Michael Pinkus, is the CFO of Bitbond, a company that radically improves the issuance, settlement and custody of financial instruments with the help of blockchain technology and tokenization.
You started your career as a tax lawyer, and then spent 14 years at IKB bank. What inspired the career change to join the Bitbond team?
While working as a lawyer in tax and structured finance I realized that the bankers were the creative force behind the transactions I was working on. So after a few years, I switched from law and became a banker. Much of the ability to innovate went away after GFC. That's when I started looking closer at startups and fintechs. This is also around the time I met Bitbond's founder, Radko Albrecht. After a short time at another start up, Radko asked if I would like to join Bitbond as CFO. Bitbond had grown to the point where they needed to strengthen their institutional network. I recognized Radko as a true visionary and a leader who leads by example which can be very rare in the startup world. I jumped at the opportunity and never regretted it.
Could you tell us about the genesis story of Bitbond?
Bitbond was founded in 2013 as a global marketplace leveraging blockchain technology to facilitate P2P lending for SMEs. In 2019, Bitbond conducted the first regulated security token offering (STO) in Europe with a prospectus approved by BaFin (the German regulator). The initial goal was to diversify our funding and to further support the development of the platform.
This was the first of several groundbreaking DLT transactions. Very quickly our network of contacts began asking to lease the Bitbond tokenization technology. We quickly realized that the demand was huge and the supply of tokentech was not. So we pivoted and became a SaaS white label provider of blockchain technology primarily to banks, frequent issuers and other financial institutions designed to improve the capital markets’ ecosystem.
Bitbond’s mission is to dramatically improve the issuance, settlement and custody of securities and other assets by offering blockchain-based tech products to empower banks, financial institutions, and frequent issuers. The offered solutions modules consist of digital asset custody, asset tokenization and on-chain payments. As we provide our technology as a white-label solution, financial institutions maintain full control over the tech product being integrated into their infrastructure.
Could you describe the Bitbond ecosystem, and how the bond issuance process works?
The traditional bond issuance process is a complicated, highly technical process that involves many intermediaries each receiving their fees, adding complexity and slowing down the process. In other words, the current issuing process is lengthy and costly.
With the 2019 Bitbond STO and indeed with any of the token platforms we built for our clients, we were able to leverage the trust and security which blockchain technology provides, to develop a product serving investors globally and show the market that any issuer can take full ownership of the issuance process across all parts of the value chain, without the need for intermediaries. With a click of a button, investors received their designated security token, which represents ownership of the security, and coupon payouts are carried out instantaneously and automatically.
In financial markets, digital assets (tokenized securities as well as cryptocurrencies) offer substantial efficiency gains: digitized end to end investor flow, fewer intermediaries, lower cost and complexity, global transferability, instant settlement and secondary liquidity. The Bitbond ecosystem consists of 3 modules: asset tokenization, digital asset custody, and on-chain payment settlement, we provide these tech solutions white-labeled to financial institution clients.
Some of our clients include Standard Chartered Bank, and the DAX 30 company, Vonovia which recently issued the VNA1 tokenized bond using Bitbond technology as well as the first bank issuer of a euro pegged stable coin on a public permissionless blockchain, Bankhaus von der Heydt.
In 2019, Bitbond held Germany’s first STO, why did Bitbond choose to go the STO route versus traditional financing or even an ICO?
In 2017/18, a wave of ICOs was dominating the market. However, without proper regulatory oversight to protect investors, many of them ended up over promising and under delivering. This negatively impacted the reputation of blockchain.
As early providers and users of blockchain technology, we were dedicated to prove that this technology works seamlessly for large and small alike on a global scale. We decided early on that a tokenized security under a full European prospectus would provide investors the element of trust that they would need after the ICO debacle. And by issuing a regulated instrument, with approval of the German regulator we were able to reactivate a retail investor base. The BB1 security token went from a way to diversify our funding to a launch pad for a new business model.
How would you compare the blockchain and security token ecosystem in Germany compared to the rest of Europe?
With the publication of its blockchain strategy in 2019, Germany focused on accelerating the adoption of blockchain-based products within its financial markets. New laws were introduced by the German government. In 2020, the holding of crypto assets for third parties became a regulated activity, and the draft electronic securities act eWpG will in the first half of this year create a legal framework for tokenized securities and do away with the need for a CSD on standard bond issuances. Both are huge steps towards the adoption of a blockchain and security token ecosystem. Further support is coming from the regulatory side where the German regulator (BaFin) has proven to be open to innovation and its application to regulated markets. In the end, compared to other European countries, Germany has become one of the leaders in blockchain security token adoption along with Luxembourg, France and Switzerland.
The EU has been gradually contemplating blockchain technology as a holistic solution to many hurdles present in today’s financial services industry and beyond. Last year we saw the first iteration of the Markets in Crypto Assets (MiCA) and Pilot regime.
What is your vision of security tokens/digital assets in the next five years?
Security tokens and the tokenization of assets is the future of capital markets, nearly every banker I speak with tells me that. Tokenization brings dramatic efficiency and cost savings to the financial markets. We’re seeing ever-growing demand from financial institutions regarding implementation of blockchain & DLT within their systems, such demand will only be increasing over the next 5 years. Expectations are also coming from banking customers. Retail, HNWI and institutional clients all expect to be offered the convenience of digital asset custody, token issuance and trading and the possibility of experiencing real time delivery versus payment through the use of onchain payments (bank issued stable coins).
You’re currently slated to be a speaker at the upcoming Security Token Summit, what will you be discussing?
At the Security Token Summit, my panel is entitled “What Major Challenges & Opportunities Lie Ahead for The Adoption of Digital Securities?” Most of the major banks we work with will tell you that legal and regulatory issues are the biggest obstacles not technology. Another issue is interoperability between protocols which is a topic we have already been addressing in the products Bitbond is building.
Is there anything else that you would like to mention about Bitbond?
In January, Vonovia became the first DAX30 company to issue a blockchain-based bond (VNA1 token) on a public permissionless blockchain. The security token with a 3 year maturity was offered via Firstwire's marketplace where Bitbond provides the tokenization tech. Vonovia is one of Germany's largest companies by market cap.
Last year Bankhaus von der Heydt partnered with Bitbond to issue the first bank-issued euro stablecoin after qualifying to become a digital asset custodian the year before. These are just a couple of the examples of the world class clients Bitbond is working with.
Thank you for the great interview, to learn more readers should visit Bitbond.
If readers wish to hear Michael Pinkus speak at the panel “What Major Challenges & Opportunities Lie Ahead for The Adoption of Digital Securities?” they should attend the Security Token Summit.
The Security Token summit will stream live on Securities.io: