Atomyze, a tokenization startup by Russian mining and smelting giant Nornickel, is setting up shop in Greenwich, Conn., to sell tokenized metals in the U.S.
The company, whose legal name is Atomyze LLC, will become the second foothold for Nornickel’s tokenization ambitions. It will work in parallel another entity that will tokenize Nornickel’s metals, Tokentrust, which was launched in February in Switzerland. Atomyze does not currently have a presence in Russia.
There are two use cases for metal-backed tokens, Nornickel CEO Vladimir Potanin told CoinDesk last year. First, industrial producers can use such tokens to flexibly modify their contracts for the delivery of the actual metals.
Second, people interested in investing in the metal industry might use the tokens to bet on the prices of metals such as palladium, copper or nickel, instead of buying stock in companies like Nornickel.
Both Atomyze and Tokentrust will use a Hyperledger Fabric-powered backend coded by Nornickel’s engineers together with IBM, and will issue tokens backed by the mining giant’s inventory. Legally, however, their operations will be separated, as each company will only serve users in the country in which it is based – at least initially.
Nornickel did not respond to questions as to why the U.S. and Switzerland will be the first two markets for Atomyze by press time. The large U.S. market has been lucrative for financial service firms in general, even though there can be regulatory hurdles.
In Russia, meanwhile, the regulatory situation is getting clearer. This summer, a new law regulating digital asset issuance was passed, and starting in January issuers registered with the Bank of Russia will be able to launch tokens in a centralized, permissioned way.
Due to the regulatory differences in Switzerland and the U.S., the two firms will be issuing two distinct sets of tokens. At least in the initial phase, these tokens will not be interchangeable, said Jeanine Hightower-Sellitto, CEO of Atomyze LLC. She added that “Atomyze LLC was created with the vision of building the products that will be familiar and common for the U.S. market.”
Hightower-Sellitto, a Wall Street veteran and former managing director of operations at the Gemini crypto exchange, was named CEO of the company in September to build a commodity-backed token market fully compliant with U.S. regulations. Before Gemini, Hightower-Sellitto worked at Nasdaq subsidiary International Securities Exchange (ISE) for 13 years.
Along with Hightower-Sellitto, Atomyze now has a few professionals who came from notable crypto and blockchain companies. They include Corey Wendling, former senior vice president of Paxos; Jan Hendrik Scheufen, former chief product officer of the Scotland-based blockchain firm Monax; and Lyon Hardgrave, who used to lead the blockchain oil trading startup Vakt.
Wendling told CoinDesk via a spokesperson he was attracted to Atomyze’s ambition to “disrupt and change the way commodities are traded by allowing customers to bring their own smart contracts and tokens to our platform.”
“We are building a system that is flexible and highly customizable to be able to support many different types of assets,” Wendling said.
He added that, unlike the already existing tokenization platforms, Atomyze will take a more conservative, permissioned approach, which would give the customers more confidence about the platform’s security. This means new companies willing to issue tokens on the platform will not be able to use the technology independently but will need to work with Atomyze.
The metals themselves – palladium, platinum, nickel, cobalt and copper – will be kept in a secure vault that is physically located in the U.S., Hightower-Sellitto said. The name of the vault provider is not public, nor are the names of the banks to be involved with Atomyze LLC.
The contents of the vault will be audited by U.S.-based auditors to make sure the tokens are backed by the actual metals on a 1:1 basis, Hightower-Sellitto said.
She said that, at the moment, Atomyze is beginning to work on its money transmission and trust licenses in the U.S., and planning to launch in late Q1 of 2021.
Hightower-Sellitto hopes to see institutional investors like macro funds, hedge funds, endowments and accredited investors among Atomyze’s clients. Investing in metals themselves is different from investing in the stock of metal-producing companies, as this way investors can bet on the performance of entire industries as opposed to particular companies.
“You can invest in the car companies, you can invest in Tesla but there is a lot of noise in Tesla stock. So if you want to invest in the electric car market itself as a directional perspective you could invest in components of the electric car batteries,” Hightower-Sellitto said.
The tokens, which will be tradeable on Atomyze’s own platform, will not qualify as securities, Hightower-Sellitto said, and the company hasn’t had any communications with the U.S. Securities and Exchange Commission about them. This is because every token will be backed by actual metals, so the customers will participate in spot commodities transactions, Hightower-Sellitto said.
“It’s important for our product to be fully deliverable. No customer wants to enter into the spot transaction and then find out they actually are trading a product that is regulated as a swap of another kind of derivative,” she said.
Nornickel CEO Vladimir Potanin told CoinDesk in an October 2019 interview that tokenized metals would attract both industrial consumers and investors who don’t need actual palladium or nickel but would like to bet on their prices.
Swiss-based Tokentrust’s board includes Alexander Stoyanov, the managing director of Nornickel’s subsidiary Global Palladium Fund.
Global Palladium Fund will be the first issuer on Atomyze, Hightower-Sellitto said, but in the future the platform can also become a marketplace for other asset-backed tokens and more issuers might want to use it.