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OIO Holdings aims to meld traditional and digital finance with restructure

Lim Hui Jie
Lim Hui Jie • 8 min read
OIO Holdings aims to meld traditional and digital finance with restructure
Find out how OIO Holdings, formerly DLF Holdings, is transforming itself from an engineering company to one dealing in blockchain.
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After a massive restructuring and takeover from a new shareholder, engineering firm DLF Holdings has rebranded itself as OIO Holdings, and is now carving out a space for itself in the growing blockchain industry.

OIO Holdings now consists of two main business segments, a consultancy arm known as OIO Singapore, and a staking platform business known as Moonstake.

How does Moonstake work? Basically, it operates what is known as a blockchain-staking pool protocol, 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 fixed deposit for the end-user. Cryptocurrency holders lock their holdings into a staking pool, and 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. PoW essentially describes the process of “mining” for Bitcoin, where cryptocurrency miners deploy racks of incredibly powerful computers to validate as many transactions as possible in order to earn as many rewards.

In an interview with The Edge Singapore, Taku Edatsune, OIO’s head of finance and administration, says the main advantage PoS has over PoW is that it is more environmentally friendly as it does not rely on pure computer power, and does not require as much upfront cost as PoW to run blockchain systems.

The energy consumption and limitations of PoW was apparent in 2020 and the early part of 2021, when the semiconductor shortage, already affecting supply chains around the world, were strained even further when cryptocurrency miners snapped up powerful consumer electronics parts, such as graphics cards, to power their cryptocurrency mining rigs. This led to a shortage of PC parts, causing prices to skyrocket.

In June, the Digiconomist website’s Bitcoin Energy Consumption Index estimated that one Bitcoin transaction takes 1,544 kilowatt-hour (kWh) to complete, or the equivalent of approximately 53 days of power for the average US household. Edatsune also gives the example of Tesla, which stopped accepting payments in Bitcoin this year after CEO Elon Musk highlighted the vast amounts of fossil fuels needed to “mine” the cryptocurrency.

Considering that environmental, social, and governance (ESG) has been an important agenda for most companies in recent times, Edatsune says “the staking technology has a huge strength here because ESG is not just for this industry, but for all industries. ESG is a big topic. The blockchain industry cannot ignore that”.

In a presentation, OIO says that the value of coins staked globally is over US$100 billion ($134 billion). Specifically in Moonstake, the amount staked is only about US$890 million, less than 1% of the total market share. As such, Edatsune believes that there is plenty of growth for the business, which aims to be the largest staking pool in Asia.

OIO Singapore

Besides Moonstake, the other business of OIO Holdings, OIO Singapore, is a complementary consulting business. While Edatsune does see that there are applications for blockchain in other industries, such as using blockchain technology to verify the authenticity of educational certifications, the main growth is still centred around the financial industry. Therefore, OIO’s two main businesses are aiming to “meld the old and the new”.

The aim of OIO Singapore is to integrate more blockchain technology into the traditional finance industry and to help enterprise customers “who want to use blockchain in their business or start some ventures in the sector”, he says. An example is digitally issuing securities using a security token.

It also aims to target both the retail and institutional investors with the goal to also “objectively propose a wide range of digital assets to each investor’s investment policy”.

Edatsune says that there is a lot of potential to integrate the traditional and digital, such as decentralised finance like cryptocurrencies. He notes that the market cap of cryptocurrencies as of Aug 10 is only US$1.8 trillion, compared to the world’s stock market cap of US$95 trillion and bond market cap of US$128.3 trillion.

Furthermore, OIO also observes that there is demand for traditional investors to reallocate some of their portfolio to digital assets for diversification purposes, in light of the current low-interest rate environment in traditional investment instruments.

For example, on crypto.com, a company that offers stablecoin loaning (similar to a fixed deposit), locking US$5000 worth of the stablecoin USD Coin for a tenure of three months can net an investor an interest rate of 12% per annum, compared to fixed deposit rates in Singapore of only 0.3% to 0.65% per annum.

