In my opinion, this is a high risk for investors-altcoin speculators
Let us not deceive ourselves-STO is the future. Through STO, small investors and individuals can ultimately invest in medium-sized companies or start-ups to participate in their success, while benefiting from the fungibility of securities tokens. In fact, this is a good thing, so when Bitbond announced that it would launch the first fully regulated STO in Germany, the fun in the cryptocurrency space was immense-it was a milestone for the German STO. To this end, Bitbond obtained BaFin’s legal “OK” and produced a prospectus. From a legal point of view, the structure and security of Bitbond STO seems completely correct.
The problem in this case is to equate legal security with investors with low risk and high profit probability, but in my opinion, it is also related to the STO structure itself. You should always get detailed information before making an investment. So what exactly does Bitbond do?
Bitbond-P2P lending platform
Bitbond GmbH operates a P2P lending platform where people can borrow money or cryptocurrencies from other people or companies. According to their own information, this happens at 10-35% interest rates. Bitbond GmbH is not a company that issues STO tokens. This is done through Bitbond Finance GmbH, which is a subsidiary of Bitbond GmbH. Now you must pay attention to the following points, which are important for further understanding:
- Bitbond Finance GmbH is a 78.6% subsidiary of Bitbond GmbH and is therefore subject to the instructions of Bitbond GmbH’s general meeting of shareholders. Radoslav Albrecht is the CEO of both companies.
- The main task of Bitbond Finance GmbH should be to issue (ie financing) loans on the Bitbond platform.
- The tokens issued by Bitbond Finance GmbH are qualified sub-token bonds. A maximum of 1,000,000 tokens can be issued at 1 Euro each (there is a discount, so the price for investors is between 0.7 and 1 Euro).
- The investor shall receive 4% of pA interest and the variable interest rate of his token (“The variable interest rate for an interest period is 60%-if any-the annual profit before tax (without taking into account the floating interest rate) according to The issuer’s approved and audited annual financial statement for the fiscal year prior to the interest payment date, dividing the floating interest rate by the total face value of the issued token bonds.”-Bitbond prospectus, page 10 C9).
- The tokens will be repurchased at a price of 1 Euro per token after 10 years.
- Bitbond Finance GmbH can provide loans to Bitbond GmbH under normal market conditions.
- The cost of STO is deducted from the raised capital of Bitbond Finance GmbH (plus 8,000 euros in interest because the capital is advanced by Bitbond GmbH). According to the securities prospectus, the legal consulting fees for these STOs are 120,000.00 euros, marketing and sales expenses are 400,000.00 euros, audit and transaction costs are 1,785.00 euros, software development costs are 80,000.00 euros, and the variable cost factor “commission reminder”. Overall, the fixed cost of STO is 609,785.00 Euros.
- In the context of operating business, Bitbond Finance GmbH uses Bitbond GmbH’s resources (such as employees, business premises, etc.) and bills accordingly.
- Bitbond Finance GmbH “fully assumes the risks of bankruptcy and default related to its contract partners. Will not provide collateral in favor of the issuer” (Bitbond prospectus, page 11 D2).
Given the current state of STO, why would I personally not invest
Now let us imagine the following scenario. Currently (April 27, 2019) on the official website (https://www.bitbondsto.com/de/) Collected 2 million euros. Now let us assume that 2.5 million euros have been invested by the end of the STO. From these, the above-mentioned 609,785.00 euros were initially deducted, leaving about 1.89 million euros (not considering the so-called “prompter” commission) for issuing loans on Bitbond. In addition, as I suspect, over time, more cost factors will be deducted from this amount because, among other things, Bitbond Finance GmbH uses Bitbond GmbH’s business premises and employees. The remaining capital now generates 10-35% interest, and at least 4% interest (if discounts are included, the interest rate is even higher) provides investors with 2.5 million euros per year, and there will be sufficient capital available for every 10 years. Each token pays 1 Euro. At this time, you should do this calculation yourself and ask yourself whether this is a realistic scenario.
In addition, the expected loan default must also be considered. It is also important to understand that it is not yet clear how high the cost of Bitbond Financing GmbH will be by using Bitbond GmbH’s resources.If Bitbond Finance GmbH goes bankrupt (“The issuer may not have sufficient liquidity to fulfill its obligations”-Bitbond prospectus, page 14 D2), Bitbond GmbH, the parent company, is unlikely to be able to rely on it.. In this case, since the tokens are qualified sub-token bonds, investors will only be repaid after all other claims that existed at the time of bankruptcy.
The token bond establishes the same level of creditor’s rights as the creditor of the token bond, and subordinates the creditor’s rights to the creditor’s rights of other creditors of the issuer. In the case of the issuer’s liquidation, dissolution or bankruptcy and procedures aimed at avoiding the issuer’s bankruptcy, the rights arising from the token-based bond shall take precedence over all other existing and future non-subordinated liabilities of the issuer in accordance with Article 39 of the Bankruptcy Law. Article (InsO) qualified subordinate status). “
Bitbond prospectus, page 9 C8
In general, I personally think that the risk of the above uncertainty is too great. The question is, if you, as a lender, borrow money directly on the platform without STO and thus do not have the above risks, will you drive better. This can avoid the cost of investing in Bitbond Finance GmbH.In the FAQ on the website https://www.bitbond.com/de Standing:
Anyone who is successfully identified by our video can become a Bitbond lender.
In my opinion, the fungibility of tokens is currently questionable anyway, and of course it must be abandoned through direct investment in the platform.
This article is based on information found in the official securities prospectus of Bitbond Finance GmbH (https://www.bitbondsto.com/files/bitbond-sto-prospectus-de.pdf).