E=MC² for Diamonds
Dr. Mathias Bucher is the Founder of ABC Platform, a CommodiTech project that creates the infrastructure and market network to make inaccessible commodities tradable. On February 21st, Dr. Bucher and his team launched their first product on their platform, SwissDiamondCoin, to tackle the fungibility problem with an algorithmic approach to allow all investment diamonds to not only be fairly and efficiently redeemable, but also open-sourced and issued by a non-profit foundation.
After completing his interdisciplinary PhD in evolutionary quantitative finance at the University of Zurich, Dr. Mathias Bucher was traditionally trained as algorithmic hedge fund trader at Rainer Marc-Frey’s Horizon21 and as a consultant at McKinsey & Co. He co-founded his own award-winning commodity hedge fund and, after a long decade of trading, pivoted back into teaching and blockchain entrepreneurship in 2015 —he now teaches at Lucerne University for business, algorithmic finance and blockchain technology. Initiatives include helping Polkadot and Web3 Foundation as a board member/advisor, starting the Ethereum Zurich meetups, creating a Swiss government-backed clearing- and settlement platform for Swiss equities, and starting ABC Platform:
“After two and a half years of development, our patent-pending value scale model allows any participant to buy and sell investment diamonds easily and transparently, removing barriers such as black-box pricing or asymmetrical expert knowledge and opening this industry to new businesses and users.”
His statistical, patent-pending model is specifically designed to be an intrinsic value model, where it is anchored to a set investment diamond standard as opposed to a set USD price. It allows for any person to confidently compare diamonds by removing the complexity of understanding the influence of individual characteristics and their interdependencies on the price. To compare it to ICEX or SDIX, SwissDiamondCoin has an open-sourced, robustly evolving algorithm for anyone to measure their diamond characteristics to both onboard on and redeem off, leaving a singular standard to spot trade and individually redeem diamonds. In addition, to exceed institutional expectations, SwissDiamondCoin centers around a public-benefit, non-profit foundation with proper check-and-balances and independent third party providers.
History of the Gold Reserve Standard
Strong and safe, but has “safe” ever been enough?
While the gold (and silver) reserve standard is certainly a feat of internationalism, its path to true standardization was very turbulent and a long process of persistent reform. Since the Latin Monetary Union (1865), the initial coinage rules were insufficient in controlling compliance as self-interested nations sought to print their own “gold certificates” for lavish fiscal spending amid other political issues. What emerged out of the era was a need for organizational ingenuity and most basic institutions to reduce counter-party risks: the efficiency of a central bank yet the independence of a benevolent foundation.
After many iterations and shifting roles of gold (post-Smithsonian in ‘73), the gold reserve system has proved its resilience and is still in use by nations and financial institutions such as US fractional banking system or the London-based SPDR gold share ETF (Ticker: GLD). While currently one of the more reliable international structures of confidence today, the spirit of the gold reserve system strives only to stay alive from its intrinsic issues instead of preemptively finding a cure.
The New Diamond Reserve Standard
As shown above, the new Diamond Reserve Standard aims to provide the transparency and reliability beyond sufficient benchmarks and the accepted status quo, producing a resilience and anti-fragility unseen in any institutional-facing industry comparable. SwissDiamondCoin’s set-up adopts and mirrors the best parts of any gold reserve system with its hub-and-spoke model to best comply with institutional-friendly standards. The central issuer of the token is a public-benefit, non-profit foundation, SwissDiamondCoin Foundation, based out of in Liechtenstein — this gives passport rights to both Switzerland and the European Union. SwissDiamondCoin and its foundation provides audited and evolving layers to provide continued protection in future simulations for the underlying commodity reserve, choosing best-in-class service providers for each situational need, such as uPort’s scalable and decentralized identity platform for a global public.
Creating an open and new secondary market should not be done nonchalantly. To address the possible exploitations that may occur in identity or KYC/AML risk, ABC Platform preemptively partnered at launch with uPort, the Consensys- incubated self-sovereign identity platform that delivers scalable decentralized solutions for identity, reputation, and multiparty trust built on the Ethereum blockchain. It’s not their first rodeo either, Mathias has worked with uPort before in bringing the product to the City of Zug where citizens can now conduct government voting on Ethereum blockchain.
Keeping the lid on Pandora’s box with uPort collaboration
Free and equal choice for redemption opens a new can of worms for the new secondary market, exposing the industry to money laundering and post-traceability issues. As they represent one of the highest value-to-weight ratios across all physical assets, diamonds have and will continue to be a medium and value transfer system that criminals will try to enter. Creating this new and open secondary market comes with it a host of KYC and AML issues not only at the enterprise level but also in retail. Redemption is an extra layer of security given that it is the first time the object can exit the system; therefore, a strict but flexible gatekeeper must be able to handle the unprecedented flow of transactions. Given the reputation of diamonds, a robust, technological identity solution is an imperative need with the new feature of universal access, especially as major institutions like Morgan Stanley are beginning to show their vulnerabilities.
“uPort delivers essential capabilities for businesses implementing KYC/AML, reputation management, and multiparty trust,” said Thierry Bonfante, Head of Product, for uPort, “We’re pleased to showcase our partnership with ABC Platform’s SwissDiamondCoin product, our first partnership in the trade finance industry. It’s a perfect demonstration of how using a decentralized immutable ledger can preserve the privacy of users, while achieving both the spirit and letter of KYC/AML regulations.”
There are other benevolent initiatives that address the KYC issue in diamond trading as well such as AWDC and GJEPC’s MyKYCBank. SwissDiamondCoin, however, plans to expand its operations to areas beyond India and Antwerp, and uPort’s privacy-preserving feature provided a scalable solution for a free, global blockchain network.