The great transformation

To understand how did this paradigm shift into the blockchain space occurred, one must look at OIO’s history. In 2018, the then DLF Holdings was listed on the Singapore Exchange (SGX) at an IPO price of 23 cents a share, with 18.5 million new shares up for grabs. This gave DLF a market capitalisation of approximately $27.9 million.

When DLF marketed its IPO, it reported promising results for its FY2017 ended Dec 31. Its revenue was up 15% y-o-y to $21.5 million, compared to $18.7 million a year ago. Earnings, meanwhile, jumped 72% y-o-y to $3.4 million in FY2017, from $2 million. The company was also in a net cash position, holding $0.4 million in cash and cash equivalents.

Things went south almost right after that. For its FY2018, it reported significantly lower revenue of down 15% because it did not win contracts of the same magnitude it was able to book for FY2017.

On the other hand, its administrative expenses (which include $1.4 million in IPO expenses) increased by 156%, thereby pushing it into the red of $1.24 million for FY2018. The following year, it suffered further woes. DLF was forced to pay a compensation of $4 million for an uncompleted project in the Maldives.

However, in September 2019, consultancy firm QRC assumed control of DLF. Owned by Hiroyuki Enomoto, QRC paid $5.6 million for a 57.16% stake, buying over the entire stake of 37.16% from DLF’s then-CEO Wong Ming Kwong, and 20% from founder Fan Chee Seng. QRC further increased its stake to 64.13% in November 2019, and renamed itself OIO Holdings following approval given by shareholders at an EGM.

Edatsune reveals that QRC (now known as North Venture) saw DLF as a suitable platform on which to build a blockchain business in Singapore, given its status as a SGX-listed company. The country’s connectivity with the rest of the region makes it an ideal location to capture the huge growth potential.

After the takeover, the newly-christened OIO Holdings created OIO Singapore and entered into a partnership with Moonstake, which it then acquired as a fully held unit in May.

Results

With such a drastic shift in the business, investors might want to see some results as proof that it is working. OIO reported in December 2020 that the blockchain business had turned an operating profit in its first year, and in its most recent 1HFY2021 ended June 30, the company recorded a revenue of $1.6 million and gross profit of $1.2 million, representing an increase of 142% and 206% y-o-y respectively. Underpinning this substantial revenue increase is a 276% jump in revenue from the blockchain business segment.

In any case, some investors seem to be pretty optimistic about the company. The company was trading flat at 19.5 cents a share for most of the first half of the year, before investors started to take notice and its share price began to increase. OIO’s share price closed at 63.5 cents on Sept 14, valuing the company at $113.9 million, according to Bloomberg.

It should be noted, though, that OIO recorded a net loss of $0.6 million, mainly because of costs incurred for its new blockchain business segment including promotional expenses, higher staff costs, and also a non-cash impairment due to the weaker crypto market in June.

Cash balances have also risen in tandem, reaching $5.2 million in 1HFY2021 compared to the $0.3 million six months before.

With the war chest, Edatsune says the company is also looking at more M&A opportunities that are “synergic products with Moonstake”. These can include products that have functions that can be offered to Moonstake customers, or opportunities to expand Moonstake‘s user base.

To that end, the company has entered into a subscription agreement with one Matoko Matsumura for a placement of 894,841 shares in the company for a consideration of US$400,000, representing about 0.5% of the company’s share capital.

In its SGX filing, OIO says Matsumura is an acquaintance of OIO substantial shareholder Mitsuru Tezuka, and is in the business of the construction and real estate industries in Japan.

Of the proceeds from this agreement, 60% will be used to “finance the group’s business expansion, including organic expansion and mergers and acquisitions”, while the remainder will be for working capital and general corporate purposes.

As more traditional investors are coming into the crypto space, the company will be “quite interested [in] any asset that we can enhance our reach to the investor who is coming into this space”, Edatsune says, adding: “It can be a custodian service, or it can be an information or data provider; it can be systems or software.”

Photo: Albert Chua/ The Edge Singapore

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