Bitbond is conducting the first-ever STO in Germany. The outcome will mark a key milestone for the future of STOs, in Germany but also in the whole of Europe.
Bitbond, based in Berlin, has launched its STO on last Monday, 11th of March. The first Security Token Offering (STO) in Germany raised €1m on the first day. The token sale will continue until the firm has reached the hard cap of €100m, or otherwise, it will end on the 10th of May.
Digital lender issues digital bond
Bitbond GmbH is a crypto lender issuing Bitcoin loans. A company representative said the firm is currently facilitating more than €1m in lending every month.
During the STO, Bitbond issues a digital bond – as the name already suggests. Token holders will receive 1 percent interest on their invested capital every quarter; a fixed yield of 4 percent per year.
Additionally, buyers will receive a variable annual coupon payout. The total variable payout will be equivalent to 60 percent of Bitbond GmbH’s profits – if any. Thus, the variable coupon will be based on the performance of the underlying loan portfolio and therefore may vary, says Bitbond.
Both, the fixed quarterly payouts as well as the variable annual payout will continue for ten years in a row. Then the token matures and will be paid back at its face value of €1 per token.
All interest payments, as well as the redemption of the tokens at maturity, will be made in Stellar Lumens (XLM). Hence, Bitbond will convert the euro sum due to the corresponding quantity of XLM at the day of payment, and then transfer the funds to the investor’s Stellar wallet.
4 rounds; soft cap at €3m; hard cap at €100m
Bitbond’s STO is the first legally compliant STO in Germany. The German financial markets regulator “Bundesanstalt für Finanzdienstleistungsaufsicht” (BaFin) has approved the prospectus which also complies with the European Prospectus Directive.
The STO has a hard cap of €100m and a soft cap of €3m. Investors can use either Bitcoin, Ether, Stellar Lumens or Euros to buy tokens. The token sale has a worldwide reach, but residents from the US and Canada are restricted.
Bitbond issues tokens in four rounds.
- 1st round: Tokens sell at a 10 percent discount, priced at €0.90 per token, until 8th April or up to €3m.
- 2nd round: Tokens sell at a 5 percent discount, priced at €0.95 per token, until 15th April or up to €5m.
- 3rd round: Tokens sell at a 3 percent discount, priced at €0.97 per token, until 22nd April or up to €9m.
- 4th round: Tokens sell at the full price of €1.00 per token, until 10th May, or up to €100m.
The issuer of the token is Bitbond Finance GmbH, a company owned by Bitbond GmbH. It’s common practice to form a separate company – a so-called Special Purpose Vehicle (SPV) – when conducting an STO. That’s to keep any risks associated with the fundraising separate from the core business and to pool all investors together in one single legal entity.
Smart contract allocates tokens directly to investors’ Stellar wallets
The bond is tokenized on the Stellar blockchain and issued directly to the investor. Smart contracts allocate the tokens to the investor’s Stellar wallet, without a depositary bank, certificates or coupons and intermediaries.
On the contrary to what happens during traditional bond issuances, subscribers do not have to pay any commission, premium or agio. As a result, costs are significantly lower.
“To provide the best possible experience, Germany’s first security token will be issued on the Stellar blockchain,” says Bitbond on their landing page.
“With a processing capacity of over 1,000 transactions per second, transaction costs at a fraction of a cent, a built-in decentralized exchange and a global network of active partners using the platform, Stellar is one of the most efficient blockchains for payment processing and token issuance.”
Stellar enables the sale and transfer of the full ownership of the token, not just ancillary rights. The investor agrees with the prospectus to refrain from pledging the tokens outside of the stellar blockchain. This clause is necessary to avoid a conflict of interest between the technical practicalities of blockchain-based asset tokenization and civil contract law, which allows for pledging securities to third parties.
A milestone for Germany as Europe’s digital financial marketplace
Bitbond is off to a good start. The firm raised €1m on the first day of its STO. On the second day, the company said they were close to €2m.
As this is the first time a digital security is issued to fiat investors, it’s hard to predict the outcome. However, from an investor’s point of view, a fixed yield of 4 percent plus a variable rate is a promising return in an environment of zero and even negative interest rates.
It will also be interesting to watch how Bitbond may set a precedent for STOs in Germany, but also Europe-wide. The country is ideally positioned to become a frontrunner in digital assets. Frankfurt’s banking infrastructure is world-class, and Berlin has established itself as a FinTech hub.
Considering that London will undoubtedly fall behind in the wake of Brexit, and countries like Switzerland are too small to compete with Europe’s economic powerhouse, Germany could seize the day and become Europe’s leading digital financial marketplace. Thus, the Bitbond STO could be the first of many success stories.