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Blockchain to Spearhead Tokenization of Commodities?

Commodity markets dictate the global trade of primary manufactured products, from cocoa to gold and from sugar to oil. As these tangible good cross the vast oceans, borne along by capacious container ships, trading platforms flicker with the constantly moving prices of these assets, whose real-time market value is dictated by the usual forces: supply, demand, sanctions, geopolitical relations, currency rates and the array of other variables that can dictate the final price paid for containers of commodities.

Whether traded physically or virtually, commodities markets serve as an indicator of the broader health of the global economy, and thus their prices are monitored closely not only by those with a direct stake in the game but by traders, bankers, politicians and anyone else with their finger on the pulse of the world’s interconnected economy. The price of a barrel of oil, for example, has long served as a baseline measurement for a host of secondary markets, including derivatives and synthetic instruments. What happens in the commodities markets matters, because it intersects with almost every other market.

The United Arab Emirates is a region that knows more than most about the value of oil, and of the effect that it’s rising and falling price can have on a country’s wealth. It is no coincidence that initiatives to evolve the commodities markets and create a more efficient ecosystem should emanate from the UAE – Dubai to be precise. It is here that Emirex is headquartered. The blockchain company is on a mission to extend the benefits of tokenization to traditional industries, and in commodities, it believes it has found a prime candidate for transformation.

Like many crypto-focused businesses, Emirex started out by launching a digital asset exchange before gravitating to bigger markets that have yet to capitalize on blockchain and its attendant benefits. Bitcoin Middle East Exchange launched in early 2018 and by mid-2019 it had been complemented by a trading platform geared towards professionals. Around the same time, Emirex was building up its investment arm, which was focused on tokenized securities. These included equities, debt instruments, commodities, and other tangible assets.

The leap from here to formulating a tokenized commodities market was a natural one, given the company’s existing investments and contacts within this domain. Its vision is now to iterate on this process by tackling a grander challenge altogether: tokenizing the $20 trillion commodities sector. It is an industry that is ripe for disruption, and Emirex believes it has a solution to suit. Its name is Digital Commodities Exchange and if successful it will become the first of its kind: a market where equity and debt instruments issued by commodities companies, as well as physical commodities such as precious, industrial and rare earth metals, precious stones, and energy commodities can be tokenized and traded freely.

Many of the reasons for tokenizing commodities are the same as those pertaining to illiquid assets such as securities, real estate, fine art, and fine wine. Doing so unlocks the value contained within these traditionally hard-to-shift assets that can be difficult to offload quickly and at a fair price. There’s also another reason why the tokenization of commodities holds appeal: doing so has the potential to democratize an entire asset class, massively increasing the total addressable market in the process.

Today, commodities are traded on leading stock exchanges. As a result, they are accessible only to accredited investors and financial firms. Millions of dollars change hands in single trades on the commodities market every day, but the bulk of this occurs between large corporations. Tokenization allows for smaller check sizes, so to speak, making commodities tradable in the hundreds or even tens of dollars at a time, opening the market up to retail investors.

Another problem that Emirex hopes to solve with its Digital Commodities Exchange concerns pricing mechanisms. Blockchain technology has the potential to facilitate greater transparency and more accurate pricing through all participants having access to the same data feeds. Blockchain is also ideally suited to providing a clearly auditable database that can be used to track commodities, while smart contracts can be used to automate agreements, reducing administrative fees.

The commodities market is global, but the physically manufactured products that power it originate from particular global hotspots. One of these, as acknowledged, is the Middle East, which fuels the world’s thirst for oil, but other regions have their specialties. West Africa, for instance, is prized for its rare earth metals, including those that are essential in the manufacture of consumer electronics including smartphones. Turkey is known for its steel industry and Asia for its rice and agricultural produce.

Having overseen pilot projects for tokenized corporate bonds and rare earth commodities for a mining project in West Africa, Emirex has already ventured beyond the confines of the Middle East. It’s also worked with precious and industrial metals producing companies looking to tokenize their physical assets including those already mined as well as proven reserves. Now, through the launch of its Digital Commodities Exchange and Emirex Tokenization Platform, a primary issuance platform for tokenized assets focused on commodities, Emirex is aligning its business interests.

By building upon the strength of its existing digital asset exchange, including its high-performance trading engine, coupled with its deep involvement in the commodities market, the Dubai company is hoping to usher in a new era for efficient trading of physical assets. From Asia in the east, Europe to the west, and Africa to the south, the UAE tokenization specialist has set its sights on crafting the first all-in-one tokenized commodities exchange. In the process, Emirex hopes to unlock billions of dollars of value, increase liquidity, and create a fairer, more efficient market.

Blockchain to Spearhead Tokenization of Commodities?

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