We have recently seen the launch of a number of cryptocurrencies backed by real assets — stablecoins that hold their value and reduce volatility. But that’s not the only way tokenization can be used to affect real commodities.

Diamond-backed token startup Carats.io has announced the launch of its Get Diamond Index (GDX), which the company claims is the first official diamond market index of its kind. What Carats offers is a secondary market for diamond commerce, combining the stability of diamonds with the liquidity of cryptocurrency.

Although it is not billed as a stablecoin, Carats.io does share some of the properties of that breed of cryptocurrency or token.

“If there’s one thing we can count on, it’s that diamonds won’t go out of fashion, and hence their value holds steady,” Carats.io cofounder and CEO Avishai Shoushan told me. “Our proprietary formula uses our reserve of actual diamonds and their cash equivalents to calculate the theoretical value of the Carat token, linking the entire Carats.io economy to a stable, physical asset. By pegging the value of the Carat token to diamonds, we’re able to stabilize its price, creating a reliable, low-volatility token.”

So how does it work? By tracking daily purchase prices and movement of the GDX, the algorithms that power Carats.io provide a data-driven benchmark of any diamond’s perfect price point. This provides a high level of transparency (pun intended).

“Through blockchain technology we can, for the first time, create a financial instrument for the diamond world that is scalable and effective,” Shoushan said. “Also, blockchain provides the all-important decentralized economy, eliminating most of the financial middlemen, lowering fees and reducing transaction times and entry barriers.”

Carats.io appears to be a cut above the rest in this field. Its diamond index has been recognized by the wider financial community and is powering the Israel Diamond Exchange. And Carat’s GDX indexes are now live at investing.com.

In addition to tokenization of the diamond market, Carats.io uses algorithms that compare individual diamond grades and daily market conditions. Carats’ Diamond Pricing Algorithms (DPA) will price 3 million diamonds, together valued at over $1 billion.

Backed by a private digitized reserve, the Carat token represents real diamonds on a transparent, distributed ledger. The function of the Carat token extends beyond the purchase and sale of diamonds — both diamond dealers and end users can use Carat tokens for the safekeeping and transportation of their diamonds.

So what’s next for Carats.io?

“The team’s vision is to create an ecosystem for the safe storage, transfer, and trade of value, using real, eternally valuable assets in diamonds,” Shoushan said. “The vision has materialized in a blockchain solution that allows buyers and sellers to transfer value in the diamond market, without the barriers associated with the current market.”