Mr. Market paid $194.11 for Enegra (EGX) for the Enegra token on 2 September 2023. Consequently, Enegra was CoinMarketCap’s 12th most trending cryptocurrency on the same day.
So what is Enegra and is it worth $195.09? Enegra is an attempt to tokenize commodities trading for miners in emerging markets. I guess they want to build an exchange where people can trade commodity futures on the blockchain.
To explain, commodities futures are derivative contracts in which a purchaser agrees to buy or sell a commodity at a future date. Derivatives are synthetic investments that derive their value from the price of another asset. For example, a nickel future derives its value from the price of nickel.
Can Enegra Tokenize Commodities?
I guess Enegra will create wrapped tokens for commodities futures. A wrapped token is a cryptocurrency that derives its value from another investment off the blockchain. For example, a nickel wrapped token will derive its value from nickel trading on a commodities exchange.
Unfortunately, Enegra does not say how their futures market will work or how they will create blockchain futures contracts. Instead, they tout their experience trading commodities in traditional markets.
There is new evidence has any experience building blockchain tokens or markets. For instance, a link to the “Enegra security token” on the Enegra website took me to the Polygonscan entry for the EGX token.
They do not say how the Polygon token works or if it works. Hence, there’s no evidence Enegra has tokenized commodities futures.
I don’t know if Enegra can tokenize commodities because it offers no business plan or any technical data about its blockchain or tokens. Thus there’s no evidence Enegra has a working token or marketplace.
A Tokenized Stock
Instead of futures contracts, EGX tokens will represent the ordinary shares of Enegra Group Ltd., a Malaysian company. They claim the token will have all the rights and distributions of Energa stock. I imagine this includes voting right and dividends.
Interestingly, Enegra (EGX) investors will have to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations because it is a stock. This means EGX owners will have to identify themselves and list a valid address.
Thus Enegra (EGX) is a tokenized stock which is an interesting experiment. However, I’m not sure Enegra is legal in many countries including the USA and the UK. Since they call Enegra a security they will have to register it with the Securities and Exchange Committee (SEC) to trade in the United States.
I don’t know if the SEC will approve a tokenized stock. Hence, Enegra (EGX) is a risky investment.
The Commodities Market
Enegra’s business plan is to trade mineral commodities futures sold by miners in emerging markets to trade worldwide. The hope is to help smaller mining companies raise money by selling futures worldwide.
Mid-size mining companies have a difficult time because giant mining companies dominate the minerals markets. The world’s largest miners are Glencore PLC (GLNCY), Jiangxi Copper Co., BHP Group LTD. (BHP), Rio Tinto (RIO), the Aluminum Corporation of China, Vale SA (VALE), Zijin Mining Group, Anglo American PLC (AAUKF), Hindalco Industries Limited (HNDF), and CMOC Group Ltd. (CMCLF).
These giants dominate the market because they can mine and market vast amounts of minerals. For example, the world’s largest nickel mine, the Kola MNC Mine in Murmansk Oblast, Russia, produced 151,030 tonnes of nickel in 2022. Hence, Kola’s owner, MMC Norilsk Nickel, can always produce enough nickel to make money. No matter how low prices fall.
This keeps prices low but the giants sell so much they can make a profit. For example, the Metals and Minerals Price Index was $101.59 in July 2023. Similarly, copper futures were trading for $3.86 on 1 September 2023.
This is why Russian oligarchs can buy yachts and Ferraris when mineral prices are low. If prices are low miners increase production, prices fall lower but the mine owners still make money. This is one reason why resource-rich countries such as Russia become poor.
I think the commodities market shows why there will be no minerals bonanza from electric cars, batteries, or solar panels. Instead, the companies that make the vehicles, batteries, and solar panels will make the money. For example, Tesla (TSLA). If you want to cash in on the electric vehicle and battery boom buy Tesla or Ford (F) and forget about Enegra.
Thus making money in commodities is hard. I cannot see how Enegra can compete with the mining giants.
What Value does Enegra (EGX) offer?
Conversely, Mr. Market thinks Enegra (EGX) offers some value. CoinMarketCap gave EGX a $194.11 Coin Price, a $16.5 billion Market Cap, a $16.89 billion Fully Diluted Market Cap, and a $2.08 million 24-Hour Market Volume on 2 September 2023.
They base those numbers on a Self-Reported Circulating Supply of 84.98 million EGX and a Total Supply of 87 million EGX. Enegra was CoinMarketCap’s 2,186th largest cryptocurrency by market cap on 2 September 2023.
My advice to speculators is to stay away from Enegra until tokenized stocks are legal. I think Enegra is an unproven concept rather than a cryptocurrency. It also operates in a low-margin industry I try to avoid.