The DGX Token is one of the newest developments in the cryptocurrency scene that’s changing up things bit by bit. The value of the DGX Token is highly dependent on the value of gold, and has become a quite-coveted asset. Shaun Djie is the Co-Founder and CEO of Digix, a company that trades in DGX Tokens. Shaun Djie sits down with Monika Proffitt to explain the principles behind DGX Tokens and trading them. Is it time for you to study a new cryptocurrency?
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DGX: The New Gold With Shaun Djie
I’m here with Shaun Djie from Digix Global. Thank you so much for joining us.
Thank you for having me.
I want to dive into what Digix Global is. The Digix marketplace platform that’s launched and also your DGD tokens. There’s so much to unwrap here. I want you to tell me a little bit about why you decided what is Digix and why did you decide to start it?
Digix is a platform that was launched back in 2015 with the initial goal to help allow people get access to digital gold, be it by anywhere from the internet or having a wallet that’s installed in their mobile phones. This agenda and goal has always been the same since day one. Digix is a platform that tokenizes physical gold and we issue our own gold bar token called DGX that represents one gram of gold. The DGD token that was launched in 2016 is a governance-backed token.
If you listed the DGX token or when you launched that, is that something that you put on several different platforms to be able to trade in secondary markets or is it just on your platform?
The main issuing platform is from the Digix marketplace, but you could buy off that marketplace and trade it on second exchanges. Whether they are decentralized or centralized exchanges, it’s all available.
Have you found that the traded price of the DGX token has dramatically changed as compared to the actual gold price?
That’s a point that a lot of traders out there are actively looking for. In this market, you could arbitrage the gold token against the traditional spot market for gold. On the day-to-day average, it varies anywhere between 1% to 2%. It pegs pretty closely to what the real-world gold prices are.
Is it typically pegging above or below or does it fluctuate a total of 2% to 4% because it goes above and below by 1% to 2%?
It goes above and below. It depends on the market’s demand for gold. If it’s an environment where people are looking to buy gold, that naturally goes above the spot market price. When it’s on a selling behavior, it comes a little bit down. It varies on a day-to-day basis.
Do you custody real gold? Can you talk a little bit for a lot of our audience are pretty new to blockchain? Some of these questions are way below what your punching level is. Some of them are over their head. When you talk about the digital gold token, what is the actual custody arrangement that you have for the gold that backs that?
We have 100% custody arrangement in a sense that for every gold token issued out there, we do have physical gold that’s held in the vaults here in Singapore, as well as some in Canada. In total, we have issued 123 kilograms of gold. Most are being held in Singapore and all these documents are available on the marketplace website. What the technology allows us is to document the entire receipt or the entire supply chain of these gold bars. On the user front, the only thing that they get access to is the exposure to gold prices. In essence, the user experience is, “I’m owning a gold token. I have exposure to gold prices.” On the backend, what we’re trying to provide is the entire custody solution for precious metals being stored here in Singapore and Canada. Every three months, we do a full audit to prove to the users that we do have the gold and all the gold bars always match from quarter to quarter.
What is it like to audit gold? Is there a third party that specializes in that or do you have your own? Do you do it on video? Do you have viral videos of handling gold bars? What does that look like?
I think the goal is to get the 24/7 CCTV footage. That’s the entire model that a lot of people are looking for. Right now, what we do is we engage in third-party auditor. They come into the vaults and check every single gold bar that we have. The entire process doesn’t take more than a couple of hours. A lot of these guys are highly experienced in dealing with precious metal. They come in and display all the gold bars on the table. They look at every single bar and identify it against the checklist. Once these checks have been passed, a report is produced and we upload this report on our website every three months.
When you say that you have launched the new Digitix marketplace, what does that mean in terms of the upgrade on what you had already launched years ago?
The first release only allows you to buy gold with Ether, which is the main currency for Ethereum. We have relaunched this new marketplace where you can be purchasing with dollar-backed stablecoins like USDC or the Multi-collateral DAI, which was revamped in late 2019. You can be purchasing with Tether tokens or any other token that represents dollar value. That’s the main upgrade. The second algorithm with it was to allow the ease of information to be displayed on the same website. Previously for contacts, if you want to look at the buying experience versus having the entire gold inventory, it’s on two different websites. Right now, we have launched the entire display on a single platform so you can see, you can buy and you can audit the gold bars on the same platform.
What made you want to expand in this way? Did you see a market need to use more than Ethereum?
I believe that Ethereum or any other complex cryptocurrencies out there are highly volatile because it does not have a real physical underlying. There are some other real estate tokens, which I’m sure they are quite familiar with, that have physical underlying. All these car tokens have a physical underlying and are a little bit more stable in prices. What we set out to design at the beginning of this mission is to create currency out there that has a physical underlying. Bitcoin has always been held as digital gold. Mostly individually in the production and supply behavior of what gold is now, that mirrors itself in the Bitcoin role. What we’ve done in Digix is to create a real digital gold token that allows it to be priced according to gold movement in the actual market. The idea is to remove volatility to create a more stable asset coin. I wouldn’t say like a stable token or like dollar tokens.
