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In spring 2019 we issued our tokenized bond and with that, we established tokenized securities in Germany.Radoslav Albrecht, Founder and CEO of Bitbond
Media Partnership
This podcast is in media partnership with the Crypto Assets Conference, an event taking place each year in spring and autumn in Frankfurt, organized by the Frankfurt School of Finance and Management and their Blockchain Center.
You can learn more about the conference here: https://www.crypto-assets-conference.de/
You can learn more about Philipp Sandner, head of the Blockchain Center in our interview with him here: https://www.startuprad.io/blog/the-german-bill-to-permit-crypto-securities/
What we are most interested in is to speak to companies, who are interested in tokenization. … to partner up with Bitbond to enhance their tokenization capabilitiesRadoslav Albrecht, Founder and CEO of Bitbond
The Founder
We interview Radoslav Albrecht, the founder, and CEO of Berlin-based tokenization Fintech Bitbond. Radoslav has been an intern at investment boutique Greenhill & Co, he was a consultant with German strategy consultants Roland Berger and was in Sales for Structured Products at Deutsche Bank in London. He started out in capital markets during 2008 when the financial crisis broke.
His time as a strategy consultant led him also to work in Nigeria, which he thought of as a great experience.
We issued the first tokenized security in Germany with [regulatory] approval in spring of 2019… this was a great milestone for security markets in Germany and Europe.Radoslav Albrecht, Founder and CEO of Bitbond
The Startup
Berlin-based Bitbond pivoted since inception. They originally started out as an SME lending platform — which was a hot topic at the time. They brokered loans to SMEs on an international basis, e.g., getting a client from Germany a loan from a Spanish bank. The business model did not deliver the margin they wanted, and their breakeven was too far in the future, so they pivoted.
Company Website https://www.bitbond.com/
Bitbond started out with the business model of an SME lending platform.Radoslav Albrecht, Founder and CEO of Bitbond
Germany’s first regulated Security Token Offering (STO)
In 2019 the team around Radoslav saw a strong move towards tokenization in capital markets. So they helped to issue the first regulated Security Token (STO) in Germany in spring of 2019, with the knowledge they accumulated before (https://www.wiwo.de/finanzen/geldanlage/bitbond-sto-das-erste-wertpapier-in-der-blockchain/24121104.html). They were the first of more than 130 companies, attempting to do the same.
In the early days of Bitbond we utilized Bitcoin as a payment rail. We used Bitcoin to get money efficiently from A to B.Radoslav Albrecht, Founder and CEO of Bitbond
Venture Capital Funding
Bitbond is open to talking to new investors, with a good strategic fit. They are looking to speed up there going to market approach.
The Video Interview is set to go live on January 8th, 2021 17.00 CET
The Audio Interview
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Further Readings / Additional Resources
Sepa https://en.wikipedia.org/wiki/Single_Euro_Payments_Area
Exchange Rate Fluctuations https://www.investopedia.com/ask/answers/08/how-often-to-exchange-rates-fluctuate.asp#:~:text=Exchange%20rates%20float%20freely%20against,of%20that%20currency%20will%20increase.
Bafin https://en.wikipedia.org/wiki/Federal_Financial_Supervisory_Authority
Custodian https://www.investopedia.com/terms/c/custodian.asp
Global Custodian https://en.wikipedia.org/wiki/Global_Custodian
Fungibility https://www.investopedia.com/terms/f/fungibility.asp#:~:text=Fungibility%20is%20the%20ability%20of,equal%20value%20between%20the%20assets.
Secondary Market https://en.wikipedia.org/wiki/Secondary_market#:~:text=The%20secondary%20market%2C%20also%20called,futures%20are%20bought%20and%20sold.
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The Interviewer
This interview was conducted by Jörn “Joe” Menninger, startup scout, founder and host of Startuprad.io. Reach out to him:
Automated Transcript
Intro
[0:00] Music.
[0:08] That I owe you were podcast and YouTube blog covering the German.
[0:13] Music.
