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It starts: The tokenization of financial products


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Berlin startup Bitbond and Munich bank von der Heydt are cooperating to bring financial products to the blockchain. The initiative looks ahead to how tokenization will change finance. Germany as a location plays a pioneering role.

A few years ago, Germany was still a kind of no-go area as a crypto location. Founding a start-up for Bitcoin or blockchain here threatened to end in an intensive, lengthy and sterile relationship with the supervisory authority, during which the actual company could barely breathe. This has not only changed in recent years, but has turned it upside down. Hardly anything illustrates this better than a joint project by the Berlin startup Bitbond and the Munich bank von der Heydt.

The two companies are working together to bring securitisations and bonds onto a blockchain and at the same time issue a digital, blockchain-based euro. The banking house von der Heydt, which, with a history going back to 1754, is one of the oldest banks in Germany, wants “to offer the largest part of the value chain in the issuance of securitizations and debentures from a single source,” said the press release. This makes the rather small private bank in Munich the first German financial institution to officially announce that it will use the blockchain to transfer values.

From a microcredit marketplace to a token technology provider

This step marks a dramatic change for the bank’s technology partner, Bitbond. The startup actually operated a marketplace for global microcredit through Bitcoin. However, this was a thankless business. According to founder Radoslav Albrecht, it was “difficult to gain access to customers”, while the profits were very small. Therefore, Albrecht took the opportunity when a new business model was more likely to be offered.

“We took on a pioneering role with our Security Token Offering (STO) because we were the first to receive approval from BaFin,” says the managing director, “and we then invested heavily in the technology to achieve this To be more precise, Bitbond has built a system based on the Stellar blockchain to map tokens. For this purpose, Stellar is “the most efficient platform”, which is why all technical solutions that Bitbond brings to the market are also based on Stellar.

During this development, Albrecht realized “that we are solving a few problems that are also interesting for others.” Therefore, it was “looked at early on” to continue marketing this technology. Shortly after the start of the STO, numerous inquiries from banks and other companies were received. The customer demand that Bitbond had to fight hard for with the microcredit marketplace suddenly came almost automatically. Hence Albrecht decided to continue to provide the tokenization technology for other companies. “We have 50 to 60 inquiries. These include projects that don’t suit us, but many have become customers and we still talk to some. ”

Financial products with fewer middlemen

The Heydt bank is not the only company that will use Bitbond’s technology to turn blockchain tokens into values ​​- but it is the first to be publicly known. Maximilian Ludwig from the bank’s business management explains how it came about: “We are a very old bank, but we have always been tech-savvy and have been interested in blockchain for a long time. We looked at various things, but so far we have always decided against it. Until we were won over by the Bitbond solution. ”

The Munich private bank primarily serves institutional customers. Its core business is securitization and bearer bonds. “With these securities, we often had feedback from customers that took too long to be issued and received by investors. Simply because there are too many processes and middlemen between the issuing party and the buyers. ”Such securities are predestined to be tokenized because this significantly streamlines the process and eliminates intermediaries and central securities depositories.

The project is just beginning. At the end of last year, the first phase came to an end, in which the bank set up the storage of stablecoins and tokens. Although the stablecoins are denominated in euros, they should not be put into circulation as digital cash like the tether dollars. Rather, they serve to manage securitisations and bonds. In the second step, which is currently underway, the securitisations should also become tokens that run on the blockchain. The official start of blockchain securities is targeted in early June.

It would be possible for customers to keep the securities on their own wallet. But it is doubtful whether they want it at all and how this can be reconciled with the regulation. The advantage that the bank expects from the tokens is rather the higher speed, the lower costs and the increased transparency of the securities. If intermediaries disappear, this makes the life cycle of a financial product more and more efficient.

Ludwig estimates that such middlemen should put the trend towards tokenization under pressure to innovate – especially since the Munich bank is only the first of a large number of financial institutions that will follow this path. Ludwig is certain that the change in finance has already started, even if larger banks will of course need a lot more time to get involved. “My personal impression is that some banks are open, while others prefer to avoid the topic.”

Good conditions for tokenizing finance in Germany

There are several reasons why this change has become possible and is starting in Germany of all places. “This is a development that started two to three years ago and is now accelerating,” explains Albrecht.

First, there is the trend towards tokens. He started with colored coins on Bitcoin, triggered a hype with questionable results via ICOs on Ethereum and finally ended up with the Security Token (STO) in the regulated waters where banks feel more comfortable. Blockchain technology has separated from cryptocurrencies in this way and has become pure technology. This only makes it interesting for companies such as the Heydt bank. “For us, cryptocurrencies are not relevant. We are concerned with blockchain technology ”.

This technological development was accompanied by a change in awareness in German politics. “The federal government’s blockchain strategy,” says Albrecht, “was a very strong signal that drew the attention of all banks.” The government is encouraging banks to try out the new technology. “After that came the change in the law in the KWG for crypto-custodians. That played a big role. Now financial market companies can start their projects. “

The benevolent regulation was also crucial for the von der Heydt bank. BaFin has not yet responded to the new project, but Ludwig is optimistic. “The fact that cryptocurrencies and technologies are now separating is not the worst for us, because cryptocurrencies are still often used for the purpose of money laundering, which we naturally want to stay away from.” Technical development and regulation go hand in hand here.

With technology providers such as Bitbond, a large, innovative banking landscape and the new laws, Germany has positioned itself for blockchain technology like no other large economy. “You can only find similarly good conditions in Switzerland and Liechtenstein,” says Albrecht. He is convinced that we are on the threshold of a change in finance.

Ludwig estimates that such middlemen should put the trend towards tokenization under pressure to innovate – especially since the Munich bank is only the first of a large number of financial institutions that will follow this path. Ludwig is certain that the change in finance has already started, even if larger banks will of course need a lot more time to get involved. “My personal impression is that some banks are open, while others prefer to avoid the topic.”

“The signals we have indicate very clearly that tokenization is a very rapidly increasing phenomenon. Banks are grappling with this and more and more types of assets are being tokenized. In addition to stocks, these can also be bank loans, receivables and all types of financial instruments, ”says Albrecht. He believes that this will increase competition among banks, and that costs will decrease and speed will increase. “This will certainly also be a challenge for many, but noticeable advantages for the customers.” Tokenization also makes new types of securities conceivable: “There are assets that are only held privately today, such as art values. This can be fractionalized and tokenized in the future. An opening to smaller-scale investment products is also in the offing in the real estate sector. We are already working with a platform for this, klickown.com. “

It took a few years, but the blockchain’s entry into banking and finance appears to be unstoppable. And it looks like German finance will play a key role in this process.

image by Shutterstock

credits: BitcoinBlog.de



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