Interviewed By The Asian Banker Live
Hogi Hyun, Founder, D1 Coin and Managing Director, Abacus Capital, shares insights on the application of blockchain technology to the asset management industry and how diamonds will be the future of asset backed tokens as an investible asset class. Hyun talks about his new venture, the D1 Coin, a virtual currency asset pegged to the fractional value of investment grade diamonds, which offers increasing return as a store of value. Hyun further discusses how the diamond-backed crypto asset is poised to be a more reliable counter-cyclical asset as an alternative to the adverse market movements in other metals or physical assets.
Here is the transcript:
Question: Pleased to talk to Mr. Hogi Hyun about D1, the Diamond backed crypto asset. Tell us how the D1 coin as an asset overcomes all the traditional challenges of investing in an asset like Diamond
Answer: Thank you very much and thank you for the question. Having studied the diamond market for many years and being a fund manager actively involved in natural resource investments like mining and gold bars, we have been looking at alternative commodities where we can invest. Diamonds per se not as a commodity, but they are a very interesting store of value. From our analysis, diamonds return about 5 percent per annum and this is on data that goes back over 50 years and, in some cases for individual diamonds we have data going back hundreds of years.
So, diamonds actually represent a very good store value and a very good investment. From this, we have looked at how to create diamonds as an investible asset class, but the challenge is that each diamond is different, hence you need to price and value each diamond separately and the bid offer spread on each diamond is quite high, you could face a ten, twenty or thirty percent bid offer spread between the price you buy and the price you sell. So, it’s important for us to find a way to overcome these barriers.
First, to create diamonds as an asset class, you need to somehow homogenize them, so instead of having each diamond traded individually, we believe the best way is to create a very large portfolio of diamonds and to issue a fractional ownership or a fractional claim on that portfolio. That way, each claim will have the same value and there will be no need to worry about each claim and each diamond having a different price.
Secondly, we need to make sure that we have perfect provenance (the place of origin/source) for our diamonds. As you know, there are some issues around conflict diamonds and other problems with the origins of diamonds, which is why we set up a direct relationship with Alrosa, the world’s largest diamond mining company in Russia, to supply all the diamonds for D1 coin.
Finally, in looking at the format of an investment, we are intrigued by blockchain and what it can do. So specifically as a fund manager, we’re very interested in asset backed tokens. Asset backed tokens in their essence are like funds, and if we could find a way to create an asset backed token backed by diamonds (the underlying asset) then we can actually kill two birds with one stone.
From this we achieve two objectives. One, we create diamonds as an investible asset class and second, we also create a high value asset backed token.
Question: Currently, there are regulatory uncertainties regarding the regulation of crypto assets and I see that some jurisdictions have also banned them outright. How does that affect an asset like D1 coin and what kind of impact would this have?
Answer: That’s a very important point and the jury is out on the ultimate regulations surrounding cryptocurrencies or tokens. There are some countries like the United States and China that have said outright either it’s banned or we consider them securities so you have to go through the same process as if you’re issuing a security. Other countries like Singapore will take a more subtle examination, if they determine token is a security then it has to be regulated like a security, but if is a utility token, they (regulators) will allow its issuance without the Monetary Authority of Singapore (MAS) supervision. So, each jurisdiction is different in the way they’re approaching and I think we haven’t really come to a stage where globally we have a unified view on how to regulate tokens.
Question: In terms of the current trend towards the declining pricing of cryptocurrencies like Bitcoin, this appears to be a slump. How does it impact the D1 coin?
Answer: Clearly, it has an impact. A rising market and positive market is good for the issuance of D1 coin. Having said that, we have an unintended consequence in that the insecurity around the price of Bitcoin and other cryptocurrencies gives rise to demand for stable currencies , whose value can be more easily determined, which is why asset backed tokens like Tether, which is backed one to one against US Dollar, have been so successful. Tether started out as a quarter million dollar issuance, which is now a $2.5 billion market cap; that’s peanuts compared to bitcoin, which is over a $100 billion market cap.
But Tether trades about $2.5 billion a day versus bitcoin’s $5 billion a day, meaning that every Tether coin trades somewhere on the exchange daily and only three and a half (percent of) bitcoins trade every day. So there is a much higher degree of liquidity which indicates a greater investor interest. So, we believe that asset backed tokens are a very large potential sector in the crypto markets that is as of yet untapped.
Question: What are your plans for D1 coins in terms of your initial placement and over time how big do you see it going?
Answer: We’ve secured $20 million worth of supply of diamonds. We signed an agreement in Antwerp a month ago and in the past two weeks we started receiving payment for the first issuance of D1 coin, principally from a high net worth family offices investors. We believe we will in the next month or two, fill up the $20 million allocation. Mainly, what we hope to have within a year’s time is over a $100 million of D1 coins in circulation.
Question: Given the profile of some of these investors, are they more traditional crypto players or investors and to what portion are the non-crypto investors of the family offices for example the private wealth investors, how are they taking to this asset class?
Answer: We’ve had interest from both. There are a number of crypto investors who are unintended millionaires or billionaires that got in on bitcoin early and saw the price skyrocket and are also die-hard fans of blockchain and crypto markets and they may not want to exit their bitcoin even if they think the price is going down, they may want to remain in the crypto markets. As such, they have been investing in a lot of ICOs, but a lot of them have also been disappointed, a lot of them have very little liquidity and huge price drops, which is where asset backed tokens come in.
That’s one of the reasons why Tether is so popular and it is so liquid that a lot of these bitcoin millionaires, when they don’t know what to invest or they are not sure about the price movement of bitcoin, will move their capital into an asset backed token like Tether. We believe D1 can play a similar role as Tether as being a stable coin but with an upside appreciation: Tether gives you no yield, there is no capital gain and it’s just one to one against the dollar. Diamonds on the other hand have a long term present appreciation of about five percent a year and the supply-demand dynamics of the industry may dictate a faster appreciation in the underlying prices. So we think it’s not only a safe place to put your money but it’s a place where you can actually make a profit.
Question: And what are the non-crypto investors looking for?
Answer: From non-crypto investors, we get a lot of questions about the back-end of our process, where the diamonds are sourced from, how they are valued, are they audited, who is the storage, are they secure, are they insured. These are important things for traditional investors. A crypto investor may take it for granted that everything is in safe hands because they’re used to investing in crypto currencies that have no backing.
Whereas, a traditional investor will want to know that there is a real asset behind the token that they are buying and that there are independent third parties overseeing those assets, which is why we need to have safe keeping, independent custodian, independent auditor, independent logistics providers and independent pricing to be able to support our D1 coin.
Question: From where are your most investors coming from, are they from Asia, and what is the minimum investment in tokens and is the stock open to your retail investors?
Answer: At the moment, our interested investors are mostly from global family offices, but principally coming from Europe. We expect that for an additional placement of coin prior to listing on the exchange, most of the investors are likely to be high net worth or family offices that want a safe way to get into the crypto markets. Subsequent to listing, we expect there to be a lot more crypto investors. Crypto investors are usually not interested in investing unless they can trade and unless there’s some liquidity. So, we would expect that interest from traditional crypto investors will pick up once our token is listed.
The token price is $10 and we are strictly working with accredited investors.
Question: Thank you for being here.
Answer: Thank you very much