Blockchain startup looks to replicate trading gold in a bank’s vault by never mining the actual metal.
A startup fintech company wants to replicate the way financial products trade off gold in a bank’s vault – by never mining it in the first place.
The company, Nature’s Vault, was founded by Phil Rickard, a financier behind many mining projects. “My daughter was embarrassed that her father’s in the coal business,” he said.
Although he marvels at the engineering of a big mine, he also realizes it takes enormous amounts of energy to get minerals and metals out of the ground. And in gold’s case, more than half of what’s dug up ends up sitting in a bank vault, where it anchors huge futures and ETF trading activity without ever moving.
Banks and commodity firms go to great lengths to protect the gold as well as to prove the authenticity and value of the bullion they possess. Rickard believes that combining recognized surveys with Blockchain to show provenance and ownership can do the same thing – without having to go through the dirty process of mining.
“It’s a strange idea, but it’s the right time for an idea like this,” he said.
The company has so far acquired rights to what surveys claim is 150,000 ounces of gold beneath a lake in Ontario. It plans to tokenize 80 percent of those reserves and market these “Legacy Tokens” to accredited investors such as family offices.
Rickard says countries like Canada and Australia, with their established industries and legal track records, are better suited to launch the concept. Canadian law will recognize a patent on a gold claim in perpetuity – and that’s important, because Nature’s Vault regards itself as an ESG play.
“Having the token means keeping the gold in the ground,” said Russell Hopkins, the company’s CFO. He’s looking at possible legal structures including trusts as well as a decentralized autonomous organization (DAO), to provide a smart contracts-based governance structure for the digital assets. The aim is to ensure the company and its shareholders or tokenholders can’t change their mind – say if the price of gold goes through the roof. “We’re open to ideas, but the concept is green,” he said.
The biggest unknown remains how to price gold that never materializes. Rickard and his team acknowledge they don’t know how the market will regard this offering. They are relying on experience, but they’re spitballing it.
There are several unknowns on how the market might price such a token. First, it will probably trade at a discount to spot gold because spot prices incorporate the original costs of mining, distribution and security.
Second, while gold itself is immutable, where it gets dug up or sits can impact its price: supplies in stable, trusted legal environments are cheaper than those in difficult locations, or hard-to-access geology. Nature’s Vault intends to roll up a number of additional mines on top of its Ontario asset, building up to an eventual 1 million ounces, so its token will eventually represent commingled assets.
Third, will the market discount a surveyor’s study if there’s never the opportunity to touch the metal itself?
The market will also judge the price based on the underlying technology and its security. Nature’s Vault is working with a so-far undisclosed provider of multi-signature security, multi-user policy controls, and security configurations for its token minting, transfers, and wallet management. It is also negotiating with Crypto exchanges to list the Legacy Token. Auros, a digital-asset broker in Hong Kong run by Ben Roth (ex Kenetic), has agreed to serve as a market maker.
Nature’s Vault will mint 500 million tokens; after founders, partners, marketers and other insiders, it will leave 375 million tokens in circulation. Once the token’s assets are fully patented and surveyed, each Legacy Token should correspond to the preservation of about 0.001 grams of in-ground gold. The company is only tokenizing 80% of its findings in case it is forced by a government to allow the mining of the gold.
The primary revenue source for the company is selling and holding Legacy Tokens, which it hopes will rise in value as more assets are incorporated. “We didn’t want to create a stablecoin pegged to gold,” said Jason Wagner, chief growth officer. “This is meant to be an investment vehicle.”
Wagner is exploring other ideas for the tokens, including minting NFTs (non-fungible tokens) off of them so that gold can be incorporated into games or metaverse-style fashion events – for example, players in a game might be buying and selling tokens representing actual gold for their characters, or for an item of jewelry that represents gold ownership
A more straightforward supplement to revenue is using Legacy Tokens as carbon offsets.
ETFs and futures
The biggest revenue generator, however, will be getting Legacy Tokens included in ESG products, such as exchange-traded funds or futures.
Mark Brady, a former Blackrock executive, is running business development for the company. He says it is unlikely Nature’s Vault will get regulatory approval to launch a standalone ETF based on its assets. Regulators would be comfortable only if they saw multiple means of auditing or qualifying the gold, and multiple products in the market.
However, he says it’s possible to include Legacy Token in someone else’s broader ESG-themed ETFs. “This could be a hit with sustainability products,” he said.
Before any of that can happen, the company needs to launch its first token sale, as well as complete a $5 million Series A venture funding round. Rickard says these will happen over the next two or three months. Nature’s Vault needs the VC money to finance the acquisition and surveyance of more gold deposits, and it needs the token sale to validate the thesis that people will see the value of owning and trading off the back of gold that never leaves the ground.