for gold.” The fact that diamonds are not related to gold, stocks or bonds also provides investors with a hedge.
“Blockchain was the latest technology we needed to commoditize diamonds and unlock this new asset as a hedge, as a store of wealth, as a speculative investment and ultimately as a digital currency asset,” Kinney said.
Despite the allure of diamonds throughout history, the industry has struggled to attract investors in large part because the gem markets, which are far apart in different parts of the world, lack a single value standardization system.
The long, antiquated process of mining and transporting diamonds is also a stumbling block for investors looking for clarity and order. “With a diamond, the only way to transfer ownership in a consistently provable way to many different entities (the miner, the broker and the store) is to physically move the diamond between those entities,” said Patrick White, co-founder and CEO. of digital asset financing platform Bitwave.
Kinney saw an opportunity to transform the diamond industry through blockchain technology with its built-in ability to securely and accurately record information. The former quantitative chief financial officer at several financial services firms and founder of six technology startups has focused much of his 27-year career on developing platforms that improve the way organizations collect and analyze data, including heat maps and other technologies that provide insight into real time.
Licensed in Bermuda to issue, sell and redeem tokens and digital assets, Diamond Standard provides retail and institutional investors with a diamond-backed digital currency with standardized value and liquidity. The physical coins, which the company stores in a vault, hold eight to nine standard diamonds. Diamond-embedded tokens are digitized through an Ethereum-based digital currency, bitcarbon, which is tradable on different exchanges. The company has also created a peer-to-peer marketplace to trade its token directly.
More recently, Diamond Standard introduced a mutual fund that already has more than $100 million in investments, Kinney said. The fund allows investors to invest in both digital assets and commodities without having to follow regulations, he said. “We have a lot of customers who liked it [Diamond Standard] investment thesis and wanted to allocate [funds] in diamonds, but they couldn’t buy the coins or the bars and they couldn’t buy the coupon,” Kinney said. “That’s how they buy the fund.”
Merchandise with badges
Commodity tokenization has been popular among investors and traders during periods of high inflation providing access to assets that are a hedge against rising prices and volatile markets. A physical gold token, PAX gold (PAXG), which has a market cap of nearly $600 million according to CoinMarketCap, is one example. But even agricultural products like soybeans and corn are being tokenized to provide access to investors and farmers.
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Commodity digitization also creates transparency and efficiency for investors, unlocking liquidity for the asset class. “By fostering a more efficient financial system, tokenization effectively reduces market risk and enforces a greater level of security for data analysis and reporting,” said RA Wilson, CTO of carbon credit digital asset exchange 1GCX.
“It also creates new ways to trade derivatives, increases liquidity to narrow spreads (the difference between two prices) and creates real-time reporting mechanisms that will allow greater transparency in commodity markets,” he added.
Bitwave’s White said digitized assets also face potential legal issues.
“Suddenly, changing the ownership of a diamond, in a way that has massive amounts of documentary evidence and will be supported by a legal framework, can happen entirely through simple on-chain transactions,” he said. “This fundamentally changes the nature of supply chains, where property can be moved separately from the physical location and vice versa.”
Could Diamond Standard’s be setting a new trend?
1GCX’s Wilson optimistically noted that tokenization’s vastly improved “transparency and market governance across the commodity industry” make it “the logical next step toward promoting and scaling our most important global markets.”
“It allows these markets to trade 24/7 instead of being limited to traditional trading hours, which will create even greater opportunities for growth within the space,” he said.
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