We interviewed Radko Albrecht, CEO of Bitbond to understand how they are leading innovation with Germany's First Security Token Offering.
How does Bitbond work?
Bitbond is the first truly global marketplace lending platform for small business loans currently originating loans in Europe, the Americas and select African and Asian countries. Since 2013, we enable cross-border lending using blockchain technology for payments and machine learning / cash flow based credit underwriting. Bitbond has its own BaFin license since 2016 and since inception we raised €5 million in equity and originated €13 million in loan volume.
What is a Security Token Offering (STO) and how is regulated?
Security tokens represent securities that are linked to established legal frameworks and business fundamentals. Security tokens are underpinned by real assets, such as equity in a company or as in the case of the Bitbond STO a debt and profit participation. This sets them apart from cryptocurrencies, such as Bitcoin or Ethereum, which are backed by market sentiment.
While ICOs are unregulated offerings, STOs underly securities regulations and have to meet requirements defined by financial authorities. The prospectus of the BB1 token is fully compliant with EU prospectus regulation. This protects investors and reduces risks.
How are you dealing with the crypto crypto volatility and how does it affect you?
We are not affected by the volatility of the cryptocurrencies because when issuing a loan the borrowed amount specified in the contract is indicated in EUR, therefore no matter the price of the Bitcoin, the borrower will have to pay back the initially agreed amount.
What is your target market?
Our ideal target customers are e-commerce businesses due to the possibility to connect, as part of their application, platforms such as Amazon, Ebay, PayPal. However, we are currently working with both online and offline businesses (e.i. restaurants, consultancies, freelancers etc.)
What problem does your startup solve?
Small business around the world have huge difficulties getting a loan from a bank and even if they do the application process and length is very exhausting, especially when the need investment capital as soon as possible.
With Bitbond, borrowers apply conveniently using online data. Our online application takes only 15 minutes and within 24 hours the borrowers receive a personalised rating. The loan can then be paid out and repaid securely via blockchain, integrated with local bank accounts.
What is BaFin and why its approval is important?
BaFin is short for Bundesanstalt für Finanzdienstleistungsaufsicht. It is the German financial regulation authority (similar to FCA in UK or Consob in Italy). Having the BaFin’s official approval for this project is very important for us and a game-changer for the whole industry. BaFin is notorious for being very strict and conservative and therefore we are very proud that BB1 is the first public STO with a prospectus presenting a tokenized bond with a coupon. This means that our token is legally recognized as a security by the European Securities Prospectus Act.
What are the main characteristics of the STO you just launched?
Within our STO we will launch the BB1, a tokenized bond which offers a fixed coupon of 4% p.a. plus the opportunity to participate in 60% of pre-tax profits of Bitbond Finance, the issuer of the token. The variable coupon is based on the investment decisions of Bitbond Finance and the performance of the underlying loan portfolio and therefore may vary. Once the token reaches its maturity (after 10 years) Bitbond Finance will buy all the tokens back, at the initial price of 1€.
We will use the proceeds to either:
- Invest in Bitbond originated loans directly
- Invest in a junior loan which indirectly refinances Bitbond loan origination
- Provide working capital to Bitbond for product improvements
The subscription starts on 11th of March and ends on 10th of May and based on the purchased date as well as the amount of sold tokens there are four different discount tiers.
As underline technology, we picked Stellar over other networks (for example Ethereum or EOS) because its speed, low cost of transactions and simplicity of development.
Why did you decide to launch a STO?
We are putting the marketplace back into marketplace lending. Most other fintech lenders have moved to a fully or near fully institutional investor based approach to fund online lending. Bitbond Finance wants to give this opportunity back to the market.