For a long time, BaFin observed the financing rounds for crypto startups only from a distance. Now she took an important first step. For the first time, the German Federal Financial Supervisory Authority gave a German entrepreneur the green light to trade securities using blockchain technology. The Berlin startup Bitbond may offer so-called tokenized bonds. This reported the Handelsblatt on Sunday.
Security Token Offerings replace the ICO as a financing model
Radoslav Albrecht founded Bitbond 2013. The company lends to self-employed and small business owners worldwide. The special feature: Bitbond converts euro and dollar lenders into cryptocurrencies, and then exchanges them for the borrower’s national currency. The offer is thus “faster and cheaper than if we use the classic payment system,” said Bitbond boss Radoslav Albrecht the newspaper. The company has already brokered around 3,300 loans totaling more than 15 million euros in this way, according to Albrecht.
Bitbonds received a Bafin license to invest in the summer of 2016. Now the startup needs new money, and has opted for a security token offering (STO) to raise capital. STOs are currently taking place more and more often. Thanks to regulated procedures, they offer investors significantly more security than the unregulated ICOs, which have long dominated the crypto market. At the end of 2017, Bafin warned of the considerable risks that exist for ICO investors. According to the agency, providers informed “often objectively inadequate, incomprehensible or even misleading”. Fraud cases shaped the public image.
Bitbond wants to implement with his STO at least 3 to 5 million euros, but the aim is more, according to Albrecht. The company wants to raise up to 100 million euros for its expansion and new loans. For this, Bitbond is already in talks with various banks about additional financing options.
Paradigm shift in the digitization of corporate finance
Bitbond wants to set itself apart from the previous projects, it says in Handelsblatt. Because the offered BB1 tokens are classified as securities, the company had to create a regular prospectus. This was confirmed by the Bafin. A spokeswoman for the agency told the newspaper: “According to our current legal concept, tokenized registered bonds are to be classified as securities.” In this case, “an instrument that is designed as an asset, digitized in the form of a freely transferable and tradable token”. For the recognition by the Bafin Bitbond had to create a regular prospectus.
The new attitude of Bafin represents a “paradigm shift” for blockchain-based financing models, writes the Handelsblatt. According to Bitbond lawyer Eric Romba, securitization via the regular prospectus has been the biggest obstacle to digitizing corporate finance so far. The tokenization changes this: “The token on the block chain acts as proof of legitimacy for the receivables and thus takes over the task of the conventional certificate”, said Romba Handelsblatt.
Important to know: The Bafin does not check whether the business model of a startup is viable. It only assesses the information in the prospectus for completeness, comprehensibility and consistency.