Cormac Kinney, Diamond Standards’ 4x-exited Co-Founder & CEO, explained more on Bloomberg in October 2021.

With innovations cited in nearly 4,000 U.S. Patents, Cormac Kinney (Wikipedia) has been the founder of four software startups acquired by public companies. He is a quant finance pioneer who invented heatmaps, designed over 100 institutional trading systems, and built sentiment analysis for statistical arbitrage, using it to manage over $500M for Tudor and Millennium. Most recently, he built a business social network integrated into premium news publications, which was acquired by News Corp.

In 2014, Cormac began to focus on the commoditization of diamonds. He used diamonds to create a fungible commodity by transparently acquiring statistical samples of diamonds across every diamond quality. To supply diamonds to the commodity, Cormac designed the first loose diamond exchange, with automated market making to bid on 16 million types of diamonds, and invented a method to seal diamonds with a wireless encryption chip, providing instant authentication, and digital transaction via a global blockchain.

Diamonds are a $1.2 trillion natural resource, transacted through an exceptionally opaque, high friction, and illiquid market. There is no fungible commodity. As such, diamonds were never accepted as an investment asset. Since diamond qualities, based on the gemological rating, have independent non-linear scarcity, any attempts to commodify diamonds had to solve a significant computer science challenge. 

The founders developed the optimization process to fairly distribute the acquired diamonds into sets, based on scarcity. The diamonds are all purchased via a transparent bidding process on a regulated exchange, to ensure fairness. The groups of diamonds, combined by a computer into fungible groups, each contains an identical scarcity of geological quality. There is no human intervention, or estimates used in the process. The gemological standard is public, and the content of every commodity is public, for anyone to verify. The commodity is fair and absolutely consistent over time.

In 2018 these inventions became the foundation of Diamond Standard Co, and the Diamond Standard Exchange. 

Diamond Standard is the producer of the world's only regulated diamond commodity and operates the world's only true electronic loose diamond exchange. In the simplest of terms, it puts physical diamonds into standardized “coins” and “bars.” These vehicles are held to high-quality standards that give them the same karat value bar to bar, aka fungibility.

As the manufacturer of these coins and bars, Diamond Standard buys diamonds from global vendors as the world's only market maker. It sells finished commodities at a higher market price determined by secondary market trading. The spread created from the difference in price before and after processing is its gross profit margin, now at ~35%. Another portion of revenue comes from securities licensing, as a percent of AUM.

Diamond Standard coins and bars each have an integrated wireless chip, enabling digital traceability using a built-in blockchain token called Bitcarbon. The token is regulator-licensed and approved to settle futures on the CME Globex. This token enables a variety of derivative products including futures, exchange-traded funds, and a multichain stable coin. 

Diamond Standard is excited to launch its Diamond Standard Fund for accredited investors through a partnership with this round’s lead investor, Horizon Kinetics. Horizon runs “three of the top ten mutual funds of 2021.” In addition to the fund, the company plans to implement diamond futures on CME Globex, Options on MIAX, an ETF on NYSE, and Bitcarbon availability on cryptocurrency exchanges. Management later sees potential in its sale of the Diamond Standard Exchange to a global exchange operator or possible acquisition of the parent by a SPAC or public offering. 

 Investor updates as of February 2022

In 2021, they earned $10M, while in just the first quarter of 2022 they reached $15M, putting them on pace to reach $100M by the end of the year.

Co-investors

• Horizon Kinetics
• David Kassie (Chairman of Canaccord, former CEO of CIBC)

Existing investors

• BlackRock exec fund formed by BlackRock CIO Rick Rieder 
• Caldwell Securities
• Jamie Dinan
• Execs from Caxton, Graham, Soros, UBS, Citi

Diamond Standard’s success is invariably tied to the price of diamonds. Other risks include model imitability, product quality, and regulatory barriers.

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