Exclusive: Q&A with Saar Levi, CEO and Co-Founder of CEDEX
Cryptovest caught up with CEDEX at the Security Tokens Realised event in London this year to talk about its new tokenized diamond exchange and how this new technology will revolutionize commodity trading.
CV: First off, can you explain what CEDEX is and what has motivated you to innovate in this particular space?
Saar Levi: CEDEX is the first global diamond commodity exchange to engineer a ground-breaking change in this market, enabling people to liquidate and invest in diamonds as they would in any other financial asset class: easily, securely, and transparently.
What CEDEX is trying to do is create a diamond financial market. Let me explain. Today, the diamond market is worth $90 billion. However, the investment portion accounts for only $1 billion of that a year. This large discrepancy is the result of three main things lacking: pricing transparency, liquidity, and standardization. What we did at CEDEX was combine three technologies that enabled us to overcome the aforementioned obstacles.
- First, we developed a technology called DEX, which is a proprietary algorithm enabling the CEDEX exchange to provide its investors with non-biased price evaluation for every single diamond that has been GIA-certified. The DEX score is based on a diamond’s gemological perfection, market price (based on 20 years of past and current parallel data), and the liquidity of each diamond category.
- The second development we undertook was incorporating blockchain technology to create transparency by making prices, ownership history, value, payments, and gemological profile fully accessible through the process of digitizing all diamonds.
- Lastly, we developed a state-of-the-art B2C platform enabling retail investors to easily trade and liquidate their diamond assets. We hope this will bring the diamond industry to full capacity of sales, fueling growth that can reach $300-$400 billion. CEDEX believes it can successfully bridge the gap between existing financial markets and the diamond industry.
In November 2018, CEDEX launched a live working beta operative exchange boasting a number of innovative features such as:
- Proprietary orderbook and multicurrency matching engine;
- Advanced trading functionalities (automated multiple bid system);
- Asset tokenization and mobilization ability through centralized wallet system;
- Diamonds categories featuring different investment and risk profiles;
- Over 3,000 listed diamond assets with constantly updated inventory;
- API connectivity to 1,000 diamond suppliers;
- Direct API connectivity to the GIA;
- Full verification and custodian process for each diamond.
CV: Traditionally, the diamond market has been difficult for amateur commodity investors to engage with and identify fair market values when buying and selling diamonds. How does the CEDEX platform help regular investors make better-informed decisions when trading diamonds?
Saar Levi: Today’s diamond market is a very closed B2B industry. A consumer can buy a diamond but not know its actual value. Furthermore, s/he is unlikely to sell it at its true market value.
Our technology is unique in that it provides investment tools which can indicate fair market prices and proposition attractiveness levels. The exchange also offers several categories of diamonds to cater to the risk profiles of different users, ranging from volatile to conservative.
Perhaps most importantly, an investor needs no prior diamond knowledge to invest on the exchange.
CV: It is widely believed that tokenization will radically disrupt the way we trade securities, real assets, and commodities in the near future. What do you consider the main benefits of tokenized diamond trading and how much of an impact will this have on the existing industry?
Saar Levi: We see today that more and more financial leaders are talking about tokenizing commodities. We are evidencing a vibrant move towards the tokenization of commodities as well as other traditional securities, and the drivers for this trend are as follows:
Transparency: Ownership and transactions are recorded and executed openly and indelibly on the blockchain.
Reduced costs: Resulting shares can be bought and sold without the involvement of a third party.
Efficiency: Ownership can be more easily split up.
New markets: Crypto and fiat markets are brought together and liquidity created.
Where diamonds are concerned, major advantages over commodities such as gold include:
- The cost of investing in diamonds is lower due to their size, meaning storage and custodian expenses are much lower since you need less space.
- Diamonds have a variety of risk/rewards profiles - from a single small diamond to a large diamond or even uniquely colored diamonds. Gold, on the other hand, has only one risk profile to cover all products (ETF, physical, or futures), and one gram of gold will always equal one gram of gold.
- The public currently holds more than $500 billion worth of diamonds without profitable liquidity channels.
- Diamonds are a market with huge expansion potential, while gold is a saturated one.
CV: Regulatory compliance is obviously fundamental in running a security token platform. What measures does CEDEX have in place to ensure that it remains compliant under the relevant securities regulations?
Saar Levi: CEDEX has worked to structure its business model carefully, receiving legal support by the finest international law firms as we work toward becoming licensed in several jurisdictions. CEDEX adopts the strictest business standards regarding the various aspects of operation (e.g. AML/KYC requirements as well as others). Furthermore, as a UK-registered company, it is fully compliant with the relevant UK and EU rules and regulations.
CV: The tokenized commodity market is set to become highly competitive as this technology grows increasingly popular. Who are CEDEX’s main competitors and how does your platform plan to stay ahead of the competition as the industry develops?
Saar Levi: The B2B market is dominated by two players - RAPNET and IDEXOnline). However, they have so far failed to penetrate the B2C market, and several other players have made attempts to approach this market as a financial asset in recent years. These include:
- ICEXINDIA - an early 2018 initiative by a India Commodity Exchange to create an index.
- SDIX - an attempt by the Singapore Exchange to create a "basket of diamonds" priced by free market demand to determine final value.
Additional blockchain projects regarding diamonds include:
- Carats.io - creating a stablecoin backed partly by diamonds.
- D1 - a Singaporean initiative creating a stablecoin backed partly by diamonds.
- Everledger - provenance of diamonds on the blockchain. There may be collaboration in the future between CEDEX and Everledger. When a diamond is invested and traded over the CEDEX exchange, connectivity to Everledger can allow us to support provenience of the diamond, while through our systems, Everledger can follow price fluctuations and changes in ownership.
- De Beers - the tracr blockchain traceability platform for diamonds.
CEDEX is unique as it is the first platform to offer direct access to retail traders to invest in diamonds at commodity price levels. Our single diamond investment is the beginning of a dramatic revolution in the industry. Following the single diamond investment, we have a clear roadmap for developing further investment methods, all in pursuit of ultimately connecting the diamond industry with the institutional financial markets.