The token issue: mechanics, valuation and diamonds purchasing mechanism
Dear DGems followers, this is one of the most important article of those explaining the insides of our project. Below we discuss in details all key aspects of token issues, diamonds purchases, and price and value determinations through those processes. Please help us find any weak spots or inconsistencies in the logic we built.
In every event of a token issue DGems will be using a very transparent and highly secure valuation and diamonds purchase procedure which will be based on a clear and straightforward algorithm and will be executed jointly with a number of reliable and trusted agents and counterparties.
Selecting diamonds to be purchased
DGems Management Company has entered an agreement with a number of major wholesale dealers in the diamond market globally including most recognized names that wholesale amounts of diamonds will be available for DGems purchase upon request.
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In the event of new token issue planned, the Management Company will inform its suppliers that it intends to purchase diamonds in wholesale amounts, and suppliers will provide the Management Company with their current stocks available for purchase and prices for individual diamonds and those stocks combined.
Suppliers will guarantee that at least 90% of those offers are available and unchangeable for upcoming 24 hours as well as that the stocks presented are prepared for shipping and can be shipped to DGems vault within 24 hours after the purchase takes place.
As the Management Company receives those offers, they are to pass an internal pricing procedure. The pricing procedure will be conducted by DGems Pricing Algorithm that calculates fair market value for all offers provided by potential suppliers.
The analysis conducted may have different results. For every assortment of diamonds offered by every supplier the Pricing Algorithm will calculate what we believe to be a fair (or accurate) current market value. Effectively, prices derived by the Algorithm are potential selling prices for diamonds from DGems vault.
Thus, if a certain set of diamonds is offered at a price above the one calculated by our Pricing Algorithm, this offer shall be rejected. We, however, expect that in the majority of cases our wholesale buying will allow for market or lower prices. In other words, fair total market value (TMV) of the set acquired must be equal or higher than the price offered by the seller.
We are working actively to automate the diamonds purchasing process so that our algorithm could constantly browse through a selection of stones that fit our requirements provided by reliable suppliers.
DGems intends to grow its operations horizontally by introducing complementary services to help our token holders, partners and everyone in the DGems ecosystem. One of the models we will be implementing shortly is an online auction to buy standalone high quality stones from existing owners where they will be able to sell way above pawn shop prices, and DGems still will be able to get gems with a discount to market.
We will be constructing other algorithmic purchasing mechanisms in the future to optimize our access to value-bearing stones.
Initial token issue
Initial issue of DGems token will be conducted at a price of 1.00 US dollar per token. DGems Management Company will start openly collecting bids (orders, requests) from potential investors and form the book with a minimum of $100,000 and a maximum of $50,000,000. Bids are to be presented in US dollar nomination, so is calculated the book total amount. Further payments and settlements can happen in Euros and other fiduciary currencies, or in cryptocurrencies upon agreement and capabilities of the Management Company and investors.
Once the Management Company decides that offers from suppliers are suitable, and completes building the order book, the purchase begins. DGems will use an intermediary agent to provide escrow services during the process. This escrow agent will be selected of a very short list of top tier players in the sector such as Ferrari and Malca-Amit. The escrow agent will be granted access to view all the moves in the Management Company banking account and will have full visibility of incoming and outcoming money transfers at that account.
The Management Company will start selling tokens to the buyers, i.e. receiving advance payments in US dollars (or other currencies as decided for this particular token sale). Upon every amount received and the Management Company account and subsequently sent to the supplier’s account, the escrow agent will receive proportional amount of stones and deposit them into the vault, or put into custody to have these stones delivered to the vault immediately upon the token sale completion.
Once the diamonds are received by the escrow agent into its custody, the proportional amount of tokens is minted and delivered to the buyer.
Subsequent token issues
Subsequent DGems token issues will be conducted at a current market price. It is yet to be strictly defined what the market price calculation method will be but the following general approach will be used: DGems current market price will be defined as a weighted average of its Last Deal prices on publicly recognized trading platforms (cryptocurrency exchanges) for a given period, presumably, 3 days. DGems intends to have its token listed with at least three to five major/leading reputable exchanges operating in different countries.
