Tokenisation makes investments accessible

Max Heinzle, CEO of area2invest, in an interview with der fonds about tokenised assets for private investors and sustainable token-based investments. der fonds: Mr Heinzle, some of the products on area2invest are so-called tokenised assets, i.e. assets that are mapped via the blockchain. How do investors benefit from this?

Max Heinzle: On the one hand, investors benefit from the so-called fractionation, i.e. the possibility of chunking securities. In Switzerland, the law on shares was recently reformed, and the minimum value there can now even be as low as CHF 0.00001. In Germany, however, the minimum nominal value of a share under the current legal situation is EUR 1, and a smaller denomination is only feasible with tokens on the blockchain. It is then possible to buy tokens that represent fractions of a certain asset, which can make them accessible to a broader investor base. Let’s take the example of the Amazon share, which is now above US$ 3,000. If such a share is fractionalised by means of security tokens, investors can also buy fractions of it for significantly less money, for example for US$ 10 and participate in the company accordingly.

At the same time, the blockchain enables a trading marketplace that is available around the clock, seven days a week. From an investor’s point of view, this is a unique opportunity to have access to the capital market at any time. The underlying technology of blockchain and smart contracts also radically accelerates the change of ownership and minimises counterparty risk, as blockchain does not require a financial intermediary.

And what advantages does tokenisation bring for issuers?

Heinzle: On the issuer side, I see two advantages in particular. Firstly, the faster issuance of financial instruments as soon as the corresponding prospectus has been created. On the other hand, there is deeper liquidity because, in my view, blockchain-based trading venues will bring together buy and sell orders much more easily in the future. The reason for this is the standardisation of register management across borders and companies.

In addition, I see new and alternative ways of accessing capital, especially in the small-cap sector, as so far only the mid- and large-cap sector has provided sufficient liquidity and efficiency on the secondary market. At the time of the ICO (Initial Coin Offering) hype a few years ago, we already saw issuances of corporate tokens and direct listings on crypto exchanges. Analogously, I see start-ups and small companies in the future for the regulated market, which will have uncomplicated access to liquidity thanks to tokenised assets.

You now also offer investment projects on your platform that focus on sustainability, partly also as tokenised products. Could you give us some examples? What are they specifically about?

Heinzle: One example is the Green Ship Token. This is a digital security in the form of qualified subordinated participation rights that are tokenised. The subscribed capital is used by the issuer, the shipping company Vogemann, to purchase the latest generation of so-called Handysize Bulkers. These are cargo ships that can be used particularly flexibly due to their size and equipment. The focus here is on low-emission Handysize Bulkers, which save around 40 percent fuel while simultaneously reducing CO2 emissions. At present, there are only two such ships in the world that already meet the CO2 emission requirements of the International Maritime Organisation, which will not become binding until 2029. In addition to the reduction of CO2 emissions, the shipping company also pays attention to the reduction of sulphur emissions, a careful handling of ballast water and generally fuel and energy efficiency in its ships. Investors can therefore participate directly in the expansion of such a modern and low-emission fleet through the Green Ship Token.

Do you have another example from your platform?

Heinzle: Another example with a sustainability focus is the Finka Token, a Security Token that enables Swiss investors to participate on the annual revenues of the La Pradera cattle farm in Santa Cruz, Bolivia. This token thus combines blockchain technology with forward contracts on future revenues in traditional cattle farming. La Pradera Ranch operates under strict environmental standards. For example, no hormones or antibiotics are used, and the pastures are fertilised naturally without fertilisers. What is also particularly exciting here is that, contrary to popular belief, free-range cattle farming is actually environmentally friendly. Net CO2 emissions from cattle grazing on open pastures are negative.

Why have issuers opted for token issuances?

Heinzle: That has to do with the respective product, but also with the fundamental advantages of this technology. In the case of the Green Ship Token, the issuer had actually only dealt with the topic of blockchain during the development of the Green Ship Token. For the shipping company, the technology on which the token is based fits very well with the topic of sustainable shipping. In this way, two innovative technologies — blockchain and modern, low-emission ships — are being adopted by an “old” shipping company.

What is your experience so far with tokenised assets in general? How are such offers accepted by different types of investors?

Investments in La Pradera Cattle Farm are tokenised to democratise the cattle farm as an asset class and to leverage the blockchain technology used in this scenario. As mentioned, a major advantage of tokens is the fractionation of assets. So in this case, investors can access this asset for as little as CHF 500. Previously, if investors wanted to invest in a “scarce” or “traditional” asset, they had to invest a much larger amount or even buy the whole piece of land. Tokenising the investment therefore also lowers the barriers to entry and makes the investment accessible to more people.

Heinzle: The advantages of tokenised assets are undeniable, but the trend towards tokenisation is still in its infancy. There have already been many exciting projects with this technology in 2020. However, I also see that further educational work is needed in this area. There is still a certain scepticism, especially among investors who are not yet so familiar with the topic of blockchain.

Are further investment projects with a focus on sustainability planned?

Nevertheless, we are excited about what will happen in 2021 and in the future, because we are already seeing a lot of interest in tokenised products on our platform. Especially in view of the trends in various countries regarding the regulation of crypto and blockchain applications, we are sure that the tokenisation of assets will pick up full speed. The Swiss DLT law, the German crypto custody licence or the UK’s push for the digitisation of securities are strong signs that regulators in the EU and the European Economic Area, as well as in Switzerland, have understood the impact of so-called distributed ledger technology and blockchain. In addition, there is a new generation of investors who are much more digitally affine, less conservative and much more open to new trends and technologies such as tokenised products.

Heinzle: Impact investing is a very clear trend that is becoming more and more important. We ourselves also see the importance and influence of such action and would like to support it through our platform. At the moment, we are in talks about many other exciting products and projects, so there will certainly be more green deals to come.

Originally published at www.derfonds.com on January 29, 2021.