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Diginex Limited

EQOS / NasdaqGS / $5.73

May 4, 2021

 

Business Overview

 

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Diginex Limited, a Singapore company that trades on the NasdaqGS, is a picks and shovels play in the crypto arena. As the parent company of a number of entities that deliver complementary yet diversified crypto revenue streams, Diginex gains exposure to the crypto ecosystem without owning cryptocurrencies themselves.

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The lead revenue stream is from a crypto exchange that offers an increasing variety of products and services relating to crypto derivatives.

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Institutional acceptance of crypto assets is exhibiting an uptrend. The regulatory landscape is becoming better defined, and derivatives can give these institutions a way to manage risk and execute a range of trading strategies.

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The management team has extensive experience in capital markets and the digital assets industry.

 

 

EQUOS Crypto Exchange

 

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This Singapore-based digital payment token exchange offers products and infrastructure necessary to meet the rapidly expanding opportunity in crypto derivatives. One measure of the potential opportunity is that markets for FX derivatives are more than 100x spot volumes, while current bitcoin derivative volumes are only 3x or so bitcoin spot volumes. Growth of crypto derivatives could be spurred by an acceleration of institutional entry (corporations, asset managers, payment processors, and banks) into the crypto marketplace.

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EQUOS features include KYC/AML onboarding according to Financial Action Task Force standards, crypto-asset provenance checks, high-level security, and an architecture designed to bank-grade standards. The exchange allows fungibility from USD deposits USD Coin (USDC) and vice versa at zero cost, and the Company plans to add up to a dozen more fiat onramp solutions. The exchange operates with an exemption under the Payment Services Act of the Monetary Authority of Singapore.

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A unified account supports spot trading alongside derivatives, and perpetual swaps (BTC/USDC and ETH/USDC) are live. EQUOS uses only external market makers and does not sell trading data to third parties. The orderbook is transparent.

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In view of the importance of liquidity to the exchange, Diginex has entered into strategic partnerships with Kronos Research (algorithmic trading) and Parallel (a fast-growing provider of crypto liquidity) and an agreement with GSR to provide liquidity.

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A new EQUOS origin token, EQO, is designed to deepen liquidity and boost account balances on the EQUOS platform. Taker traders receive a percentage of the daily EQO token allocation, based on their share of all taker volume that day. Those who stake their tokens on the platform are eligible to receive a share of the daily Reward Batch and receive discounted trading fees based on their token balance. The Diginex website hosts a white paper that provides considerable details regarding EQO.

 

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The EQO supply is finite at 21 million tokens, with no pre-mine or founder allocation. Distribution is via a reward block over a two-year issuance period, with 90% of the issuances to traders and those who keep their tokens in their EQUOS wallets and the remainder to the EQUOS treasury for use to further advance the volume and liquidity of the platform. A supply reduction occurs every 90 reward blocks. At the end of the issuance period, management plans a binding buyback-and-burn program.

 

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Benefits to token holders include (i) an airdrop allocation of any new token issued by other Diginex companies, (ii) enhanced interest rates (minimum uplift of 10%) when EQUOS launches its borrowing and lending services, (iii) fee reductions, and (iv) collateral credit when EQUOS implements cross-margining.

 

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On April 8, 2021, EQUOS began trading EQO/USDC for those looking to sell or buy EQO.

 

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Management has filed a patent on the EQO token with the USPTO.

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Near-term development initiatives include additional coins, managed accounts, additional fiat deposit and withdrawal currencies, isolated margin and user-defined leverage, cross-asset collateralization, a mobile application, daily fix on BTC/USDC derivative settlement, options, dated futures, on-exchange borrowing and lending, and a multi-custody model. Longer-term initiatives include portfolio margining, additional futures and options pairs, and new volatility products. The Company operates in most countries other than the U.S.; entry into the U.S. market could take some time to work through the various state regulations. An acquisition of an existing exchange might speed the process.

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Fees are commission based, with crypto exchange a blended expectation of 2-4 bps and liquidation fees of less than 40 bps. OTC and trading could run 20-30 bps. The borrowing and lending platform for crypto and stablecoins will likely generate both commissions and a spread.

 

 

Digivault

 

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This UK-based custodian for digital assets, with both extreme cold and warm solutions. The cybersecurity custody standards are certified and accredited. Malca-Amit provides the vaults for the Digivault cold solution.

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Custody fees run 40 bps and withdrawal fees 10 bps.

 

 

Access Trading

 

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This multi-venue trading platform was designed to address fragmented liquidity across the multitude of crypto exchanges. It has its own suite of algorithms for professional traders and allows traders to trade both crypto assets and their derivatives. The product is integrated with trading technology providers ITIVITI and FIS, which allows traders to use the ITIVITI Order Management Systems and Portfolio Management Systems.

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Commissions are approximately 2 bps.

 

 

EQUOS Capital

 

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UK-based EQUOS Capital is a boutique digital asset securitization advisory business providing advisory, origination, and distribution services. It promotes the use of digital securities and security token offerings for capital markets transactions. These securities are distributed through broker partnerships.

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Fees are generated by both advisory and distribution, with the fee structure set on a case-by-case basis.

 

 

Bletchley Park Asset Management

 

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Switzerland-based Bletchley Park Asset Management is the Company�s flagship fund.It operates a fund of funds focused on market-neutral, alpha-centric strategies. These strategies include liquidity provision, arbitrage and algorithmic, and fundamental long/short. The management fee is 1.5% and the performance fee 15%.

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Other funds Diginex funds include Bletchley Park Asse Management (Hong Kong) Limited and Bletchley Park Asset Management Jersey Liimited.