In the event of additional token issue planned, the Management Company will inform its suppliers that it intends to purchase diamonds in wholesale amounts, and suppliers will provide the Management Company with their current stocks available for purchase and prices for individual diamonds and those stocks combined. Diamonds selection and valuation procedure will be similar to that in the section “Selecting diamonds to be purchased” above.
It is important to understand that following the initial token issue DGems will start regularly calculating its stock TMV (total market value) which will be performed on a daily basis by the company’s Pricing Algorithm, and will effectively represent potential amount of money that could be received by selling all the diamonds stored in DGems vault.
DGems TMV will be publicly available on the company’s website both as a total number and broken by individual values of diamonds comprising the stock. DGems MC (market capitalization or, to be precise, total market value of DGems tokens in circulation), however, can be different from that number. In case DGems MC goes higher than its stock TMV, market buyers are willing to pay a premium for the token. This could be explained by many factors, including high demand from investors, active use in remittance systems or by the very fact that DGems portfolio of diamonds might have more value than pure sum-of-parts.
In the very unlikely event that DGems MC is below its stock TMV, the market implements that liquidating the diamond stock (by redeeming all the diamonds) will not deliver the stock’s full value. We believe this won’t be the case.
By the time the second (or subsequent) token issue takes place DGems stock TMV will most probably change. If diamonds in the stock see their price appreciating, per token TMV will increase from initial US$1.00 to, for example, $1.02. The token market price in the same moment can be at any level with no ties to the numbers above. We find it logical that soaring market prices indicate that the tokens are in demand and there is a room for an additional issue.
However, if the market price goes below DGems per token TMV, we intend to withhold further token issues and focus on improving our marketing efforts and concentrating on expanding the token use cases, reaching to broader investment base and working on our PR and new coverage.
If the new token issue takes place, its mechanics will work as follows. Investors will be offered to buy new tokens at a market price (which is to be defined and calculated as described above). The Management Company will start building the order book asking investors to present their bids (orders) in US dollars. Each bid will contain the total amount in US dollars and the amount of token to be bought (which is total amount divided by the token market price).
After confirming numbers both on the token buying side and on the diamonds selling side, the Management Company will announce final conditions of the issue which will include: size of the sale in US dollars, price per token sold in US dollars (which is the market price), number of tokens sold (which is size of the sale divided by the market price), amount of new token issued (same number), amount of diamonds to be purchased into the stock in US dollars (number of token issued multiplied by per token TMV).
The difference between size of the token sale and amount of diamonds to be purchased into the stock in US dollars will represent income of the Management Company.
Miscellaneous
During every diamond purchase, amount of diamond acquired in the stock must correspond to amount raised from the token issue, net of the Management Company commission.
Once applied to a similar set of diamonds, the Pricing Algorithm will come back with the same number as DGems TMV at the moment. Same principle works for different sets of diamonds: once acquired, they will be accounted at their correct (accurate) market value.
In some cases, after analysing the diamond pool to be purchased, the Management Company will decide on the token issue size. However improbable, there is a chance that at some moment the amount of bids received from potential token buyers will not be mirrored by the same amount of quality (and adequately priced) diamonds offered from the suppliers. In this case, the Management Company will reduce the amount of tokens sold proportionally to the orders in the book received and inform each potential buyer of the amount of tokens available for purchase at this stage.
It is important to understand that the new token issue shall not affect DGems per token TMV as newly acquired diamonds will be priced using the same Pricing Algorithm and will be booked at the same market value as their acquisition price from the supplier.
DGems TMV in carats (i.e. total amount of carats divided by total number of tokens in circulation), however, can change slightly over time, both upwards and downwards as price of one carat is different for each and every stone. In case there are more big stones in the stock, its total market value will be the same, yet with lower number of carats (as bigger diamonds are valued higher).
Over time, as DGems stock grows and is being diversified, its composition will more and more represent diamond market index per se, thus, new additions and redemptions will have lower impact on per token carat value.
About DGems
DGems is a new generation fully fiat free stablecoin 100% backed by the most liquid class diamonds. The token uses a highly secure and fully transparent emission mechanism based on top level disclosure and audit.
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