The next “hot shit“ in the Fintech sky and why it is not worth for everyone
After the Inicial Coin Offering (short: ICO) now comes the Security Token Offering (short: STO). On Monday this week, the release of the first German Security Token Offering (STO) authorized by BaFin started. With BaFin’s permission for digital trading, the German financial supervision is entering unknown territory and an STO is, even for experienced stock exchange speculators uncharted land.
The operator of the first German STO is the Berlin startup Bitbond. This Berlin startup mediates credits to self-employed person and small entrepreneurs. The enterprise around founder Radoslav Albrecht converts money into crypto currencies. That has the advantage that the receiver has the money fast and this can then be exchanged locally into national currency. For an enterprise which over the last years has developed such crypto expertise, who the decision of a digital capital raising was thus obvious.
Many ICOs were bare fraud
But where is the difference to the classic ICO and when is an STO interesting? The differences are large: in its classical form, the ICO is primarily a method of obtaining pre-financing for product development.
Many ICOs of the past have worked in such a way that companies have issued a coin that is used as a payment method on a payment platform. In addition, ICOs simply have an image problem. In the past, they weren’t completely uncontroversial. “In the worst sense, there was a lot of uncontrolled growth,” says Bitbond founder Radoslav Albrecht.
Around 80 percent of all ICOs in 2017 turned out to be fraud, estimates ICO consulting firm Satis in a study conducted in the summer of 2018. After a veritable boom in 2017, entrepreneurs and investors now seem to have lost a little interest in this form of financing. The air is out!
And now the so-called Security Token Offering (STO). Even internationally, the STO is still a relatively unknown instrument for borrowing money. So the interest in the step Bitbond dares to take is all the greater. Ultimately, the STO is a classic security, which takes place on a new technological platform, without an intermediary and therefore much cheaper. It is particularly suitable for small companies and is therefore a suitable form of financing. STO advantage: The securities issue always has a securities prospectus in which the rights and obligations of the investors are very transparent and clear. “Our prospectus alone has more than 80 pages,” Albrecht reveals, and sees the detailed elaboration as one of the main reasons why BaFin has now approved an STO for the first time. Bitbond primarily wants to use the collected capital to finance loans from small businesses.
Bitbond pioneer for further STOs?
At first, the approval was by no means a matter of course. The financial supervision had, for a long time, observed the world of virtual financing rounds from a critical distance. 130 companies have knocked on the door of Bafin for such projects, but have so far received, in the best-case scenario, a lack of competence letter.
Bitbond went a different way and got on board with BaFin early. For six months the basic procedure was discussed, and legal questions debated. Although this was a lengthy process, Albrecht now feels like a kind of pioneer.
“We have managed to get a securities prospectus approved for a token. Subsequent, it will help similar concepts in the future.
“We are a kind of precedent,” the founder believes. With this authorization, BaFin is sending an important signal for the financial technology site Germany and beyond its borders. After all, it would have been expected that small countries like Liechtenstein, Switzerland or Estonia with an affinity to financial technology would lead the way with innovative models.
At the present time, there are already companies that have also announced their intention to carry out Security Token Offerings (STOs). These include the cashlink makers with their blockchain platform Stokera, as well as the Berlin blockchain startup Bitwala, which launched a fully regulated blockchain bank account at the end of last year.
“I’m sure we’ll see a lot more STOs in the future,” says Albrecht. In his estimation, the development will go quite fast. “In a few years at the latest, we will see token offerings in the three-digit millions.”
Banks must be careful not to oversleep the trend
And what does this development mean for traditional banks? If banks want to earn money in the capital market sector in the future, they will have to have an offer in their portfolio within a few years, the latest. In the case of relevant issue volumes, STOs offer considerable sales potential.
“Banks must have a corresponding offer in their portfolios in the near future.”
Only banks that occupy this area quickly enough will profit and then have to hold their own against innovative pioneers such as Solarisbank, which is already accompanying the Bitbond STO.
“The banks have already understood that the Fintech sector is very active and developing rapidly,” says the founder, “and if they don’t fill certain positions in time, they will miss out on an important deal.” The only question is: are local banks fast enough? Even foreign banks do not sleep and try to enter this market. It is not for nothing, for example, that the Spanish BBVA has a stake in Solarisbank, which, with its approach, is trying out new approaches of raising capital.