Icecap and NFTs

Summary:

Icecap was envisioned as a diamond marketplace based on NFTs. During launch, we found a better technology for the immediate needs of our customers. For now, we are making Icecap diamonds NFT compatible so the value of that technology can be re-introduced whenever desirable.

How we got here?

The original business premise behind Icecap was to use NFT technology to open up the diamond industry to investors. How? Every diamond would have an NFT representing its ownership. The diamond would go in a vault and the NFT could be traded without friction on NFT marketplaces like OpenSea. This—went the idea—would solve the difficulties of investing in diamonds, where high markups and difficult liquidity were impediments.

Icecap was launched on that basis in 2020, but we ran into problems with using NFTs for this purpose.

In hindsight, we’d put the cart before the horse. NFTs and diamonds are natural partners, and we expect to do a lot with them in the future. But the lack of NFT technology was not the primary obstacle to opening up the diamond industry to investors. The obstacle was the lack of fungibility between diamonds.

Virtual Fungibility

Without fungibility, which means every item being traded is the same as every other item (such as a share of stock in Apple Computer, or a bitcoin), markets are not efficient. Or put another way: most buyers are not interested in what most sellers have to offer. Consider the real estate market. A buyer knows what they want (single family, three bedrooms, attached garage, XYZ neighborhood, etc.) but most homes on the market at a given time don’t meet those criteria precisely. Thus a sale can only be made when a seller can find a buyer wanting exactly what the seller has to sell. That can take months, and when a buyer is found, there’s little if any competitive bidding. The same holds for diamonds. You can’t sell a 2 carat, round, G, VVS1, 3x cut, unless you can find someone who wants a 2 carat, round, G, VVS1, 3x cut.

We realized that if diamonds aren’t fungible (they’re not) and if we couldn’t create an efficient buy/sell marketplace without fungibility (we can’t) then we’d not be able to achieve our core mission: opening up the diamond industry to investors. And NFTs did not solve that problem.

What did solve the problem was a technology we had to invent, and which we call “virtual fungibility.” This is a pricing algorithm (now patent-pending) that allows any diamond, and its asking price, to be compared to any other diamond on a single scale of value, which in this case means proximity to wholesale price, plus other critical factors. The diamonds weren’t identical, but the way they could be measured was. Hence: virtual fungibility. To be clear, unlike a home buyer, an investment buyer of diamonds does not care if a diamond is a VVS1 or a VVS2 since the difference has already been incorporated into the price. The investor cares about “how good a deal” diamond X is, vs. diamond Y. Because the better they can buy, other factors equal, the more return they can achieve when it’s time to sell.

That system of virtual fungibility, the value index, was introduced in July of 2021 and sales on our trading platform took off immediately.

Why did we move away from NFTs?

So why have we temporarily moved away from NFTs, despite the value they could add to our marketplace? Four main reasons:

1. Customer Base.
   We learned our target customer was the hard asset investor; that is, someone who buys gold and silver as a financial hedge. This demographic had almost no interest in, or understanding of, NFTs. The NFT component—far from improving our product—was overly-complicating it and interfering with our message.
2. Sales Process.
   Diamond NFTs placed on OpenSea didn’t sell. Again, our customer base was hard asset investors, and they bought through brokers and dealers of gold and silver. To reach them, we needed to align ourselves with such brokers and dealers, which we did—and began growing immediately thereafter.
3. Branding/Messaging.
   Icecap was and is selling a very serious, down-to-Earth product: a hard asset similar to gold and silver. NFT marketplaces, by contrast, have been doing the opposite: selling intangible, borderline-silly things like crypto-kitties, bored apes, and computer-generated artwork. Actual investment-grade diamonds were not at home in this environment and the brand messaging was confusing for everyone.
4. Regulatory Uncertainty.
   National regulatory agencies—already behind the curve when it came to crypto in general—nearly panicked when NFTs arrived. The issue is not what regulations were imposed, but the fact that no one knew what new regulations might be imposed tomorrow. That climate of uncertainty has made it impossible for Icecap to launch the kind of NFT-based marketplace it originally intended.

So, where are we today?

Icecap remains committed to the technology of NFTs. Having established a functioning spot marketplace for diamond investors—via virtual fungibility—we believe diamonds and NFTs can more easily fit together. As regulatory landscapes begin to solidify, Icecap plans to launch a second (derivative) marketplace on top of what we’ve already built, in which the NFT is traded and the diamond stays in a secure vault. This will streamline the process and—when combined with the virtual fungibility that powers our core marketplace—yield the best of both worlds for both hard asset investors, and NFT enthusiasts.

However, we are ensuring that every diamond we sell is “NFT Compatible” meaning the data (JSON files and other elements) is structured and preserved in a way that makes converting any Icecap diamond into an NFT relatively easy at some point in the future. 

For the time being, Icecap is selling diamonds, period. And we’re doing it via a marketplace designed for hard asset investors. (Click here to visit the marketplace.)