Diamond Standard thinks that putting diamonds on a blockchain will make investing in precious stones easier and more efficient.
A software business owner who was one of the first to do so thinks that his blockchain company, which has been around for almost five years, has found a way to let more investors into the $1.2 trillion diamond market.
Cormac Kinney thinks that Diamond Standard will make it easier to own and invest in precious stones. The patented technology of Diamond Standard is meant to create a more open system that makes it easier and faster for investors to track the supply chains and ownership of the world’s most expensive jewelry.
In an interview, Kinney said that the market for diamonds is “bigger than almost all other precious metals combined, except for gold.” The fact that diamonds have nothing to do with gold, stocks, or bonds is also a hedge for investors.
“Blockchain was the last technology we needed to turn diamonds into a commodity and unlock this new asset as a hedge, a store of wealth, a speculative investment, and, finally, as a digital currency asset,” Kinney said.
Even though diamonds have always been popular, the diamond industry has struggled to attract investors. This is mostly because the different gem markets in different parts of the world don’t have a standard way to measure value.
Diamond mining and shipping is a long, complicated process that makes it hard for investors who want clarity and order. Patrick White, co-founder and CEO of digital asset finance platform Bitwave, said, “With a diamond, the only way to prove ownership change between the miner, the broker, and the store is to physically move the diamond between those entities.”
Changing a business sector
Kinney saw that blockchain technology, which has the ability to record information in a secure and accurate way, could change the diamond business. The former quantitative finance manager at several financial services companies and founder of six technology startups has spent most of his 27-year career making platforms that help organizations collect and analyze data better. These platforms include heat maps and other technologies that give real-time information.
Diamond Standard is licensed in Bermuda to issue, sell, and buy back tokens and digital assets. It offers both individual and institutional investors a digital currency backed by diamonds that has a standard value and is easy to trade. The company keeps eight to nine standard diamonds in coins, which are kept in a vault. Bitcarbon, a digital coin based on Ethereum that can be traded on different exchanges, is used for digitizing the tokens with diamonds. The company has also set up a place where people can trade its token directly with each other.
Kinney said that Diamond Standard recently set up a fund that already has investments worth more than $100 million. He said that the fund lets people invest in both digital assets and physical goods without having to deal with rules. “We have a lot of clients who liked the [Diamond Standard] investment thesis and wanted to put money into diamonds, but they couldn’t buy the coins or bars, and they couldn’t buy the token,” Kinney said. “They decide to buy the fund.”
Tokenization of goods
During times of high inflation, investors and traders liked the tokenization of commodities because it gave them access to assets that protected them from rising prices and volatile markets. One example is PAX gold (PAXG), a physical gold-backed token with a market cap of almost $600 million, according to CoinMarketCap. But even soy and corn are being turned into tokens so investors and farmers can access them.
Digitizing commodities also gives investors more information and makes things more efficient, which makes the asset class more liquid. “By requiring a more efficient financial system, tokenization effectively reduces market risk and requires a higher level of security for data analysis and reporting,” said RA Wilson, chief technology officer of digital asset exchange for carbon credits 1GCX.
“It also makes it possible to trade derivatives in new ways, increases liquidity to make spreads (the difference between two prices) smaller, and sets up real-time reporting systems that will make commodity markets more open,” he said.
White from Bitwave said that digital assets also deal with possible legal problems.
“All of a sudden, the ownership of a diamond can be changed in a way that is well-documented and will hold up in court through simple on-chain transactions,” he explained.
“This changes the nature of supply chains in a way that makes ownership and physical location no longer linked.”
Could Diamond Standard be the start of something new?
Wilson of 1GCX said that tokenization’s vastly improved “transparency and market governance in the entire commodities industry” make it “the logical next step toward advancing and scaling our most important global markets.”
“It lets these markets trade around the clock instead of just during traditional trading hours,” he said. “This will give the space even more chances to grow.”