My Take on How the First Two Smarter Markets Podcats Apply to Abaxx If you’re invested (or just interested) in Abaxx, then listening to the Smarter Markets podcast each week will be a must. What an amazing set of interviews over the last two weeks between Robert Friedman, and Maryam Ayati. While the guests don’t specifically talk about the application of their interviews to Abaxx, most of the content is obviously germane. This is particularly true when it comes to how Distributed Ledger Technology "DLT" (i.e., BlockChain) can revolutionize the ESG audit trail for the commodity market supply chain.
In a previous post I discussed how the Abaxx Exchange is set to potentially profit from Green LNG by creating a market for carbon credits—see the below link to read that.
What’s the Value of Abaxx’s ESG Exchange Business https://stockhouse.com/companies/bullboard?symbol=v.nml&postid=31972096 The above being said, I didn’t appreciate the full potential of Abaxx until I listened to Robert Friedland’s interview last weekend—and many of the concepts were expanded upon during Maryam Ayati’s interview that was released today. Combining those two interviews (along with the Erik Townsend interview last week) you get the perspective that Abaxx truly has the ability to revolutionize commodity trading by leveraging Ethereum based smart contracts on an Ethereum based distributed ledger.
Triterras Fintech (TRIT) is another emerging player doing something similar, but they are working in a different commodity space and have a different software platform—by the way TRIT now has a market cap of over $1.2 billion USD as of market close on 12/4/20. Where Abaxx is going to have to differentiate themselves is on the software applications that they create which will sit on top of the Ethereum smart contracts and allow users to interact with the DLT data. Abaxx’s potentially prescient purchases of various internet protocols (the land grab Maryam talks about in her interview) allows for secure decentralized Self-Sovereign Identity (see Abaxx’s Software and IP Portfolio on page 157 of the circular). Additionally, the unique graphic user interface (GUI) that Abaxx has will allow users in the commodity space to interact with their data in an engaging and meaningful way that is also secure and decentralized. Furthermore, Abaxx’s use of artificial intelligence and machine learning in their software will allow for faster price discovery, increased transparency, and greater insights for end users.
Abaxx describes their plan for rolling out their software in the circular as follows:
Abaxx intends to commercialize its software technology suite and the Software and IP Portfolio through business to business (“B2B”) strategic partnerships where emerging technologies can be applied to specific markets heavily reliant on transactional transparency and transaction execution velocity.
Based on this description, and combining that with what Josh said on the NML call (i.e., that the SaaS application will likely start in the ESG space) as well as the Robert Friedland interview, we can safely assume that Abaxx has a bigger vision that “just” creating an LNG and Green LNG exchange. It appears that they want to create exchanges for a variety of other commodities including Gold, Copper, Nickel, and other battery metals. In Robert Friedland’s interview he described it as follows:
“I think Abaxx is the type of startup that has some real industry veterans and they're going to start in a series of verticals. So liquefied natural gas as a transition fuel. As you get away from crude oil, it's one of the world's biggest fungible markets. They can make that market and drive down the cost of LNG and make it transparent. Then they could go to gold and silver and copper and nickel and make very transparent markets for different grades of gold, silver, copper, and nickel based on how much global warming gas is associated with it. And here you have, a favorable forward looking host government (Singapore) that wants to make these electronic markets”
When he says a “series of verticals” he is talking about how iron ore used to be a single benchmark, but now they have different exchanges for different grades and qualities of iron ore. For instance, now iron ore buyers can purchase high grade (i.e., 65% Fe), average grade (62% Fe), and low grade (58% Fe) ores. Iron ore markets get sliced even thinner now that you have exchanges where buyers can find concentrate, pellets (don’t forget DR pellets), or lumps, or even high alumina, or low alumina. Robert Friedland is envisioning a market where there are verticals for copper based on ESG grades indicating that the commodity producer is hitting certain requirements such as carbon output during the mining process, and whether or not they have been audited and received a passing grade from international and other government agencies for various ESG policies. Commodity buyers and commodity end users can then choose to pay a premium for commodities which have a high ESG grade relative to their peers. These verticals for ESG have not been created previously because the technology really wasn’t there to support this goal—mostly an inefficient paper system shuffled between various buyers and sellers along the commodity chain. The whole process was opaque and inefficient.
That being said, Distributed Ledger Technology “DLT” (i.e., blockchain) now makes the above possible because every transaction along the block chain is instantly auditable. Furthermore smart contracts on a block chain allow users to create rules for when and how a block (aka token) is created on the block chain—in this instance maybe users need to have appended a series of approved ESG certifications via the Abaxx Sign and Verify application (!). This smart contract token, will then pass hands from one buyer to the next until it gets to its final end user, who can review and keep for their records the appropriate ESG documentation contained in the token. Should that end user get audited by their own government agency, they can then produce all of the tokens and ESG documents for all of their commodity purchases over a given period of time. Imagine how much that simplifies compliance and builds trust that ESG practices are being followed and adhered to!
As an example, imagine that you are Ford Motor Company, and you have investors and consumers who want you to reduce your carbon footprint and source more of your supply chain in a manner consistent with ESG principles—remember from my previous ESG post that there is a growing global movement towards this end. Right now, it is likely a huge headache for Ford to vette all of their suppliers and obtain the appropriate ESG documentation from said suppliers in order to illustrate to their own investors and regulators that they are meeting a certain ESG threshold. Instead of doing all that, if they could show through blockchain that all of their copper and steel are sourced from sustainable sources via all the commodity tokens they’ve purchased, then this aggregates all of their compliance documentation and reporting into a single location and eliminates a lot of administrative burden (e.g., compliance costs). While Ford may pay more for the commodities, they are also saving money on compliance costs AND they can pass along some of those premium costs to customers whom they can show the ESG credits to when they purchase their own ESG vehicles. Maybe Ford could go so far as to make certain vehicles that are 100% ESG sourced and then market and sell these to customers who value that type of product.
Conclusion:
Abaxx is well positioned to not only create these vertical commodity exchange markets as Robert Friedland suggested, but to deliver the SaaS applications that can allow these markets to be broadly adopted by commodity buyers and sellers in a number of industries. Let that sink in. Abaxx Technologies can provide the SaaS applications that allow commodity producers to sign and verify their ESG certificates, which they can then append to the ESG commodity token that they are trading on the Abaxx Exchange. In my view, that hand-in-hand synergy is what Abaxx is going after, and it’s not just a $1 Billion or $2 Billion dollar idea it’s a multi-billion dollar idea. Of course this will take time to play out, they aren’t going to change the world overnight, but if successful this could be as Eric Townsend suggested, an Amazon type company. As always, please do your own due diligence before making any investment decision.