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SBMA Outreach Extends to Vietnam, Indonesia
By SBMA
Hot Topics Under the Microscope at LBMA/LPPM Global Precious Metals Conference
By Shelly Ford, Digital Content Manager & Editor of the Alchemist, LBMA
Recent Portfolio Application of Gold ETFs
By Geoff Howie, Market Strategist, Singapore Exchange Limited
The Digital Transformation of Precious Metal Supply Chains
By Philipp Stockinger, Business Development Engineer, aXedras Group AG
World Gold Council Singapore – 2022 In Review
By Andrew Naylor, Regional CEO, APAC (ex China) and Public Policy, World Gold Council
The Next Generation of Tokenised Commodities
By Paul Kelley, Sales & Partnerships, Trovio
Robust Gold Yields in the Cards
By Bart Melek, Global Head of Commodity Strategy, TD Securities
Where Beach Meets Bullion
By Strategic Wealth Preservation
SBMA News
By SBMA

Article List

SBMA Outreach Extends to Vietnam, Indonesia
By SBMA
Hot Topics Under the Microscope at LBMA/LPPM Global Precious Metals Conference
By Shelly Ford, Digital Content Manager & Editor of the Alchemist, LBMA
Recent Portfolio Application of Gold ETFs
By Geoff Howie, Market Strategist, Singapore Exchange Limited
The Digital Transformation of Precious Metal Supply Chains
By Philipp Stockinger, Business Development Engineer, aXedras Group AG
World Gold Council Singapore – 2022 In Review
By Andrew Naylor, Regional CEO, APAC (ex China) and Public Policy, World Gold Council
The Next Generation of Tokenised Commodities
By Paul Kelley, Sales & Partnerships, Trovio
Robust Gold Yields in the Cards
By Bart Melek, Global Head of Commodity Strategy, TD Securities
Where Beach Meets Bullion
By Strategic Wealth Preservation
SBMA News
By SBMA

The Next Generation of Tokenised Commodities

By Paul Kelley, Sales & Partnerships, Trovio

PAUL KELLEY manages Sales & Partnerships at Trovio, a digital asset company that uses proprietary technology to provide a suite of products to enable partners to interface and create value in the digital economy. Before Trovio, Paul spent 12 years working in commodities sales & trading with JP Morgan and BNP Paribas in London. In his prior roles, Paul developed financial derivative products to help international corporate clients meet their commodity risk management objectives.

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The term commodity is defined as a basic good used in commerce that is interchangeable with other goods of the same type. This means the underlying asset is fungible. The market treats instances of the commodity as equivalent or nearly so with no regard for who produced them or how. Over the last few centuries, we have commoditised many assets, creating supply chains that are fluid and standardised to meet the continued demands of the global consumer.

However, we have neglected the environmental and social impacts of mining, transporting, and refining commodities. The lowest-cost producer has been economically incentivised to continue to push the boundaries of producing fungible assets. But demand profiles are changing as industry bodies, corporate boards, government regulators, and global consumers demand verifiable proof of responsible sourcing, evidence of quantifiable efforts towards reducing carbon footprints, and other positive environmental, social, and governance (ESG) impacts.

Data-Rich Assets Are Leading to the De-Commoditisation of Commodities

To meet changing demand profiles, the next evolution of commodities, including precious metals, involves immutably attaching provenance and carbon footprint data to digital representations of physical commodities. Technological advances allow detailed information about a specific commodity’s life cycle to be tracked and immutably attached at scale to what was previously a fungible commodity. By creating digital data packs of provenance information attached to a commodity’s digital certificate, the industry is moving towards the next generation of data-rich tokenised commodities.

The adoption process for these digital assets will rapidly increase as consumer preferences evolve, and a growing number of producers and market participants offer technology solutions. This increased adoption is part of the larger tokenisation trend which the World Economic Forum estimates will grow to represent 10% of total global GDP by 2030.⁽¹⁾ However, creating data-rich commodities raises the question: are the next generation of commodities still fungible?

New Commodity Market Standards Will Develop

To make commodities fungible again in a data-rich world, underlying global price benchmarks will need to evolve to include verifiable decarbonisation and other ESG metrics. While this will not happen overnight, we can expect that gold bars with available provenance data and verifiable carbon footprint offsetting will trade at a premium to commodities without such histories.

As data rich and decarbonised gold is produced in ever larger quantities, carbon neutral gold will become the benchmarked gold standard and will trade at a premium to gold that is not data rich and decarbonised. Importantly, market participants with the technological infrastructure to offer this new generation of data rich decarbonised precious metals will find themselves at a distinct advantage.

Current Use Cases for Tokenised Commodities

End-to-end provenance tracking
Trovio and Blockhead Technologies have partnered to develop industry-leading provenance tracking and digital registry solutions. Our combined technologies create provenance data packs that are continuously updated as commodity assets move along the supply chain. These data packs are attached to digital assets representing specific units of the commodity. The digital asset is an immutable tokenised record of the commodity which is then held in our clients’ licensed digital registry.

