Allocated Bullion Exchange (‘ABX’) has issued this statement in response to questions from our Members, their customers, stakeholders, potential BullionCoin investors, and the precious metals industry at large, concerning the release of Digital Gold Limited’s (‘Digital Gold’) BullionCoin digital asset product.
Regrettably, and effective immediately, ABX’s Board has today, Tuesday the 15th of August 2017, resolved to cease any further collaboration with Digital Gold.
This action was not taken lightly, but rather, as a result of recently obtained information, as well as ABX’s inability to reconcile material risks to supporters of the BullionCoin product structure due to the following factors:
1. Against strong advice from ABX, Digital Gold was insisting to structure its metal ownership so that investors in the digital asset would be, in our view, unsecured creditors of Digital Gold. This form of ownership is commonly referred to as an ‘unallocated’ holding, and results in the investor only having a ‘claim’ to the metal, as opposed to having ownership of the asset and being protected in the event of a Digital Gold default. It has long been ABX’s view that this model is inherently flawed and would result in genuine counterparty risk to holders of BullionCoin. A detailed explanation of ‘allocated vs. unallocated’ metal ownership and the substantial risks associated with unallocated metal, can be found
here ;
2. ABX has been unable to satisfy itself regarding the security and integrity of Digital Gold’s bullion holdings structure and thus ABX is of the view that there are risks similar to other flawed cryptocurrency businesses in recent times where investors have lost significant amounts of money;
3. ABX have received confirmation that a competitor of Digital Gold intends to initiate legal action against Digital Gold upon the launch of BullionCoin due to alleged infringement of intellectual property rights. This, in our view, would have the potential to put at risk all BullionCoin-backed unallocated bullion, to the detriment of BullionCoin holders and investors;
4. Digital Gold is insisting on utilising private vaulting networks that, in ABX’s view, would permit external bullion deposits with limited quality verification, thereby circumventing, and being not subject to ABX’s robust bullion framework for assuring the quality of the bullion in its network;
5. Digital Gold is developing and utilising a non-standard matching engine and order book within its BullionCoin System (‘BCS’) secondary market which, in our view, will result in an atypical trading experience that ABX believes will cause confusion and disputes;
6. Digital Gold has made frequent and substantial scope of project amendment requests and in ABX’s view, has been unable to meet any mutually agreed project development timelines; and
7. ABX’s unwavering commitment to allocated and transparent precious metal ownership.
ABX is disappointed that it has been forced to withdraw from this collaboration. Unfortunately, ABX believes that it simply had no alternative as it found itself in the untenable position whereby the mechanics of the business model originally pitched to ABX were not what Digital Gold ultimately delivered.
ABX intends to continue work to support and / or launch its own precious metal backed digital currency. The experience with Digital Gold has resulted in the Board forming a view that they do not have the expertise or experience or professionalism to launch a product or service which will adequately satisfy the needs of ABX’s stakeholders. Based on ABX’s experience, and the legal advice taken, ABX is recommending to its stakeholders that they do not work with Digital Gold for the reasons stated above.
On a positive note however, ABX has recently been contacted by several other bullion-backed digital currency providers who have identified ABX as the market leading facility for allocated physical precious metals. Now that ABX has withdrawn from the Digital Gold collaboration, the Board has approved collaborations with several other advanced stage allocated precious metal digital currency providers.
To this end, ABX is pleased to announce that it will be issuing a press release to its stakeholders on these new collaborations and partnerships in the immediate future.
Allocated Bullion Exchange