Earlier this week, Germany’s Federal Financial Supervisory Authority (BaFin) approved an Ethereum-based bond offering from real estate startup Fundament. The $280 million (€250 million) bond is the first major tokenized security approved by an E.U. country. BaFin’s seal of approval means that the bond can be offered to normal retail investors, a class of investors normally prevented from participating in such offerings.
While token-backed bonds are nothing new, most regulators view them as high-risk investments, and limit their availability to so-called “sophisticated” investors (people with a high net worth and previous high-risk investment experience). By approving the Fundament bond, BaFin is opening the door to a much larger class of less-wealthy, less-experienced investors. Investors can purchase the ERC-20 tokens exactly as they would any other stock or security, including through traditional brokerages.
“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,” Fundament Group co-founder explained in a recent interview with CoinDesk. “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.”
Fundament plans to use the funds raised by the token sale to complete five separate construction projects in the German cities of Hamburg, Frankfurt, and Jena. These projects are also somewhat diversified, including residential, commercial, and hotel properties. As part of their arrangement with BaFin, Fundament will comply with international know-your-customer (KYC) and anti-money-laundering (AML) rules, tracking and verifying token buyers using the IDnow platform. Fundament will also directly manage the distribution of their yet-to-be-named token in an effort to keep overhead costs low.
The implications of BaFin’s blockchain-bond approval could be far reaching, as other E.U. member states tend to follow Germany’s lead on financial matters. Should Fundament’s new bond generate significant interest, it could result in a tidal wave of new cryto-backed bond applications. This could potentially spark the same kind of excitement that created the 2017-2018 ICO boom, only with the added potential upside for such bonds to be sold through standard financial institutions.