[0:19] Hello and welcome everybody happy New Year guys may 2021 be better than 20/20,hello and welcome everybody this is Joe from celebrate that I all yours.Podcast and YouTube blog from Germany this recording is in media partnership with the crypto asset conference 2020,and yes the conference is already over butthere will be another one coming up in 2021 go down here in the show notes and check out their websitealso the organizer is Philip Santana professor at Frankfurt School of Management and finance and head off its blockchain Institute you can learn more about him and the upcominglaw that permits tokenizes ation of.Financial Assets in Germany go down here in the show notes and there you will find the link that said I got another guy here who is,actually working on tokenization of financial assets hey rather’s love welcome.Hi thanks so much for having me and happy New Year from my side as well.
The Founder
[1:31] That feels a little bit funny because we are recording this end of November but I told him I make my planning that’s a publication date and that’s why we have to say Happy New Year and your clan 2020 is over.
[1:45] Well personally and also business-wise it has actually been a good year.But of course with the whole Corner situation I hope that overall things are going to improve and I hope that 2021 on a micro level will be a better year than 20/20.Ha there is the straightest speaking on a macro level let’s get a little bit into what you are,actually doing as always we have linked your LinkedIn profile down here in the show notes wherever you listening to this or watching this there is a link to our,post and in the blog post there is a link to your LinkedIn profile so people can see for example that you worked with Green Hill,Co in the past this is a small investment back what did you actually do there.
[2:38] So I was an analyst intern and I was working on m&a transactions,mostly mergers and Acquisitions in the chemicals industry because this is one sector where Greenhill in Germany is particularly strong at and I learned a lot of skills around Financial modeling.Cash flow analysis that a lot of market analysis so this was like one of my first career steps and like one of my first real internships that I did.Hmm I’m a little bit childish and first thing in my mind that went up,how much is in the chemical industry and if it doesn’t work out it goes boom do,you’re laughing in the background but people cannot see or hear it and you then went on to actually work full-time andyour positions included position withhole and Backer a German strategy Consulting Company competitor to let’s say BCG Bane and mackynzie and you’ve also been a Trader.Deutsche Bank tell us a little bit about what you do there what you learnt there and how it brought you to your current position.
[3:53] So it don’t you bank I was and Structured Products sales for institutional clients I.Governor because I didn’t year abroad while I was at University I went to University of Warwick and I did a course on financial derivatives and I got super excited about the field.
[4:13] And so towards the end of my studies I applied to Deutsche Bank.And I was at a workshop in Frankfort and my group actually has won a competition that they did as a part of the workshop and then they offered me a role at this desk in London.And I thought that was a great opportunity funny thing was I started at the beginning of the year 2008 which was a pretty difficult time in financial markets and particularly in Structured Products.Because the financial crisis was approaching its peak.So on the one hand I learnt a lot of things about derivatives about Structured Products of course but on the other hand I also learnt what kind of an impact,a financial crisis like the one that we have showing seen in 2007–2008 can have on bulge bracket Banks such as Deutsche Bank.And after that I decided to move on in my career and to go into management consulting because I felt like I would like to have a broader perspective on business on companies or management.And I felt like Consulting is a good way to do that.And so I started at hold on Baga as a consultant and I was advising all different types of companies from automobile suppliers.Two.
[5:36] Um mental processing companies and also a lot of banks so having a financial services background of course I was staffed on a lot of banging related projects,both in Europe and also in Western Africa for example I was participating in a post-merger integration of two Nigerian Banks,which was a great experience and definitely not your ordinary Consulting project,and all of these experiences made me think that you know at some point I would like to start my own business within the financial services space and so that’s how things evolved into becoming an entrepreneur.
[6:15] Post-match integration in Western Africa that sounds pretty interesting then.Wet with it actually happened at you.Decided to read to take the step to take the leap of faith and start bitbond we’ve been in the past did the funniestthing was that an AI startup that we just interviewed was drinking some wine and then they decided they do an AI wind recommendation.Tool.Which kind of has some relations to the real economy but how did you get started with bitbond because.Do you understand he pivoted and in the beginning the the idea was pretty different right.
