Fundament Group Receives Approval to Sell Real Estate Bond
The cryptocurrency community is still digesting the news that SEC has approved BlockStack & YouNow for the selling and purchasing of security tokens for retail clients. The Fundament Group, a German Startup Brokerage also received approval to sell the first blockchain-enabled real estate bond to institutional investors & retail clients worldwide. The support for Fundament came from the German Financial Market Supervisory Authority.
Fundament launched out of Germany with a $280 Million Tokenized Bond Offering, this bond will be maintained on Ethereum’s blockchain network and will be back by large real estate investment firms across Germany. This tokenized bond has the potential to confirm that the standards of ERC-20, and that the digital coin can be maintained worldwide.
Five construction projects in Germany are backing the real estate tokenized bond. Three projects are in Hamburg, one in is Frankfurt, and the other is in Jena. The portfolio for this bond will include hotel properties, residential homes and commercial buildings. When all is said & done, more than 680 thousand square feet will be built in conjunction with the $280 Million Bond. The Fundament Group has estimated that a dividend of 4% to 7% will be returned to investors by the end of July & the annual dividend will end in 2033. At the end of 2033, Investors will receive the full amount of their initial investment back and then have the option to purchase shares or more dividends into a fiat currency. This payout model is expected to thrive the demand of this token, increasing its value over time.
The ICO Returns
The significant difference between this offering from the Fundament Group & any other tokenized real estate projects is that this $280 Million offering is available to individual investors without a minimum purchase cap. This has allowed for Fundament to recapture the spirit of an initial coin offering, which has been lost for the last twelve months. In summer of 2018, regulatory pushback against cryptocurrency-related real estate projects caused for ICO’s to become less favourable and for Security Token Offerings to become the new norm. However, the STO is typically made available only to institutional traders and accredited investors. The Fundament Group bringing back the initial coin offering could mark a significant shift coming to the cryptocurrency real estate market.
When asked how the Fundament Group feels about their initial coin offering being available on Ethereum, the Co-Founder of the company, Florian Glatz stated: “We are very proud of that the tokens are going to be living and breathing the free air of the public Ethereum network.”
There is a flip side to being on the Ethereum network. It increases the degree of risk involved with the ICO. The potential for criminal activity relating to the coin doubles. However, Ethereum focuses on security, which should provide a certain level of safety to the $280 Million ICO.
The American Way
The United States Securities & Exchange Commission requires that the Fundament Group implement a “Know Your Customer” protocol. This way, SEC is aware of everybody who purchased a token through Ethereum, from Fundament. This protocol is required as currently there aren’t any restrictions on this coin offering, including on transferability. Investors in the United States, Iran and Australia cannot access this real estate bond due to jurisdiction issues.
The German Financial Market Supervisory Authority required that the United States be blacklisted for this offering, or else the Fundament Group wouldn’t receive approval. Should either the German or US regulator find that Fundament is selling tokens to clients in America, then significant fines will ensue. Considering that the cryptocurrency industry in the United States is in a state of flux, disobeying the rules enacted by the GFMSA could be detrimental to the real estate project, the coin offering and the future of Fundament. The company wants to provide its services in the US when the market has become regulated.
The Security of Clients
The biggest problem facing Fundament with their $280 Million Real Estate Coin Offering is security. The potential for the credential of clients being stolen and their funds being accessed illegally are all too real. When clients want complete control over their funds, then Fundament or Ethereum cannot be held responsible. After purchasing the coin, it’s up to the responsibility of clients to protect their funds. This is how the Co-Found of Fundament Feels, as Florian stated: “In principle what we want is to allow the full benefit of the blockchain to shine, which is that investors are themselves responsible for the custody of the token…If they lose them, in principle, it is their problem.”
Florian did note that if investors or clients can prove their identity and that funds were stolen from accounts; the coins will be replenished. The coins won’t be replaced all at once, but instead over a prolonged period with dividends. When enough dividends are collected to match the funds lost, Fundament will stop funding accounts with new dividends. However, Florian didn’t notice Forbes Magazine or clients as to how they’ll be able to prove their identity with Fundament. This has always been a challenging issue in the cryptocurrency and blockchain industries. In most jurisdictions, there isn’t any legislation that requires brokerages like Fundament to advertise Fund Returns. It also remains unclear if Fundament can recover the criminally-associated dividends and funds. From all accounts, security at Fundament needs to be enhanced to compete with the ever-growing issue of criminal activity in the crypto and blockchain markets.
The Forks & Splits of Ethereum
Another significant challenge that faces the Fundament Group is the impending hurdle that comes with the fork of the split of the Ethereum Network. This decision won’t just apply to Ethereum, but also apply to all other blockchain network supported by Fundament. Typically, brokerages will remain with the fork that is moving in the consensus of the industry. However, something the fork consensus isn’t clear and making the decision could be difficult.
There is Virtue in Not Playing it Safe
Even with all the challenges and hurdles facing the Fundament Group, the company being fully aware of their decision still decided to move forward. Shockingly, Fundament would risk a $280 Million Real Estate Bond, let alone the first one of its kind and open it to investors immediately. Analysts are already speculating that this decision could be the demise of the brokerage long term and that they should’ve played it safe with the initial coin offering, only allowing for institutional investors to purchase the coin.
Considering that Fundament had to spend more than several months speaking with German Financial Market Supervisory Authority before receiving approval for the ICO, it should’ve been clear that these hurdles required a significant deal of risk management to ensure its success. Now, it’s uncertain as to what the outcome of this real estate cryptocurrency bond will be.
The Fundament Group is going to need to learn to adapt & anticipate the ever-changing blockchain markets. The firm will need to alter its security protocols regularly to defend clientele and determine what’s the best course of action for their coin with every passing week. This is the only way to guarantee the success of this initial coin offering.
Tom Arran
