VP Bank tokenises its first diamond
What are your priorities for your entrepreneurial activities?
Katja Herrmann: We are contributing in a formative way to enable natural diamonds to be used sensibly as a sustainable store of wealth with stable values in their own asset class and that they are physically tradable.
Through our direct access to global procurement markets, we have been providing investors with advantageous entry to the world of diamonds for more than 40 years.
We provide investors with the relevant information in a transparent and comprehensible manner and we advise on the construction and management of diamond portfolios. Our advisory services include the selection and procurement of suitable stones, comprehensive quality checking, purchasing and storage.
As an external consultant and recognised diamond expert, we support family offices and asset managers in putting together individual diamond portfolios and, as an authorised dealer in Antwerp and the other main international diamond exchanges, we take care of the procurement and testing of the diamonds, as well as worldwide shipping or duty-free storage in high-security warehouses.
What prompted you to explore tokenising your diamonds?
Katja Herrmann: We have been examining ways of expanding our product range in the direction of digitisation and tokenisation for some time in order to make diamonds more tradable. We decided to tokenise the first diamond with VP Bank in the regulated environment of Liechtenstein. Thus, we are laying the foundation for expanding our range of digital assets and addressing new customer groups.
How does tokenisation complement your range of services?
Katja Herrmanntokenisation, we offer clients the opportunity to include diamonds in their securities account. This eases the tax burden for Swiss clients, in particular. Another advantage is that it is easier to plan the asset’s succession. Tokenised diamonds can be issued in the desired denominations via the blockchain and shares can readily be allocated. In future, it will also make tradability easier for our clients. All properties and criteria of the diamond can be recorded on the Ethereum blockchain. As delivered by us, the diamonds are stored in a tamper-proof bonded warehouse. This eliminates the need for a time-consuming second check in the event of a sale. All parties know what they are buying.
In addition, asset managers now have the opportunity to deploy physical diamonds in addition to stocks, bonds and commodities in their clients’ portfolios and thus can use diamonds as a new tool for stabilising custody accounts.
How do you assure the authenticity and provenance of your diamonds to your clients?
Katja Herrmann: We buy directly from the most renowned diamond cutters for the major mining companies. After the cutting and polishing process, each diamond is certified by the Gemological Institute of America (GIA), the world's benchmark testing laboratory. In addition, every Freiherr diamond receives a laser inscription with logo and certificate number from the GIA. This ensures that the diamond is the one identified in the certificate. All Freiherr diamonds are checked for origin by the Diamond Office upon arrival in Antwerp, after which they go through customs. All diamonds are then subjected to a second gemmological examination on site. Here, we reconfirm that it is a diamond of natural origin in order to exclude any synthetic stones. The diamonds are then tested again in our own diamond laboratory.
Why do you think diamonds are attractive investments?
Katja Herrmann: So far, diamonds have withstood all sorts of crises and imponderables. Coming from deep inside the earth and formed a billion or more years ago, we think diamonds will continue to be a sustainable store of value in the future. Less than one percent of all diamonds worldwide meet our high standards for a perfect, flawless investment diamond. They are therefore extremely rare and sought after. If you compare the historical value development of money with that of diamonds, the latter are probably much more stable.
Our clients buy diamonds because they are an ideal complement to conventional assets such as, stocks, bonds, real estate and precious metals, as well as watches or rare automobiles. Their high concentration of value makes diamonds a very mobile asset, too, convenient for transporting substantial wealth in an emergency. In addition, diamonds are not publicly traded, making them less susceptible to volatility caused by hedging, short-selling or options.
What benefits do you hope to gain from diamond tokenisation?
Katja Herrmann: Through tokenisation, we want to make diamonds more liquid and help ensure that diamonds find their way even more into the asset architecture of wealth owners in the future. Tokenisation, or a digital token, is a key vehicle for developing cost-effective forms of securitisation. In doing so, tokenisation can form the basis for transparent, carefully controlled digital secondary market trading with physically deposited diamonds.
How can tokenisation transform your industry?
Katja Herrmann: Blockchain technology is already increasingly employed in the world of diamonds to document the journey of a stone from the mine to the end customer, helping to make the market more tamper-proof and transparent. That said, it does not replace the expertise of the experienced specialist with an objective view through the microscope. Diamonds remain a business of nuances, the smallest differences in the criteria mean clear differences in quality and thus price. With or without a token, diamonds belong exclusively in the hands of recognized professionals who specialize in diamond investments.
Tokenization will help to further establish diamonds as a separate asset class in addition to the classic direct purchase via regulated alternatives and to make illiquid assets liquid and tradable on a daily basis. That’s our goal.