The cryptocurrency world was rocked by the sudden collapse of two of the biggest digital coins TerraUSD (also known as UST) and Luna in early May. Volatility is not uncommon in the cryptocurrency market, but what is unique was that UST was a so-called “stablecoin” — which means that one token equals US$1 ($1.37).
The collapse was akin to the dollar plummeting to the value of one cent overnight. More than US$200 billion in market value was wiped off all cryptocurrencies, as crypto proponents struggle to find a reason to continue investing.
In a space where credibility seems to be at a premium, Singapore’s first listed blockchain company OIO Holdings aims to be a “bastion of light to help users find a path amidst this complicated ecosystem”, claims executive director Yusaku Mishima in an interview with The Edge Singapore.
OIO holds a key position within the wider blockchain industry. It is also a public listed company, which means OIO has shareholders holding them responsible, reporting requirements to meet and regulators to pacify. “We seek not to destroy our reputation, and that provides credibility to the users,” adds Mishima.
The goal of OIO, he says, is to provide access to crypto investment or blockchain investments to everyone, and to provide users with correct and sufficient information to understand the actual risk and mechanisms behind crypto investments.
“What we wanted to provide was credibility to the blockchain industry. The blockchain industry has a lot of fraud, and it’s very difficult for users to analyse and understand whether a certain project is genuine or fraud,” Mishima says. “As we have the background [in this area], we can analyse this correctly, and we can provide the message through a listed company structure.”
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Restructure
OIO was previously known as DLF Holdings, an engineering firm. After a takeover and restructuring by consultancy firm QRC (now known as North Venture) in 2019, OIO now operates two main business segments on top of the original engineering arm: A consultancy arm known as OIO Singapore and a staking platform business called Moonstake.
OIO Singapore targets institutional investors that are looking for investment opportunities in the crypto space, but are hesitant because of a lack of knowledge and apprehensiveness over security. It aims to fill that space, with Mishima saying that what OIO does is to provide consultancy services to institutions on how to store their assets and crypto safety, like using multi-signature wallets, so that no one person can abscond with the entire stash of coins.
See also: Bitcoin retreats from US$100,000 in worst spell since Trump’s win
It can also help customers assess the different decentralised finance (Defi) projects on the market, but Mishima says that solutions will vary and depend on the customer’s risk appetite or target yield.
OIO sees a huge growth opportunity in this area, citing a Finnews.asia report in November 2021 that said about 38% of family offices in Asia are planning to increase crypto exposure. According to KPMG’s Pulse of Fintech report for the second half of 2021, crypto-related investments in Singapore grew from US$110 million in 2020 to US$1.48 billion last year, with the Asia-Pacific fintech space receiving US$27.5 billion worth of investments in 2021.
In a recent presentation, OIO notes that listed American companies such as Microstrategy and Tesla have started holding cryptocurrency as portfolio assets, Even supposedly conservative institutional investors like Massachusetts Mutual have invested over US$100 million in Bitcoin for its general investment fund.
Moonstake, on the other hand, operates what is known as a staking pool network, which is a way for cryptocurrency holders to earn rewards by staking cryptocurrency they own. A staking pool aggregates digital assets from multiple token holders to increase the token holders’ likelihood of receiving blockchain validation rewards under the “proof of stake” (PoS) system.
Staking works in a somewhat similar way to a bond for the end-user. Cryptocurrency holders lock their holdings into a staking pool. Depending on the amount that they stake, they have the chance to be selected by the network to validate transactions on the blockchain, which will reward them with additional currency. Naturally, a larger stake will mean a higher chance of being chosen, which means more rewards for the person.
This is known as the PoS concept, as opposed to the more traditional and popular “proof of work” (PoW). PoW relies on computational power to validate transactions on the blockchain, and describes the process of “mining” for cryptocurrencies, where cryptocurrency miners deploy racks of incredibly powerful computers to validate as many transactions as possible to earn as many rewards.
Targeting a wider base
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OIO says in its business update that Moonstake’s staked asset pool value was nearly US$700 million as of end-March, with over 7,000 users.
It also aims to reach out to a wider pool of customers. Mishima says that based on 2021 estimates, only about 7% of the population with internet access holds crypto assets, this means there is 93% of the market left untapped.
He is aware that this 93% are likely to be more conservative when it comes to investing in relatively higher risk products like cryptocurrency, especially for retail investors.
Thus, OIO will launch a new asset management platform called Upwards in the third quarter of this year, which is aimed at crypto beginners. The platform can be used to purchase different blockchain financial products, but will not be used for trading initially, he says.
Mishima claims this platform is education-oriented, allowing users to learn of the risks of different cryptocurrency products, as well as how the yield is generated in different products. “When they are onboarded with Upwards, they understand what kinds of blockchain yield generation mechanisms exist. They can maybe try to invest a little bit and then once they get to know this, they can try [trading] by themselves,” he says.
While Upwards is not exclusive to OIO’s Moonstake staking platform, Mishima says it does have some synergies with it, as after investors start to understand what they are getting into, they can then move on becoming into becoming an intermediate blockchain investor, perhaps by using Moonstake as a staking platform.
Mishima also thinks the PoS model is more suitable for low-risk investors, because the risk to their holdings mostly comes from the volatility in the fiat value of their crypto when it is staked. The rewards, like a bond coupon, will be paid out to the holder as long as their assets are staked. “Staking, I would say, is a good method of investment to increase the volume of their crypto assets,” he adds.
Higher margins
The shift to the blockchain business seems to be beneficial for the company: For its 1QFY2022 ended March, OIO recorded a revenue of $1.3 million, up 348% y-o-y. OIO attributes the increase in revenue to a $1.2 million contribution from Moonstake, which generates revenue for OIO by charging its customers a commission-based fee for their staked crypto assets. However, lower revenue from the original mechanical engineering was recorded, due to a “strategic shift in focus” to the blockchain business.
Gross profit margin for 1QFY2022 was 69.4%, up from 39.8% from 1QFY2021. The company attributes the better margins to the business nature of staking, where the cost of sales is mainly due to the outsourcing of certain consulting services and commission expenses.
Despite the higher revenue, OIO remains in the red with $250,000 for 1QFY2022, slightly reduced from the $300,000 loss in 1QFY2022.
Apart from higher operating expenses in distribution and administration, the company attributes some of the drag to the loss on disposal of crypto assets of some $51,000.
It also booked an impairment loss on crypto assets of $103,000 due to the relatively weak cryptocurrency market in 1QFY2022. OIO held cryptocurrencies such as Cardano, Tezos, Tether, Ethereum and IOST on its balance sheet with a value of $5.3 million as at March 31.
With so much focus on the blockchain business, investors may wonder about the future of the engineering segment. Mishima says that the board is “considering all options”, but does say that the blockchain business allows the company to be very “asset-light”, in contrast to the more cost-intensive engineering business.
OIO’s share price — while not as volatile as the cryptocurrencies — has shown some big movements. It was trading flat at 19.5 cents a share for most of the first half of 2021 and even reached a low of 8.2 cents. But as investors started to take notice after the Moonstake acquisition, its share price began to increase to a high of 78 cents on Aug 23, 2021.
Since the start of the year however, OIO’s share price started to slide, closing at 27 cents as of May 25, valuing the company at $49.65 million. OIO shares also lost around 15% from May 11, just before the crypto crash.
Still, Mishima maintains that beyond the investment yield that OIO can give to its customers and users, as “what is more important is to provide transparency, as a listed company and as our vision. So that is what we were trying to create.”
