Fundament is the first firm that will trade tokenized bonds using the Ethereum blockchain. Tokens backed by real estate are the first to be approved by BaFin.
The blockchain venture Fundament has received the approval to issue Ethereum’s first real estate-backed token bond that can be widely offered to private investors.
The Berlin-based company announced on July 23rd, 2019, that it has obtained the approval from the German financial regulator BaFin, to offer the equivalent to US $280 million in Ethereum tokens. The tokens will be available to private investors anywhere, without restrictions on the minimum investment.
For instance, if investors in Indonesia buy 100 euros in Ethereum-based tokens, they are indirectly investing in commercial properties or real estate in Germany, through Fundament.
A BaFin representative confirmed their approval for the startup Fundament Group. He said that this has been the first time that they have approved a startup on blockchain-based real estate bonds, but not regarding blockchain technology in general.
Since August 2019 Fundament will market standard ERC-20 tokens, popularized by the initial coin offering (ICO) explosion in 2017, which will run on Ethereum’s public Blockchain.
The Co-founder of the Fundament Group, Florian Glatz, said that private investments did not use to require a startup or the approval from a financial market authority.
In March 2019, Inveniam Capital Partners tokenized around US $260 million in four private real-estate and debt transactions, beginning with a building occupied by WeWork in downtown Miami.
Last year, Templum Markets sold a security token that represented shares in a resort, accepting US dollars, Bitcoin and Ether. Besides real estate, companies like UK-based Nivaura have explored the option of token-based debt and capital, which allows trading in secondary markets in fully regulated contexts.
Glatz commented that they had undergone this process with regulators to avoid restrictions. He said that projects are either limited by the minimum amount of investment or by the number of investors.
Compliance Challenges
The Fundament token will be backed by five separate construction projects, three in Hamburg, one in Frankfurt and one in the university town of Jena. The portfolio includes residential, commercial and hotel properties, with a total of 63,000 square meters after completion. The company projects a return on projects between 5% and 9%.
Glatz explained that to comply with the Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) regulations, IDnow will verify the identity of potential token buyers. On average, the seller’s process takes three minutes before the user can buy the tokens.
According to Robin Matzke, another co-founder of Fundament, they will not use an investment bank, but will distribute the assets directly to reduce issuance costs and increase return to investors.
Buyers can pay tokens with Bitcoin, Ether, US dollars or euros. For those paying with fiat currencies, the tokens will be delivered in a cold wallet.
It was hard to adjust the project within the MiFID II structure, a European regulatory framework that was originally written for other purposes.
Matzke said that the startup, delivered in December 2018, was approved last week after about seven months of work. He noted that every two or three weeks regulators return them twenty pages with information that should be changed, which results in a kind of book.
Fortunately, fundament founders had the support of experts in legal and technical matters.
By Willmen Blanco
