The Certified Blockchain Based Diamond Exchange, CEDEX, offers a number of worthwhile opportunities for investors to get a share of the diamond market pie. The diamond market is characterized by high entry barriers, a lack of fungibility and oligopolistic structures that hinder potential investors from venturing into this alternative market.
Unlike most other commodities like gold, diamond does not have a uniform pricing structure. This means that the price for one carat of diamond differs from that of another carat. Instead, each piece is assessed according to the four C’s (Cut, Color, Clarity and Carat size). But this has led to numerous characteristic combinations that make it difficult to assign a value to the gemstone.
CEDEX proposes an innovative solution that will transform the diamond industry and make it more appealing for investment. Its approach seeks to create a double-sided market to eliminate the oligopoly surrounding the trade and alter the market perception of this valuable asset rendering it more accessible.
The Current State of the Diamond Market
At present, investors trade in precious metals such as diamond, gold and platinum with two major objectives. The first is speculation, whereby traders buy the commodities and hold them with the confidence that prices will appreciate then grant them the opportunity to sell at a premium and maximize the yield. Second, they perceive gemstones as a reliable store of value which can reduce portfolio volatility and hedge their investments. The existing trading system is irrelevant for individuals wishing to participate in trades as it only targets B2B transactions.
The Two Sides of CEDEX Blockchain Trading Solution
CEDEX seeks to employ the use of blockchain technology to revolutionize the diamond market and make it more viable for individual participants. It does this by putting in place a stable and consistent supply and demand cycle that will make it a viable business model and appeal to investors.
For private holders wishing to sell diamonds, the existing market system offers prices that fall way below the fair market value of up to 50% at times. This has greatly hampered the movement of these gemstones as private owners would rather keep them than sell at throw-away prices.
CEDEX offers a tokenization model that will address this weakness and create a consistent supply cycle on its platform. The platform not only relies on these individual buyers but also seeks to establish strategic partnerships with global leaders in diamond trade. One of such leaders is IDEX and the process is underway for a partnership agreement to further strengthen the supply arm of the platform.
The demand side of the solution will offer traders the opportunity to purchase smart contracts that represent actual diamonds using the platform’s token, the CEDEX coin. The first group of potential traders includes persons who wish to get exposure to the diamond industry or use the gemstones as a hedging tool. The platform will transform diamonds into a new asset class with low volatility making it an appealing investment choice for them.
The second class of traders that will create demand for the exchange is the crypto community. The cryptocurrency industry is known for its volatility and few opportunities offer the kind of stability that CEDEX will. These investors will be able to lock in their digital currency assets and enjoy worthwhile returns from the business model.
Diamonds as Homogenous Assets
Asset classes require homogenous products in order to facilitate trade. This is one of the major hurdles that have kept diamonds in the unique assets category since time immemorial. But CEDEX assigns the diamonds on its platform categories based on their inherent characteristics.
The diamonds on each category are assessed against a pre-established benchmark and get ranked according to the deviation from this standard. This will make it possible for all diamonds in the CEDEX ecosystem to get a unique score based on the same assessment ratings, thus making them homogenous assets. This approach will facilitate a simple and fair trading model.
Shared Investment Opportunity
The platform offers the unique prospect of holding shares in units of diamonds according to investors’ capability. Diamond holder can choose to sell their holdings as single or multiple smart contracts. Multiple smart contracts will represent partial ownership in the backed gemstone. This opens up the category of high-value diamonds for investment, a rare opportunity considering that these are usually deemed as more volatile and speculative diamond options.
The CEDEX platform offers a viable business model with lots of income-generating opportunities for all manner of traders. This approach is a welcome deviation to the diamond industry, a sure way to propel the market to the next level.