For the gold market, provenance data packs can contain details about the mines doré was extracted from, the method of transport to the refiner, refinery location and carbon footprint, and subsequent vaulting locations of gold bars.

Trovio and Blockhead’s digital registry solution is also transactable. New transactions add information to the data packs attached to the digital assets representing gold bars in the digital registry. Transactions between customers and counterparties can be executed directly on the digital registry. Precious metals are bought and sold with the digital asset changing ownership, while at the same time, any information about further transportation, new vaulting locations, etc., are attached as a new data pack to the digital asset. The technology also allows fractional quantities to be traded and for commodities from different origins to be combined or blended. In this next generation, commodities will carry their history with them.

Going forward, rather than gaining a competitive advantage through new physical processes, commodity companies will look to differentiate and add value through better provenance data including verifiable carbon footprints. In these markets, scalability and system interoperability will be key, along with security and ownership of data. The solutions developed by Trovio and Blockhead are scalable and offer end-to-end tracking and transacting, while ensuring companies continue to own their data. Such data is held privately in a company’s licensed digital registry, and, when appropriate, can be shared with select consumers, trusted parties, industry registries, or if desired, disclosed publicly via verified industry accepted sources.

PROVENANCE TRACKING AND DIGITAL REGISTRY TECHNOLOGY ALSO ENABLE A NEW GENERATION OF VERIFIABLE CARBON-NEUTRAL COMMODITIES.

Carbon footprinting and immutable carbon neutral assets
Provenance tracking and digital registry technology also enable a new generation of verifiable carbon-neutral commodities. Once provenance data is attached to a digital asset, it is possible to calculate verifiable carbon footprints for the specific commodity. When such information is tracked, participants along the supply chain can make verifiable and traceable reductions in their carbon footprint. Uniquely, such reductions in carbon intensity can be recorded in near real-time. Improvements can be rewarded, and setbacks can be flagged and addressed as they occur. Tracking real time verifiable carbon footprints is a significant departure from past practices where carbon calculations would only happen during annual audits, if ever, and such audits would take place on an aggregated level failing to incentivise immediate carbon reductions on a commodity transaction level. With improved provenance tracking, companies that lower their carbon footprint can immediately reap the benefits of delivering lower carbon and decarbonised commodities to the market.

Trovio’s digital registry solution provides market participants with a decarbonisation service to create carbon neutral commodities. The service sources carbon credits to offset the hard-to-reduce portion of a commodities’ carbon footprint, retires these credits verifiably on leading carbon registries, and immutably bonds the retired credits with the digital commodity to create a new digital asset, representing the carbon neutral commodity. By recording both the carbon footprint and the retired carbon credits in an immutable digital registry, users create an auditable and verifiable proof of a specific commodities’ decarbonisation. Trovio, in partnership with Singapore-based Walton Capital and Rotary Engineering, has used this technology to build a propriety solution called Carbon Management Solutions (CMS) that works towards decarbonising the Singapore bunker fuel market. As these types of technologies become more prevalent across the commodities and precious metals markets, gold consumers will have a range of options for purchasing provenance-traced, carbon-neutral gold, and increasing numbers of market participants will begin demanding such carbon-neutral commodities.

The Future of Commodity Markets

New benchmarks
Carbon-neutral gold is an example of how accepted standards for pricing and benchmarking will be disrupted as market move towards data-rich tokenised commodities. As demand increases and decarbonisation solutions become widely available, global benchmarks will evolve towards decarbonised product specifications. Carbon-neutral gold is already available from select refiners, and as increasing numbers of consumers and investors work towards net-zero goals, benchmarks will be pushed towards a gold reference price that includes the price of gold plus the price for offsetting the specific carbon footprint of the gold. Across commodities, similar carbon offset benchmarks will grow to become the market standard. They will meet evolving consumer demands, and they will reward both low-carbon emitting producers and technology-enabled market participants.
New marketplaces
Market disruption will not stop at benchmarks. Tokenisation and associated technological developments will lead to entirely new commodity marketplaces. While the exact structure and functionality of these marketplaces are still in the making with competing players developing and deploying different solutions, nonetheless, new commodity marketplaces will evolve. This next generation of marketplaces will be built on digital asset technologies. The key value-add for these marketplaces will be their ability to differentiate tokenised data-rich commodities that can be transferred and instantly settled between parties based on their specific, individual data attributes without the need for intermediaries or counterparty trust. In these marketplaces, the activities of market participants will be governed by smart contracts that facilitate counterparty transactions with minimal third-party involvement or costs. Such marketplaces will enable fungible trading of data-rich commodities and will allow previously dormant assets to begin earning yield by providing liquidity.
New generation
As commodity markets evolve and change, tokenisation technology will be an important force reshaping the industry. Whether creating data-rich digital asset provenance records with verifiable decarbonisation or enabling the development of new benchmarks and entirely new marketplaces, the next generation for the commodity industry will involve tokenisation technologies, and the market participants who engage with these new technologies first will find themselves with a competitive advantage.