How long have you been working on the Digix marketplace? What was the impetus for deciding that it needed to become an actual marketplace? Is that more like a secondary trading platform that’s much more robust? Is it like the Robin Hood of gold in cryptocurrency transactions? Is it not so much a big trading platform, but a place where people can go and buy primary issuance of stuff with multiple currencies? Is this a primary market or a secondary market engagement?
This is small but the primary market engagement. It’s the main issuing platform where you buy tokens off it. There’s no exchange to see. You don’t actively buy and sell gold tokens against other cryptocurrencies on this page because we believe that particular function is fulfilled by the exchanges on the secondary market.
People don’t have to worry about not being able to get their money back out of the DGX token. They can do that because they can go to a secondary market and trade it there.
I would say that the main behavior in the sense are the buy and hold people. Whenever they buy these tokens, they look to the secondary market for price movements, but they don’t actively trade on it yet until it appreciates.
What got you into cryptocurrency to begin with?
Previously, I was working as a gold trader. I was trading physical gold markets and I saw that there’s a lot of arbitrage behavior that could happen on gold markets. The problem is there were no markets that were trading 24/7. Cryptocurrency being a market that trades around the clock provides a lot of opportunities for tangible trading. You could be trading gold tokens or any cryptocurrency token down to its decimal placing, allowing you to make more accurate pricing and even algorithmic trading. I got involved mostly as a gold trader. I look at cryptocurrencies as this market that has a hugely inefficient pricing model. It’s something that we could take advantage of as crypto traders.
What year was it when you decided to switch from being a traditional gold trader to going into crypto?
That’s quite a while back. It’s about 2014.
You are the Co-Founder, correct?
That’s correct. My team is held together by myself, my CEO as well as my CTO. My CEO and I both come from a finance background. He was formerly a Wall Street trader as well. My CTO has been involved in the tech industry for many years. We all come from a particular background needed to start this company. We bootstrapped it from the beginning and do what we have now.
Did you end up taking in Angel and venture capital money or did you bootstrap it and move it to this position on your own?
We did a seed round of an equity investment back in 2017 when we raised a total of $1.75 million from the venture capital companies like Global Brain of Japan, as well as Fenbushi Capital of China. Through these two VC companies, we allowed ourselves to achieve growth and scale the market out here in Asia, which they have been extremely helpful to us.
Your other two co-founders have a lot of experience in these markets, but did you know each other for a long time beforehand?
I knew my CEO from university. We both went to NYU and my CTO is a brother-in-law of my CEO.
I’m based in New York, so I’m not far from NYU. That’s great. What did you study in college?
I finished finance at Stern.
Why did you decide to go into finance?
Growing up, I always had the exposure to financial markets, either through my parents or reading the news. It’s always been something that attracted me a lot more than any other topics out there. I’m looking at prices, looking at economic policies and how the entire economy is being run and how firms out there derive value from either a capital raising or looking for a value of their market. It’s always been something that attracted me many years ago.
When someone comes on to the Digix marketplace and they log on, they create a user login, make their own account and their profile, what is their experience going to be like? What are the main things that they can do when they come onto the platform with you?
With the new marketplace, we have two tiers of knowing your customer verification. The first tier doesn’t require much information apart from your basic information like your name, date of birth, as well as your email address. We believe this is the easiest that they’re getting involved in Digix. You don’t need to reveal too much of your personal information. With the lack of information, you are not able to purchase as many golds tokens as you will be wishing for.
How many can you purchase with that level?
Ten DGX, so ten grams of gold. In dollar value, it’s about $600 worth of gold. As you move into the second step, which allows you to buy up to 105 grams of DGX, you will be required to verify your personal identity. This process is pretty similar to most cryptocurrency exchanges, in the sense that you need to submit a passport verification and proof of residence to allow yourself to be verified as a real person before you can start buying any more DGX.
Why was it that you were able to keep things at a small threshold and still remain compliant or whatever? How does that work? Is there some policy that allows you to do small amounts and that means it’s not going to trigger KYC and AML requirements?
There’s no hard and fast rule out here in a sense of how many grams can an unverified person buy. We’re doing this based on the opinions derived from our lawyers. We’re taking a prudent approach in light of the new and upcoming licensing regime that’s happening in Singapore.
What is happening in Singapore? What’re the latest changes that are happening?
The latest talk in town is that there’s a new act that will let you design for digital payments in general. Whether they are remittance or Apex payments or cryptocurrency payments, they all fall under the Payments and Services Act, which a lot of startups out there are actively applying for. I will say that 2020 is definitely going to be one of the more game-changing years for startups located here in Singapore because this license allows it to be a little bit more legitimate as a business. It also opens up the entire new digital banking realm because the government out here is giving up to four licenses for digital banking. An undisclosed amount for startups is looking to acquire a license under the Payments and Services Act.
