Exclusive: Diamond-Tokenising Startup Carats.io Raises $1.6m Funding

The company aims to use blockchain technology to bring liquidity to an old-fashioned market.

Carats.io, an Israeli blockchain startup working with the diamond industry, has raised $1.6 million in a funding round led by Net Capital Ventures.

Finance Magnates visited the company’s office at the Israel Diamond Exchange to talk about its new product.

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Background

The diamond trade is one with a long, twisted history. Diamonds have been considered valuable since at least the fourth century BCE, which is when the first written records of diamonds are found in Indian texts. In more recent times the diamond trade has been a major source of human suffering. The De Beers corporation carefully developed a monopoly during the late 19th and early 20th centuries and used this to artificially control supply in order to keep diamonds scarce and prices high. The artificially high value of diamonds was a major factor in the brutal civil war in Sierra Leone (1991-2002), where many of the world’s diamonds are mined.

The diamond trade has gone some way towards modernising over the last twenty years, with the creation of the Kimberly Process Certification Scheme by the UN in December 2000 and the Responsible Jewellery Council in 2005. However in many ways, the industry remains very old fashioned, with marketplaces consisting of large rooms where traders and buyers sit opposite each other and conduct their business face to face – this is a market which until now has largely resisted digitalisation.

 

Blockchain

Carats.io is one company trying to modernise the diamond industry through blockchain technology. It wants to introduce liquidity to the market with a cryptocurrency whose value is backed by diamonds. Co-founder Dor Eligula said: “We created a digital token whose sole purpose is to create the liquidity phase of the industry. Every CARAT is backed up by diamonds. Like the gold dollars held at Fort Knox before the ’70s, this is what we are doing now with our coin CARAT and diamonds.”

Israel is one of the world’s major diamond hubs. It is responsible for approximately 12 percent of the world’s diamond trade and about 30,000 people are employed in the sector. According to Chief Product Officer Gabriel Diamant, the aim of Carats.io is to open up this intimidating world to outsiders.

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At the Israel Diamond Exchange diamonds are valued and registered by a non-profit US company called GIA. Carats.io is using this register to develop an index of diamonds called the GDX, or Get-Diamond Index. The GDX is now the official index of the Israel Diamond Exchange, and over 10 billion USD worth of diamonds are on the index so far, according to Diamant.

Liquidity

Eligula explained that while there is a physical market for diamonds, using them as financial assets has not been a possibility. In order for people to make investment decisions, people need to be able to see market movement on an index. Liquidity – which is the degree to which an asset can be transacted in the market without affecting its price – is what the start-up wants to create with the GDX.

They acknowledged the reputation of both the diamond industry and the blockchain industry, and aim to bring the two together to create a system which is both clean and transparent. Eligula explained that transparency is created via an external company that checks the contents of the Carats safe and reports it to the public.

The diamonds are purchased from the Israel exchange by Carats.io whenever somebody buys a Carats token. Because of this, explained Diamant, the company is not in competition with the exchange. CARAT tokens represent ‘B2C’ (business to customer) transactions – cryptocurrency jewellers will be able to receive tokens which hedge the value of the diamonds that they are selling.

The main selling point of this token is that a person who holds CARAT tokens will be able to redeem them for certified diamonds, or just link to a stable BETA 0 product which is based on one of the most isolated industries in the world.

We asked Diamant about the scalability of the cryptocurrency. He said: “I see the world of cryptocurrencies as a world made up of communities, and I would like the CARAT to be the coin of diamonds.”

The company’s first token generation event is to begin in Q2 2018.

 

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