 

 

Executive Committee

 

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Richard Byworth, CEO, was previously a Managing Director at Nomura, running Derivative and Equity Linked product sales for Asia Pacific product globally. He founded several companies, sits on various boards, is Hong Kong Regional Ambassador for the Global Blockchain Business Council, and has spoken regarding the merits of blockchain for business and finance at WEF (Davos) and the United Nations (Geneva).

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Charlie Beach, Chief Risk Officer, has 20+ years of experience in capital markets risk management and regulation in both traditional financial services and the digital asset industry.

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Paul Ewing, Chief Financial Officer, was the former regional CFO at ICAP and COO for the ICAP electronic broking division.

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Stelios Moussis, Chief Legal Officer, was previously general counsel and a manager of Lazada Malaysia (the Southeast Asian e-commerce platform of Alibaba), Lazada Express (the logistics operations division of Alibaba), and helloPay (now part of Ant Financial).

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Jim Pollock, Chief Operating Officer, was previously COO in several of the Westpac businesses in Australia and Singapore.

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Sheel Kohli, Chief Marketing Officer, was previously Chief Marketing Officer of AAX, the first cryptocurrency exchange powered by LSEG Technology.

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Neil Sheppard, Chief Product Officer, oversees all financial product design. He spent 13 years at Nomura, most recently as Managing Director, Head of Equity Trading for Asia.

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Ray Hennessey, Chief Technology Officer, was previously CTO at Liquid, the largest crypto exchange in Japan. He earlier led the technology implementation behind the National Payments Infrastructure in Thailand.

 

 

Board of Directors

 

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Chi-Won Yoon, Chairman, previously spent 22 years at UBS, serving as President and CEO of USB AG, Asia Pacific and was a member of the UBS Group Executive Board from 2009-15. He established the UBS equity derivative business in Asia and also held positions including Hong Kong Country Head, Head of Equities, and Head of Securities Asia Pacific.

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Lisa Theng, Director since September 2020, is the Managing Partner of CNPLaw LLP and has focused her practice in M&A, corporate advisory, and corporate and commercial services.

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Richard Petty, Director since September 2020, has been a key adviser to governments and the private sector on projects and investments in Asia. He has been on the faculty of several business schools and remains active in academia.

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Paul Smith, Director since September 2020, was most recently President and CEO of CFA Institute, prior to which he was its Managing Director and Head of Asia Pacific region. He holds several external directorships.

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Andrew Watkins, Director since September 2020, was a Partner for 20 years and held a number of senior leadership roles at PricewaterhouseCoopers Hong Kong and Mainland China.

 

 

Financials (As a Singapore company, Diginex reports every six months; FY is March.)

 

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Income Statement (6 months through 09/30/20 vs. 09/30/19) (USD)

 

 

Revenue: 23,133 vs. 180,330

G&A (expense): (36,049,082) vs. (13,766,862)

Operating income (loss): (36,025,949) vs. (13,766,862)

Non-operating income (expense): (76,876,331) vs. (11,208,164)

Discontinued operations: 4,879,980 vs. (307,804)

Net income (loss) attributable to owners of the Company: (107,854,701) vs. (24,946,118)

Net income (loss) attributable to non-controlling interests: (167,599) vs. 156,382)

Earnings (loss) per share attributable to ordinary equity holders: (5.78) vs. (1.77)

Exchange income (loss) on translation of foreign operations: (168,058) vs. (5,334)

 

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Balance Sheet (09/30/20) (USD)

 

 

Cash & equivalents: 27,576,488

Cash held in trust: 35,263,363

Other current assets: 7,183,972

Total current assets: 70,023,823

Intangible assets, net: 14,517,529

Property, plant, & equipment, net: 884,837

Other non-current assets: 2,430,426

Total assets: 87,856,615

Redemption liability: 35,263,363

Other liabilities: 18,724,493

Total liabilities: 53,987,856

Equity (deficit) attributable to owners (excludes non-controlling interests): 34,242,153

Non-controlling interests: (373,394)

Total equity (deficit): 33,868,759

Shares attributable to owners (excludes non-controlling interests): 31,688,393

 

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As of January 28, 2021, executive officers and directors beneficially owned 7.39% of the ordinary shares outstanding, including 5.24% by Chi-Won Yoon. DHC Investments, Limited, a Hong Kong LLC, owned an additional 6.9% of the ordinary shares.

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In January 2021, the Company sold 2,571,669 ordinary shares at $15 apiece and three-year warrants to purchase up to an aggregate of 2,571,669 ordinary shares at $18.75 per share.

 

 

Valuation Considerations

 

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Some of the other crypto exchanges include Coinbase Global, Inc. (NasdaqGS), Binance, Kraken, and FTX. Coinbase has a market capitalization of $54 billion, which is more than 40x its 2020 revenue.

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On April 19, 2021, the company announced that month-to-date volume exceeded US$1 billion, with average daily volumes than 3x vs. average daily volumes in the prior month.

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In a YouTube interview dated April 12, 2021, the CEO stated that he believed the Company had sufficient liquidity to fund operations for 18-20 months, and he thought the breakeven point was likely trading volume in a range of US$200-250 million per day.

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Members of the Executive Committee and Board of Advisors have substantial experience in fintech and capital markets and in growing early stage companies.

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The ongoing impact from COVID-19 remains an uncertainty. In addition, the Diginex website and SEC filings detail various other risks and matters, and these are hereby incorporated by reference.

 

 

Contact

 

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Global headquarters: #18-01, 140 Robinson Road, Singapore 068907.

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Executive offices: 35/F Two International Finance Centre, 8 Finance Street, Central, Hong Kong.

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Website: www.diginex.com

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Investor contacts: Ross Dunwoody and Christian Arnell at ir@diginex.com

 

 

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