The Berlin crypto start-up Bitbond has managed to have the planned STO approved by the German Federal Financial Supervisory Authority (BaFin). This makes them the first crypto company to not only own their own BaFin license, but also to carry out the first fully regulated crypto IPO in Germany. We have found out in a personal interview with Bitbond CEO Radoslav Albrecht why the security token corresponds to a bond, where it can be traded and what the targeted EUR 100 million should be used for.
QUESTION: Why did you issue a bond and not a share?
Radoslav Albrecht: That has something to do with our business model. We are a platform where small business owners and self-employed people can apply for working capital financing. As a platform, we grow, the more investment potential exists, that is, the more investors want to invest on our platform. So far, we are already doing well in terms of equity. However, we are always looking for new ways to expand our refinancing potential; and to that extent, a debt product is at first the most obvious. Because after we dealt with security tokens, we realized relatively quickly that a debt product fits best. Here there is a very good match of costs and coupon or profit share for the investors of the token.
QUESTION: What is the difference between your token bond and traditional bonds?
Radoslav Albrecht: Because of the token we are relatively independent of third parties: we do not need a paying agent or a CSD like Clearstream. That’s probably the biggest disruption in the field. In fact, no one who has ever issued securities in Europe has passed Clearstream. We are probably the first company in Europe to issue a security without having to deposit a certificate with Clearstream. Because we replace this paper document now with the token. The proof of ownership does not take place over a piece of paper, but over a digital token. It also follows that the bond subscribers do not need to have a custody account with a bank, thereby saving fees. Investors can create a wallet, hold the token in it and then automatically receive the interest payments from the bond. So we take out a bunch of intermediaries and this makes the construct more efficient and cheaper.
QUESTION: What do you think: how much did it help you with the STO approval that you already had a BaFin license?
Radoslav Albrecht: That’s hard to say. BaFin has different presentations. The unit that is responsible for us is different from what was now responsible for the prospectus. This is the responsibility of the so-called Securities Supervision. Throughout Europe, there are harmonized requirements for securities prospectuses and BaFin then goes through a checklist and looks to see if this prospectus meets the requirements. And that’s important: BaFin does not check whether it considers the business model good or bad, but concentrates solely on the prospectus. Is he plausible? Transparent? Do the structure and contents of the prospectus in the prospectus correspond to the regulation?
Immediately there is no connection between the fact that Bitbond is a regulated institution and the prospectus. On the other hand, the [previous approval] helped us again, as we therefore know the way the BaFin works. Apart from that, there is of course equal opportunity. Anyone submitting a prospectus that meets the [regulatory] requirements has the same potential for approval.
QUESTION: There is still no regulated exchange for security tokens. Do you think we will see a state regulated security token market this year?
Radoslav Albrecht: That’s hard to predict. Basically, European stock exchanges are listed as so-called MTF (Multilateral Trading Facility). With this license, they meet the regulatory requirements. Whether we will see something in the area, I do not know. Personally, I know a few companies that have something like this in the pipeline. Of course I can not say who that is. I do not know when that will bring it to the market. However, some of them are already well advanced in their process. Since it is only February, it is quite likely that we will see something in the market [this year].
QUESTION: Can you still trade your security token on other, non-state regulated platforms? Is your security token based on Ethereum?
Radoslav Albrecht: Basically, crypto-tokens are fungible instruments because the owner of the token has the public and private key. It’s the same with our token. We emit the token on the Stellar Blockchain. The Stellar Blockchain is optimized for payments and token issuance. In contrast to Ethereum, the blockchain has a much reduced functional margin and is therefore optimal in the area relevant to us. Proof of ownership is also provided by Stellar by signing transactions using Private Key. The concept is very similar to Bitcoin and Ethereum. Therefore, anyone who holds the token can generally resell it privately.
QUESTION: What about the know-your-customer principles?
Radoslav Albrecht: As the Issuer, we are not responsible for the KYC on a possible secondary market. We only have to know the draftsmen.
QUESTION: In retrospect, ownership can be anonymized?
Radoslav Albrecht: In principle yes, however, those who trade or organize the trade must inform themselves about their respective permit requirements. Experience has shown, however, that trading on the secondary market will take place on exchanges and not peer to peer. And once we, as the issuer of the token, establish a business relationship with a stock exchange, we must ensure that the stock market meets the regulatory requirements.
This usually means that the crypto exchange must then consider KYC. Incidentally, this is no different in the conventional market: after a few days, issuers of bonds often no longer know who exactly holds the bond. Because it has just been resold on stock exchanges. However, as investors usually have classic bonds in a bank deposit, at least one entity knows who owns the bond. That’s exactly how it will be with us.
QUESTION: With your capital measure you want to collect up to 100 million euros. What do you need so much capital for?
Radoslav Albrecht: We plan to divide the use of the issue proceeds into three categories: On the one hand, we plan to finance loans from small businesses and entrepreneurs via the Bitbond platform. This is the core business of Bitbond GmbH. This will be above all in the core markets in Europe but also on the African continent. But we also plan to expand into a few new markets.
Second, we will most likely leverage our capital. Together with other investors, we will invest a portfolio so that, for example, we can leverage one euro investment volume to around six to ten euros total investment volume.
Third, we will contribute a smaller portion [of the capital] to Bitbond GmbH as a platform operator in the form of a loan. Thus, if successful, the platform can scale and, for example, marketing be improved. We would also like to finance this with a small part of the issue proceeds.