Why Diamonds? Pricing Methodology, Cryptographic Registration
Trade in diamonds has gone on for centuries. (7) These gifts of nature are extremely rare in investment-grade* quantities. While there are billions of dollars' worth of rough diamonds mined every year, most of these do not meet the criteria for investment-grade gemstones. Unlike precious metals, investment-grade diamonds are unique assets, in such a way that they are traded, graded and valued individually.
Technological innovation has made the process progressively easier. The result of this has been the slow development of a robust international diamond market. Most of this technology has focused on identification and valuation improvements. What was once an art, is now provided through the rigors of scientific exactness and measurement. These huge advances are very beneficial to the standardization of the international diamond market.
Diamonds, just like gold, have always been considered valuable, but diamonds’ historical lack of fungibility has hindered the diamond industry from taking advantage of the leverage tools of the financial markets. Thus, there is no financialized commodity market, per se, for diamonds. Instead, they are all sold individually or in lots, but still as listed and described individual unique units. The Company, by using today’s Blockchain technology, with the development of the Diamon Trust Model, can successfully resolve these problems. Hence, the DBK Coin may be the ultimate solution to the challenges faced by diamonds as a financialized commodity.
The underlying diamond assets housed are priced at the published Rapaport prices. The Rapaport price list is the diamond industry benchmark for the pricing of diamonds. Inside the diamond industry, the actual sale price of any given diamond may be at some discount to or premium above the Rapaport price.
The level of discount or premium varies greatly and is influenced by many factors including the 4C’s: cut, clarity, color and carat, and other quality measurements; in addition to demand or scarcity of a diamond type; credit/memo terms; the location and type of market; the liquidity level of particular size/quality combinations; and liquidity and the associated risk of ownership.
Since the Rapaport price list serves as an industry benchmark for the valuation of diamonds, the Company will be pricing the digital asset utilizing this valuation model in order to achieve consistency in pricing: Significant changes in price that are not due to temporary market factors are reflected in the Rapaport price list. The Company believes this pricing model is the ‘best fit’ to substantiate the valuation of DBK Coin over the long term.
The Rapaport Report provides pricing values on diamonds and is published weekly, which may allow for weekly valuations to be performed. The Company has developed an internal modeling indicator to monitor the price movements on the Diamonds and will perform an annual valuation on the Diamonds subsequent to the annual inventory and assurance review/audit by PwC.
Blockchain and DLT in general now makes it possible to transparently register everything about an asset. As for diamond assets their provenance, valuation certification, chain of custody, insurability, and pricing are critical factors needed for trust and transparency. The registration of assets on a Blockchain solves the fungibility issue of diamonds and opens the door to commoditization and financialization.
* The term investment-grade does not constitute any relationship to an investment but references only to a class of top quality stones traditionally accepted as most valuable.