The Startup
[7:06] Yes so bitbond started out with a business model of being an SME lending platform so we’re brokering loans for small and medium-sized Enterprises.And we did that on an international level.So most of the SME financing companies one the relatively large one that’s still up and running for example as I woke up or funding Circle.They focus on providing credit to smes and one maybe two or three countries.And what we started out with was an international platform because I felt like there’s a lot of Emerging Market opportunities are out there,and wants to create a long marketplace where someone from Germany could fund a loan in Spain for example,and in order to achieve that we were looking for efficient methods for payment processing.Because when you do cross-border payments especially when you go outside of the European separate region and payments become relatively expensive and take a long time to be processed.
[8:11] And so we discovered that we could use blockchain and cryptocurrencies to do that and so in the early days of bitbond we actually utilized Bitcoin as a payment rails.And even though the loans were denominated in Euros or in dollars.We use Bitcoin to get money efficiently from A to B and with that we gained a lot of experience and utilizing blockchain and general as a payment method,of course at some point we developed everything further it’s someone we moved away from using Bitcoin to a Euro denominated stable coin called Euro tea,for payment processing so that you don’t have an exchange rate fluctuation during the settlement time,um we established a highly automated credit scoring mechanism but overall this business model,did not deliver the margins that we were expecting so the path to profitability was still too far away and we were struggling with relatively High customer acquisition costs.And then at the same time we saw that there is a strong movement towards tokenizes ation in the marketand I since I had a strong Capital markets background I said well let’s try to take that as an opportunity let’s take the expertise that we havelet’s first of all try to issue a tokenizes Acuity ourselves,um which we’ve done in 2019 and then the new business model starts to evolve.
[9:40] What first of course a CPI is single European pavement area and since not everybody has a backgroundin financial markets or Capital markets the exchange rate fluctuation is the dailychange between for example Euro and u.s. dollar and the daily fluctuations there are on the level a normal user or vacationer like you and me would never realize but if you talking about likechameleon hundred millions then they really take effect so.That said I was wondering at this point you already had investors how did you sell them on changing your business model but was.What was the thing because when I.Talked for example with Claude from book a tiger he said some things about that and I would be interested on your perspective as well.
[10:45] Yes oh how I investors we were having a lot of discussions about that and of course and about the potential change of our business model.
[10:54] But ultimately we agreed that the SME lending model.Doesn’t deliver the results that we were hoping for generally and when we started bitbond as an SME lending platform there were plenty of other companies going into online Lending,um but it is,proven that you know not all of them turned out to be very successful and there was just some aspects around the business model that have turned out to be more difficult than we originally thought,which you know this is something that can happen when you start you know early stage Venture and the good thing was that we already had a new business model because when we issued the first tokenizes,Security in Germany in 2019 which received Bachman approval.We did something that was quite a big milestone and capital markets in Germany and in Europe and we were approached by a lot of companies whether we would share our technology and our expertise around tokenizes securities,so we had already inbound requests from B2B customers about the software that we built for our own issues and therefore the decision,to switch the business model wasn’t as difficult as if we did not really know whether there was a market for what we were trying to build.So we were kind of in the relatively favorable situation that we already knew that there is a market for a new product so it was easier to make that decision.
[12:23] I assume this conviction that there is an actual Market you used some tools on some Market size estimation some interview of potential customersand then got it all together and presented it to your investors.
[12:43] Yes we did that so we did research but when signing on actual clients as well so and that’s normally one of the strongest signals that you can have.Of course it’s not representative right when you sign on to three or four clients it doesn’t immediately give you an idea about the total Market size.But the fact that you have inbound requests and.Pretty much every potential client at to speak with us interested in the topic is one very strong signal and then the other thing that we did was a more research related part,of course we’re not you know how many banks are there in Germany and Europe how many of them do have a capital markets related business orbusiness line and what our expectations into what types of assets are going to be tokenized in the near future and,this taken together we saw for example is over 6,000 banks in Europe alone most of them touch Capital markets products and some way or the other,Ida is an arranger for corporate issues or in their wealth management business for theclients that they have in both management and so we saw that there’s goodyoung material and good data on a pretty sizable market and then also of course enforced and and strengthens us in your opinion that this is a business model that we wanted to go after.
