The German Federal Financial Supervisory Authority (BaFin) approved an Ethereum-based real estate bond of security issuance firm Fundament Group. The company announced the news in a press release on July 23.
Regulated real estate bonds on the Ethereum blockchain
The given bond backed by a portfolio of properties in major German cities with an issued volume of 250 million euros ($280 million). The firm’s solution reportedly leverages standardized and regulated financial instruments to build a real estate-backed asset that can be traded worldwide independently of banks.
Providing liquidity to real estate investments through tokenization
The company hopes that the project will bring more liquidity into the traditionally illiquid real estate market. Furthermore, this is also reportedly the first BaFin-approved real estate backed security token. Fundament Group co-founder Florian Glatz commented on the development, saying:
“As the first company to receive approval from the German Financial Market Authority for a blockchain-based real estate bond, we are excited to enter the sales process for the Real Estate Security Token, while already preparing the tokenization of other highly attractive assets.”
The company allegedly allows its customers to withdraw and deposit funds in Ether (ETH) and euros. Lastly, the release specifies that the firm focuses on properties located in major urban centers in Germany, including Berlin, Hamburg, Rostock, Jena and Fulda.
German authorities also showed openness towards blockchain and cryptocurrency. In a recent statement, the central bank noted that the potential benefits of Facebook’s Libra should not be suppressed despite regulatory uncertainty and potential risks.
Fundament’s 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, including residential, commercial and hotel properties, would total more than 680,000 square feet upon completion. The company projects a return on the projects in the mid-to high single digits.
“Holding a token enshrines a legal claim of the holder against the issuer of the bond to pay them an annual dividend of around 4-8 percent, and obviously once the run time of the fund is over and there is an exit, then the token holders get the complete value that was within this fund,” Glatz said.
To comply with know-your-customer (KYC) and anti-money-laundering (AML) regulations, IDnow will verify prospective token buyers’ identities. The vendor’s process takes three minutes on average before a user can purchase tokens, Glatz said.
Fundament will not use an investment bank but will distribute the securities itself to lower issuance costs and increase returns for investors, said Robin Matzke, another Fundament co-founder.
Buyers can pay for their tokens with bitcoin, ether, U.S. dollars or euros. For those who pay fiat, Fundament says it will deliver the tokens on a hardware device.
Fitting the project within the strictures of MiFID II – a European regulatory framework that was drafted with other things in mind – was a challenge.
“We handed in the prospectus in December 2018 and got approval last week. So it was 6 or 7 months of work,” said Matzke. “Every two or threee weeks you get 20 pages back from the regulator of things you have to change, and so on, back and forth over a period of months and it ends up being like a book. Ours has close to 100 pages.”
It would have been impossible if the founding team had not comprised so many legal as well as technical experts; in other words, they didn’t have to spend a lot on lawyers’ fees because they are lawyers.
“We saved on that big time,” Matzke said.