The only PhD student to work under John Nash is using blockchain technology to bring to precious metals and mining into the twenty-first century.
Ampersand Markets founder and CEO Seth Patinkin said he has long been interested in how the metals and mining industries operate throughout their production chains. That interest was stoked when he worked under famed mathematician John Nash while in grad school at Princeton.
“We discussed numerous times how he’d like to have a universal currency backed by a precious metal adoption model,” Mr. Patinkin said.
The founders borrowed from the line of thinking in designing Ampersand Markets, Mr. Patinkin explained. Participating mining companies produce silver which comes with a Digital Right that allows buyers the ability to obtain a specific amount of silver represented by the AXSI token. The Digital Right’s value will be consistent with market forces and will scale with the Ampersand ecosystem. A blockchain-based hybrid mineral tokens exchange is also in development.
This is a significant improvement over the standard precious metals mining and trading process, Mr. Patinkin added. The physical assets can be securely stored in a cost efficient manner. Under the traditional system, when financing a mining operation, a company accepts money up front in exchange for a discounted stream later on once production begins. That comes with extensive legal work and administration fees, and it might be 10 or 20 years before an investor sees any return.
“The old world way in which this is done is heavily papered and is a significant barrier to entry,” Mr. Patinkin said. “The in-ground financing problem just begs for modernization.”
Conversely, Ampersand’s method can produce returns much faster, Mr. Patinkin said. Investors can purchase an interest in an in-ground mining operation without the significant upfront cost and then enjoy the 10-15 percent discounts that streaming mining companies receive. That lower entry cost allows more investors to participate. All mining investments are in politically stable countries in North and South America.
The AXSI token’s design on the EOS platform is significant for many reasons, Mr. Patinkin explained. It handles up to 3,000 transactions per second and supports good governance so Ampersand can apply rules to groups of users which serves as credentials. That helps with compliance and combats improper trading.
Ampersand’s business case is clear, but does Mr. Patinkin see any risk posed by regulators playing catch-up to the technology? The short answer is not much. Ampersand has spoken with the Commodity Futures Trading Commission, and recent SEC guidance also helped.
“Overall, the new SEC guidance from early April will make it easier for token businesses to operate domestically,” Mr. Patinkin said. “Regulators are actually forward looking and encourage legitimate uses of tokens, especially when solving actual business problems, which is the camp we’re in.”
Mr. Patinkin said Ampersand’s hybrid token model is a direct response to the engineering failures of both pure digital assets and physical asset tokens. Because most have no intrinsic value, digital assets are prone to volatile price swings. Most asset-backed tokens are placeholders where one gram of the precious metal is equated to a value of a token. Such tokens can frequently trade at or below the spot price.
“That is not a very compelling proposition,” Mr. Patinkin said.
A second method is a dual token set-up where the common framework is to have a placeholder token and also a security token to generate funds. Mr. Patinkin isn’t a fan of those either.
“Investors pile into the (security) token and there is little incentive to adopt the placeholder,” he said.
Ampersand will only be successful if they can attract important miners, streamers, dealers, refiners and finance firms. The pitch is made easier by the preparation Ampersand has done in advance, Mr. Patinkin said.
“Others shotgunned their technology to market and trivialized custody and arms-length care that needs to be exercised with physical assets. Others fail to adopt a model for actual parties to use the token.
“Our technology is already built. In 2018 and 2019 we were completing it with the tech team under (founder and CTO) Satya Avala. We’ll be present in the market with a product that is functional and complete.”
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