How tokenized diamonds can create a separate asset class for storing value

When applying two of the most important innovations of blockchain — smart contracts and tokenization — to the billion dollar diamond industry, it morphs this stagnating sector into a diverse asset class. Now a much larger group of investors can easily participate in this attractive store of value. Already in 2018, pioneer projects from diamond veterans like KGK Diamonds and Alrosa tokenizing 17 million dollars worth of diamonds made the headlines to cope with the lack of growth in diamond purchases equaling around 68 billion dollars annually. While these early approaches were crucial first steps, Amazing Blocks now offers the chance for every diamond owner to turn their precious gem into a 24/7 tradeable asset for portfolio diversification. — Author: Nicolas Weber

Opportunities of applying blockchain and tokenization

Figure 2: Forecast rough diamond demand worldwide from 2014–2050.

“Money looks for silence” is an often referred to quote which also finds its utility in the gem-sector. The dominating cryptographic features of ERC20 tokens (e.g. tokenized diamonds) deliver the perfect framework in providing security and privacy when investing into diamonds — something many established players are eagerly aspiring to do. Additionally, tokens inheriting the function of a special purpose vehicle (SPV) allow the safe, secure and cost efficient storage of diamonds without the need for cross border transportation when acquiring these tokens. Another key aspect here to mention is the ability to fragment the ownership of the diamonds through “partial tokenization”. This will subsequently mean that investing in diamonds will not be limited to aficionados, but now the seamless acquisition of tokens is provided to investors in the standard way of security investing. Tokens here can be referred to as “Equity Tokens”. A standardized blockchain specific pricing algorithm that could be implemented determines the price at which crypto and regular investors alike can redeem any tokens (e.g. digital Euro, Bitcoin etc.) at every time for selected tokenized diamonds. A newly founded asset class in the investment market is available to portfolio diversifying investors all around the world. It could be included as an alternative asset in funds and in overall the disruptive blockchain technology delivers yet another example of providing new purchasing opportunities for a stagnating industry.

The ambivalent diamond industry

Figure 2: Forecast mined diamond supply worldwide from 2014–2050.

The core problems today are (1) no liquidity, (2) no transparent pricing and (3) the market demonization. Common issues with these types of assets like transportation and securely storing diamonds are obviously also present in this sector. The prevalent lack of liquidity stems from the fact that diamonds generally are not attractive to investors yet, since they are often described as “non-commoditized commodities”. Access to investing is very difficult to gain and mostly wealthy, established individuals dominate the market. Moreover, the large variety of specifications when determining a diamond’s value deliver another constraint and hence boost illiquidity. In addition to this, logistical hurdles such as heavy paperwork, transportation costs and dual taxation (when acquiring in the origin country and when crossing the border of the investor host country) make it barely impossible to economically offer diamonds as an investment. The intransparent pricing originates from the key benchmark RapNet, which only forms data according to the price of the largest player, but not the actual market price. Parameters like shape, carat, cut and more are not implemented in the pricing metrics transparently or even at all, as mostly trade is done peer to peer with cash. This leaves tremendous room for individual “creativity” when stating the price demanded. Furthermore, a secondary market does not exist at all in this sector — leaving substantial room for tokenized diamonds to fill this gap. Last but not least, throughout the last decades a population demonization has been taking place, especially in developed and industrialized countries. Increasingly lower amounts of cash are in circulation and the function of private means ownership are gradually eliminated. However, the diamond industry is very cash reliant and owners frequently want to stay unrecognized, consequently this contradictory development seriously harms the trading frequency.

How to tokenize diamonds with Amazing Blocks

Future outlook and conclusion

Remarks

Amazing Blocks offers a tokenization solution that enables its clients to tokenize various assets according to the Liechtenstein Token Act (software-as-a-service). The software covers both the issuance of tokens and investing in tokens. It suits the needs for tokenizing all kinds of assets (e.g. machines, cash flow generating contracts, trademarks, real estate, cars). Imagine that some asset should be tokenized. For this asset various tokens would make sense: Equity tokens, debt tokens, participation rights as tokens, ownership tokens, or any mixture of these tokens. The software of Amazing Blocks helps issuers to handle multiple assets and to issue multiple tokens for these assets. This is possible by integrating blockchain technology with the law (that is, the Liechtenstein Token Act). At the core, there is the “digital legal entity in Liechtenstein” based on “tokenized shares” which allows a very efficient foundation, a very efficient operation of the company and, thus, an efficient and flexible possibility to tokenize assets. This should now make a wide variety of tokenization projects possible, because the costs for tokenization are significantly reduced.

Interested? Then, contact us! Are you interested in what Amazing Blocks is doing? Visit our website, write an email to hi@amazing-blocks.io, or follow us on LinkedIn or Twitter. Or provide your email address here and we will immediately send you more information.

Author

Nicolas Weber is Head of Business Development at Amazing Blocks and is your direct contact for any regards. You can contact him via email or connect with him on LinkedIn.

Digital legal entities in Liechtenstein based on true equity tokens to tokenize any asset in a standardized way to save time and money. - www.amazingblocks.io