[14:10] Hmm and then you started with bitbond.What was actually the first you briefly mentioned your you first tokenization.Can we talk about that and thenlike a little bit more general what you could do with your platform because this is a B2B podcast and I’m sure the idea would tickle the ears of some of our listeners or the eyes of some of the viewers.
Germanys First Regulated Sto
[14:44] Yeah so when we saw,that’s tokenizes ation was becoming a real phenomenon and this was happening during the big ice Co wave of 2016 2017,we were expecting that this will move to the more regulated segment of the market at some point and.On the one hand there are huge technical advantages and efficiency gains from tokenizes the proof of ownership and the financial asset instead of having a paper certificate.But we knew that we needs to make it compatible to the regulated world,and so we have drafted a legal concept that we approached the regulator with boffin and Germany and we reach the conclusion as to how a as it’s called a dematerialized securitywhich is a security that doesn’t have an underlying,paper certificate but the truly exists as a digital token how they could be issued under the current legal framework so even before the electronic Securities act that you recently discussed with Philips unknown.And when we had that concept we then drafted the proper Securities prospectus.Submitted that to boffin for approval and in January 2019 we’re going to fortunate situation to have it approved.And we were the first out of over 130 companies that were attempting to do something similar but they’ve got rejected by the.
[16:10] And so in mixed 2019 we issued our tokenizes bonds and what that we established tokenizes Securities in Germany.
[16:20] And then from there we took it and started to create software that allows Banks and other financial intermediaries and issues,to issue tokenizes Securities and that’s pretty much token minting and lifecycle management of securities,and then there is a second component which is custody when you have institutional investors also retail investorsthey typically want to have a custody solution and so we develop their Tech stack to provide Banks and other intermediaries with the software so that they can provide custody services to their customers.
[16:57] We may also for people without Financial background,at custody used to be somebody with a big bolt and they just lock up your paper based Securities there now it is more of a.
[17:14] Simplification because many yearslarge companies out there they have all their Holdings all across the world and it work with one or several Global custodians and they always canalways pinpoint where is my security right now if it’s the physical or digital who holds it for me how did Ihow do I get my dividend payments or my interest payments from there and have like one layer to kind of for counting and controlling purposesas well and that’s what they’ve been looking for I assume as well.
[17:52] Yes definitely because.When what’s up with digital tokens you have the option to do something as called self custody so I could have a digital wallet on my phone where I can stop it kannada cryptocurrencies,but where I could equally so tokenized securities.
[18:12] How about the big majority of investors both retail and institutional they will want someone else to Safe Keep Their assets,just like we only keep a certain amount of cash in our Wallace 50 euros a hundred euros if we have more money will typically bring it to the bank.And the bank is the custodian of my cash.Because I don’t want to have a thousand 5000 Euros under my pillow because it’s simply more secure when I bring it to the bank,and so the same is true for Securities and other Financial assets when I have substantial value in them I want someone else to take care of these assets.As a custodian because I trust them or that they have a very professional security setup.And so when I do that and I when I you know when my bank offers me custody services and I deposit my tokenizes accurate he’s with them.Then on top of the storage they also offer me additional services like reporting for examplebecause when I make interest gains in a year I need to report that to the tax authorities alongside my tax returns and so the bank would for example provide me with a tax statementum and so these are things that custodians also take care of and so there are add-on services on top of just the storage part.
[19:30] And we may also add why you actually chose.Bonds for your talk for your first tokenization and you research because for most people Securities is just Equity like shares.
[19:50] Yes so security is we understand it as a general term,for all types of assets that are fungible because fungibility is one of the Core Concepts of a security fungibility means that it doesn’t matter what I own.The first part of the second or the third one of the BMW share for example write all of them are the same and I can interchange them.And they are fungible because I can easily trade them in a what’s called secondary market so I can trade them with other parties.And those are the core features of a security but whether the underlying instrumentis a as an equity or is is a bond or this even a fun for example ETFs are exchange traded funds which are pretty much Securities as well that doesn’t really matter.And the reason we chose the bond for our initial and first issuance was thattokenizes Equity under the current regulatory framework is much much more difficult than tokenizes bonds.
