A Case for Tokenizing Battery Metals on Solana
Background of the Battery Metals Market:
The current market for battery metals is experiencing significant growth due to the increasing demand for electric vehicles and renewable energy storage. The global battery market is valued at $120 billion and is projected to grow at a compound annual growth rate (CAGR) of 15.8% (Mordor Intelligence).
The demand for rechargeable battery systems is expected to continue rising with the growth of the electric vehicle market and the integration of renewable power plants (McKinsey). Currently, there is an all-time high in demand for batteries that possess high energy density, long cycling life, reliable stability, and low cost.
Industry experts predict that the demand for metals within these batteries will surpass their supply, specifically lithium, cobalt, and nickel. It is estimated that between $30 billion and $45 billion will be invested in mining ventures to attempt to meet this demand (Linklaters).
However, accessing battery metals is challenging for most investors due to their limited presence in widely traded assets, unlike most traditional commodities. Investors keen on battery metals can attain synthetic exposure through companies involved in their production, exploration, and development. The issue is that investing in these firms comes with added risks and doesn’t offer direct exposure to the underlying metal.
Battery metals are ideal candidates for tokenization and trading on Solana. They remain inaccessible to most investors and exhibit high volatility when compared to precious metals. These metals provide a risk profile that aligns with the familiarity of most crypto investors and enable holders to diversify their digital portfolio and access an emerging market.
Lithium Price — Last 5 Years
Cobalt Price — Last 5 Years
Nickel Price — Last 5 Years
Why Tokenize Battery Metals
Enhanced Accessibility:
Tokenization breaks down traditional barriers to entry, allowing a wider range of investors, including retail investors, to participate in the battery metals market. Investors do not need to worry about storing a large 100kg drum, by just holding a token they have direct ownership over the battery metal. Additionally, fractional ownership opens up accessibility for investors looking to invest small amounts towards products that trade in the $15,000-$30,000 range.
It is very difficult to directly access these metals through traditional products. For example, Global X’s Lithium ETF does NOT hold lithium, instead it invests into firms such as Tesla, Rivian, and Samsung (GlobalX). Tokenizing these battery metals enables anyone with a Solana wallet the opportunity to invest directly into these assets.
Price Discovery and Liquidity:
Unlike precious metals, battery metals are much more illiquid and lack transparent price discovery. Tokenized battery metals on Solana can solve these issues. The increased accessibility, diversity of market participants, influx of capital, and real-time trading will mitigate the risks of market illiquidity. Additionally, Solana’s transparency, combined with its speed and efficiency, offers a more dynamic market that will help reflect accurate prices.
Ownership:
Solana’s secure and reliable blockchain network has the potential to address the longstanding challenges that have plagued battery metal trading within conventional markets. Investors can find confidence that their token transactions are irrevocable, securing their trade when metal tokens are transferred between wallets. This stands in contrast to instances within traditional markets, including last year when the LME invalidated $12 billion in nickel trades (Reuters).
How to tokenize battery metals:
Tokenizing battery metals poses a more intricate challenge compared to precious metals. The industry lacks the same established frameworks and entities, and the sheer weight of these metals further complicates the process.
In order to tokenize battery metals on Solana, the tokenizing entity must purchase drums of the metal. Unlike precious metals that are neatly stored as bars in secure vaults, the drums are stored in warehouses. Warehouse storage will cost more than storing the equivalent dollar amount of gold in a vault. After the metal is in storage, the issuer will then mint tokens on Solana on a 1:1 ratio with their underlying metal. These tokens represent ownership of the physical metal.
In order to improve transparency and investor confidence, the issuer should engage two auditors for their tokens. The first to confirm that the issuer has ownership over the battery metals in storage and the second to confirm and push the first auditors data on-chain (ex. Chainlink). This dual-auditing approach guarantees to token holders that their investments always maintain 1:1 backing. The tokenizing entity should also have an allocation tool that ensures precise tracking of which tokens are linked to specific drums.
Conclusion:
Commodity and crypto investors are now presented with the best way to engage in the battery metals sector. The speed and transparency of Solana’s blockchain paves the way for real-time trading, opening opportunities to capitalize on price movements that were previously elusive in the battery metals market. Additionally, the potential for heightened liquidity is an attractive prospect for traders accustomed to fast-paced environments.
However, it’s essential to acknowledge that tokenizing battery metals is not devoid of challenges. The complexities around legal and regulatory frameworks, the operational intricacies of storage and minting, and the need for robust auditing mechanisms all require industry know-how solutions.
In conclusion, the transparent and globally accessible nature of tokenized battery metals on Solana creates a foundation for a more informed and vibrant market. This will drive price discovery and build a more resilient ecosystem for investors and industry stakeholders alike.
