How digital assets are transforming the mining and metals markets

Digital assets are underpinning significant shifts across the metals industry, from early-stage mining to delivery of physical products. These are securely created and safely held computer files which function as electronic stores of value. They can be traded securely, cheaply and efficiently. Digital assets, or tokens, can be created to represent physical items, financial instruments or anything else that has value or generates an income stream. In our industry, a digital asset may be backed by real metal that is vaulted somewhere but it doesn’t have to be. It could be backed by a derivative contract, an ETF, a reserve in the ground or some other agreed claim on metal.

Metal-based digital assets are not theoretical projects, they are live in the market. Australia’s Perth Mint, one of the world’s most highly reputable gold refiners, has released GoldPass which is a digital gold certificate app that allows people to buy, store and sell gold from their phone. Leading bullion information and sales provider Kitco, in partnership with the Royal Canadian Mint, has also released VaultChain which allows customers to buy and sell digital gold and silver. These are just a couple of examples.

One of the key applications of digital assets is to make previously illiquid assets highly liquid. When assets are digitised, the tokens can be traded globally almost instantly. Highly liquid, transparent markets can be created for any of these assets without reliance on traditional institutions and intermediaries. Importantly, digital assets generally contain a feature called smart contracts. These encode the rules of exchange into the assets themselves, to determine if and how they can be transferred, under what circumstances and for what cost, how income is distributed and many other kinds of rules can be executed automatically, without further human intervention. An ounce of digital silver can be traded on a digital exchange, the transfer of ownership and custody is immediate, nearly free and automatically recorded on an unchangeable blockchain database (referred to as “immutable storage”.) Its smart contract can determine if the proposed transaction is able to be made at all, and can stop itself being transferred if the transaction is prohibited – for example by checking if the buyer has to be an accredited investor, the seller has escrowed the asset, or the purchaser’s jurisdiction is on a list of sanctioned locations.

Historically, metals trading has been dominated by the major exchanges, large trading houses and brokers. Transparency has been scant, and price discovery a matter of individual negotiation instead of clear market signals. Digital Metal Exchange has been purpose-built to create a transparent, open market in a much wider range of metals. This will allow trading in new kinds of metal assets that previously have not been readily tradable. DMX will also increase efficiency and create more open markets for metals not currently traded on exchanges, such as lithium, indium and rare earths.

To begin with, we are offering fundraising for exploration stage miners and other producers. This funding does not dilute shareholders and does not have a life-of-mine royalty obligation. Rather, the mine is able to forward-sell a quantity of future-production of metal at a discount. to secure capital on terms that are far superior to currently available options. These tokens represent the underlying resource sold at a discount determined by factors such as the mine’s jurisdiction and time to delivery. The tokens themselves become tradable commodities, freely bought and sold on DMX.

DMX is, in fact, a good example of the current state of digital assets. We have created a new asset class – tokens backed by metal while it is still in the ground – but in order for the product to have value to the market, we have had to build an entire commodities exchange to service both our sellers and our buyers, and create a compliant business structure to serve the exchange. We are a part of an entire new industry being created around us, in real time.

The future of the metals business, one of the world’s oldest and most valuable industries, is technologically-enabled. The rise of provenance solutions, along with sensors, artificial intelligence and machine learning will make it easier for miners to produce, traders to invest and trade, and customers to purchase metal, while making it harder for fraudsters, thieves and scammers to move metals from point of origin into the supply chain. This will improve confidence in the industry and lower the cost of fraud, which adds to the large sums in the global context. Digital assets form an integral, crucial part of this new value chain. If you are not looking at how this technology impacts your business, it’s time to start.