[20:55] This is going to change though because the German government released its blockchain strategy and 2019 and their it stated that.They will make it possible for a market to reshoot organized bonds of all types of forms.Plus at a later point that will also change the financial regulation so that’s tokenizes Equity like your common stock,can also be tokenized so this is something that small thing of the future but is definitely going to come.And we also have to discuss that bonds have many more characteristics.Then fix up our equity for example one chair in BMW as you said is equal to any other but BMW for example they issue bonds likefive for five years and then they repaid for 10 years and then they repaid some of them will be a little bit higher in yield some of them a little bit lowerdepending on the market some of them will be in British pounds of them and US Dollars and so on and so forth and you start to see how just one big company can have severalissuance has out in bonds.
[22:09] And that makes the administrative burden pretty high because when you have a bond you have to pay interest and you always have to know where the people you have to pay the interest to it and so on and so forth so there’s a lotin complication in the company that issues the bond and somebody has to handle it and of course it’s always better when you digitize it and just have to.Press a button right exactly so Payment Processing as an examples One Core topic that becomes much more efficient with tokenizes ation,because in a conventional bond for example you would work with a party that’s called the paying a.Paying agent at the end of the day is a bank that will collect the interest.From the issue so from the if we stick with the BMW example BMW has to pay interest on one of their outstanding bonds.The paying agent will collect the entire amount and then distribute that to the bondholders and that’s a service that’s actually relatively.
[23:09] But with the help of the blockchain and with the help of tokenizes ation you can completely automate that service.And you pretty much don’t need that paying agent anymore so BMW has an issue which is typically paying for the paying agent services.I would not need that Services anymore and could save the money for it plus,the investors would even get their money faster because the payment processing normally takes several days and when the tokenizes the world when you have a digital Euro for example you can do that with a click of a button.That is pretty cool and if I would be a pain.A payment agent I would be thrilled to hear this interview he’s smiling but he cannot see it.Now we understand a little bit what you guys are offering whatbond is and at least we see you can smile pretty nicely that said what he guys are actually looking for like investors like additional clients like International expansions what are the next pants on what you guys are looking for.
[24:15] So first of all obviously what wants to do is we see ourselves as a market leaderin the tokenizes ation space today but we’re not the only companywith tokenizes in software and our goal is to expand our market shareprobably just like any other company so what we’re most interested in is to speak to companies that are interested in tokenizes ation that are interested to partner up with companies like bitbond in order to establish their owntokenizes ation capabilities with the help of our software and we’re primarily focused on Banks and Financial intermediaries.One question could catch any company approached you would like from the yes from Japan or do you have legal restrictions there.
[25:04] So in theory that technology works pretty much the same way across the globe and we already do have clients from outside of Germanyfor example we’re currently working on a project and Southeast Asia in order to tokenizes parent bonds so the technology is,pretty much the same with almost no changes therefore it’s open to clients from outside of Germany.
[25:37] Yes some general as a tech company CEO you’re probably always interested to talk to investors.Because there has to be a good strategic fit it’s important to us that investors have a good understanding of the business model.And that their share in our vision but the good thing is we’re in a market that is growing extremely fast because this Market is just being built right now,and therefore you know external funding can always help up help to speed up the go-to-market approach therefore yes someone is interested in this type of business model very happy to talk to them on an yeah as an investor.
[26:13] And everybody would like to reach out to you or learn more go down here in the show notes wherever you’re listening to this or watching this there’s a link to our blog post and then you will not only find a link.Bunt but also as well to you as to your personalLinkedIn profile so people can reach out to you directly we are now recording close to 30 minutes and I just want to say becauseit’s a Friday afternoon you especially make time for us thank you very much greatly appreciated.It was pleasure talking to you hope to have you backis sometime in the future and keep in mind guys if you like to meet more companies like this one go down here in the show notes and check out the next cryptocurrency crypto assets.
[27:06] Conference in Frankfurt thank you very much was a pleasure talking to you it is a matcha it’s been a pleasure to be on the show.
[27:18] Music.
[27:25] Interviews at www.starballroomdancestudio.com.
[27:30] Music.
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