LakeDiamond, an EPFL spin-off that produces and customizes ultra-pure diamonds for industrial use, is launching an initial coin offering (ICO) today. Through this blockchain-based approach to crowdfunding, the company plans to sell just over two million virtual tokens, each of which is worth one machine-hour.
In 2017, startups around the world raised some 4.6 billion dollars by issuing virtual tokens that can be exchanged for cryptocurrencies or services. And much of this activity is taking place in Switzerland, where ICOs brought in 850 million dollars last year according to figures published by IFZ (Institut für Finanzdienstleistungen). But so far, few manufacturers have gotten in on the act.
LakeDiamond, an EPFL spin-off that develops customized, highly pure diamonds, is an exception. It is set to launch its own ICO, selling machine-hours in the form of virtual tokens. Over two million tokens - worth a total of 60 million francs - will be issued. The company plans to use this money to significantly ramp up its production capacity. Once the ICO has been completed, buyers will be able to sell their tokens or exchange them for diamonds, thereby creating the first-ever crowd-funded diamond "mine."
The smaller the more expensive
"With natural diamonds, prices go up as the stones get bigger. But with us it’s the opposite," says Pascal Gallo, the startup’s founder and CEO. The diamonds produced by LakeDiamond are much purer than natural diamonds. The company’s manufacturing process, in which layers of carbon atoms - the sole ingredient of diamonds - are built up through vapor deposition, eliminates nearly all impurities. These industrial diamonds allow for much greater precision thanks to their hardness, thermal and electrical conductivity, and optical properties.
The carefully calibrated size of the diamonds - down to the micron - and the high tech processing they undergo are what set these diamonds apart. The method used to customize the diamonds was developed in conjunction with Niels Quack’s lab at EPFL. The carefully sized diamonds can be set in complex mechanical systems such as watch movements and used in high powered lasers, transistors and photonic platforms.
The vast majority of companies that have launched ICOs also use blockchain technology. Their main motivation is simplicity: the companies can deal directly with their investors, and this reduces paperwork and saves time. For LakeDiamond, there’s also the question of independence. "We tried traditional fundraising methods, but most potential investors were in the military sector," says Gallo. "And we don’t want to take the company in that direction."
A smart contract based on the Ethereum blockchain
The "user," in the company’s parlance, buys a certain number of tokens secured by an Ethereum smart contract. Ethereum is one of several types of blockchain, which are used to record and share information without any external oversight. Blockchains are so safe because all transactions are verifiable and transparent. A white paper describes the project in detail and includes the transaction clauses and the code used to create the tokens ("ether") that are issued against the cryptocurrency.
"Our project is unique: we connect diamond growth reactors to the Ethereum blockchain, which lets token holders produce their own diamonds," says Romain Braud, the company’s blockchain specialist. LakeDiamond’s tokens are referred to as Time-based Machine Tokens (TMT) because they represent hours of use of the reactors. They also give holders a preferential right to "mine" the diamonds ordered by the company’s industrial clients. This means that token holders can support a client project by trading in their tokens for that project - and ultimately benefiting from the value of the client’s order. Tokens can also be sold on secondary markets, just like traditional cryptocurrencies.
The first phase of LakeDiamond’s ICO is meant for professional investors ("token users"). The ICO will be opened to the public this fall once the company has obtained authorization from the Swiss Financial Market Supervisory Authority (FINMA).