It’s good to learn about that. Do you know when that act is going to be in effect?
It started rolling out since the start of 2020. The application window is six months. As of July, you need to be fully registered and compliant with this Act, otherwise, you will not be able to operate and sell to local citizens here in Singapore. The license would come into effect as of July.
I know some people that are out in Singapore and they go back and forth. I’ll have to talk to them about that. Are there any other types of precious metal tokens that you are also offering? Is it all to buy gold with other currencies and that’s the only issuance that you provide?
Right now, we only offer precious metal around gold. There’s been a lot of conversations and interest into offering silver, but that’s not the main priority or demand as of right now. We’re focused on keeping it to DGX nickel-backed token for now until we decide to move into silver metal.
Do you have any statistics or any personal data on the level of need or desire on the part of your consumers for gold versus silver? Do you know how those two things relate?
Off the top of my head, of the entire pool of customers I have now, perhaps about 30% of them are actively looking in silver as well. As to whether this 30% were actively trading gold and silver relationship, I don’t think so. I would say a third of them are actively asking like, “Would you be offering silver tokens?” I don’t think it’s going to be an equity traded market as compared to the traditional capital ones. There’s no real demand for silver tokens at this point.
As a primary issuance platform, how did you go about acquiring your users in the early days? What did it take to get them on board?
We target the traditional consumer out there and telling them about buying gold in a new way before educating them about the entire crypto aspect of gold. If you look at the traditional Bitcoin buyer, it’s someone that would be interested in cryptocurrency. A digital gold buyer should be someone that’s interested in gold in general before looking at the entire crypto aspect of the token. It’s a wider audience. We’re talking about people in this part of the world who want to buy gold either for cultural reasons or purely for investment purposes. In some markets in this part of the world, any access to investment-grade gold is a trustworthy process. It’s not as easy or convenient as one that we provide here in the marketplace. By allowing someone to be buying these gold tokens that are located in Singapore, I think it’s a lot more comfortable to them as compared to buying gold bars off the shops within their local communities and keeping it at home.
How many users do you have on your platform?
We have close to about 1,000 users on the platform.
What’s their average investment level?
It varies anywhere between 30 to 50 grams. In dollar value, that will be $1,500 to $2,000. We’re looking quite at a group of people who have a little more buying power at the moment.
What is your revenue model?
We touched on a markup on the gold token. Whenever a user is buying gold tokens from us, they are paying a little bit more than what the gold prices were. It’s mainly for the reason of custody, as well as the idea that you are buying gold tokens that are secured in vaults and identified to be investment-grade gold.
You’re discharging a small premium to provide custody services.
On top of that, we also facilitate a transaction fee, which means whenever you transfer tokens from wallet to wallet, you are charged a certain fee for having that action to be allowed.
What is your custody fee versus transaction fee?
For the custody fee, we’re charging 0%, so we’re offering it almost a custody-free token, but the transaction fee is charged at 0.13%
You’re a volume-based model. The more activity and volume that you have, the more you can able to make on the same amount.
That’s correct.
What’s your volume like? Have you been increasing in volume exponentially with the Digix marketplace?
The volume checks gold buying prices or what I called volume in the actual world. When gold was extremely volatile in the capital markets, the volume increased about a couple of hundred thousand on secondary markets. When gold is quieter, especially on the weekends, you don’t see that much of a volume. It’s good to see that the crypto market for gold mirrors the capital markets for gold. That’s the main objective we’re trying to achieve.
Being a primary issuance platform, how was that? Once somebody gets their issuing of tokens, they go to a secondary market and you lose all transaction fees. Do you end up bleeding out quickly because you are only dealing with first onboarders to the asset?
I wouldn’t say that way. The token holders out there are pretty clear that these gold tokens check gold prices. We don’t lose any buying behavior.
In terms of buying behavior, people buy from you and that gets you a transaction fee, but then they take it into their wallet. Maybe there’s a transaction fee to put it in their personal wallet, and then the DGX coin sells on the secondary market and you don’t touch that action. There’s no way to be a part of that activity, correct?
That’s correct. We only rely on the blockchain movement of gold tokens moving from wallet to wallet. However, if you’re moving to an exchange, we don’t get involved with whatever happens within the exchange itself.
There’s not been a lot of platforms that I’ve talked with that are only primary issuing platforms. This is exciting. I hope that this continues to grow for you. Thank you so much for telling us about the Digix marketplace. Do you have anything else that you want to touch on?
We’re offering a promotion. If you’re looking to be purchasing cheaper gold in the month of March, we are offering a 3% discount from spot prices. It’s an extremely good time to be getting involved in gold with all the economic news that has been happening in the world. Why not consider?
Thank you so much, Shaun. I appreciate you coming on and this has been enlightening. It’s been great to find out more about the Digix platform and the DGX token. Thank you so much.
Thank you, Monika.