Brickblock Founder and CEO, Jakob Drzazga, at MIPIM Cannnes

“2018 was for building. 2019 is all about traction.”

We finished the first quarter of this year with a big achievement: tokenising the first property in the EU. With this letter, I want to give you an overview of how we got here, where this milestone sits on our roadmap, and what you can expect from us in the coming months.

2018-early 2019: Building, testing, and regulatory compliance

At Brickblock, we have always focused on two things: implementing a new payment gateway for cryptocurrency users on the one hand (building infrastructure for an emerging market), and tackling vast inefficiencies in the real estate and fund industry on the other (digitalising and automating existing processes).

In 2018 we laid the foundation for both goals. We developed and audited our smart contract ecosystem, partnered with regulated entities to achieve compliance, interacted with various European regulators, and secured three fruitful partnerships to bring our real estate fund solution to market.

We also learned a lesson last year. During a bear market, there is not enough incentive for cryptocurrency holders looking to reduce volatility exposure to invest Bitcoin or Ethereum in tokenised stable assets. When you analyse U.S. projects such as Harbor’s tokenised $20 million REIT or Templum’s tokenised luxury resort, you realise that traditional sources contributed the bulk of the funding.

Right now there is not enough volume in the cryptocurrency market to support security token offerings (STOs) for multimillion-dollar projects. That is why we have prioritised traditional funding sources — institutional investors, high-net-worth individuals, and, if possible, supplemented by retail investors — in fiat currency (EUR, USD etc.). However, we are ready to implement cryptocurrency funding for retail investments as demand increases from institutional players.

In the last six months, we have refined our product to be compatible with the traditional fund market and to accept fiat currency payments. This requires packaging powerful tech with great design, and building solutions that allow our real estate clients to fully focus on their core competency: sourcing capital and new investments. By keeping our blockchain technology as a fundamental layer in the background, buyers and sellers have a smooth learning curve and do not need to re-learn something they have done professionally for years.

We have also changed the way our clients interact with their investors. Each project has its own portal. This allows our clients to more effectively market their product and integrate our technical infrastructure into their own online presence. As the existing portal will no longer be necessary, we will take it offline in the near future. In parallel we are creating a sub-brand focused solely on the fund industry — stay tuned for news on this in the upcoming months.

End of 2018 and 2019: getting traction and executing

Our first client offering (Holt Hill), in Q4 of 2018, required us to partner with a third party to gain consent from regulators. Consent was granted in November last year. It was a significant vote of confidence for the legal and technical concepts we built throughout 2018.

A subsequent client offering, in Wiesbaden, Germany, closed last week*, showing that tokenisation in the European Union is possible even within the existing regulatory framework. For this project, we facilitated the investment through our proprietary technology and without third-party involvement. Tokenising the Wiesbaden property has three major advantages: subsequent transactions are instant, nearly free of charge, and, if done properly, without counterparty risk. We are very excited about this transaction and are looking forward to many more in the near future.

On the regulatory front, the German Federal Financial Supervisory Authority (BaFin) recently approved a prospectus to allow for the issuance of security tokens marketed to retail investors. This ruling is a breakthrough for our business.

Our clients and we are already engaging with BaFin to make another real estate offering possible, this time expanding access to retail investors. Opening investments to retail investors was one of our long-term goals and we are thrilled that German regulators have opened the door with the above mentioned approval.

Another decision accelerating security tokenisation happened in Luxembourg in February. The Chamber of Deputies passed a bill that grants tokenised securities the same legal status as traditional securities. As Brickblock is involved with many Luxembourg-based fund clients, this bill is another big step forward for our legal framework.

I want to highlight two upcoming projects I am especially excited about: The first is an AIFMD-compliant, income-focused real estate fund targeting German properties together with our client, Peakside Capital. The second is a regulated fund investing in U.K. real estate based out of Luxembourg, for which funding is already completed. Our role is to tokenise the existing shares. These two projects are set to become the first tokenised funds in Europe. We will share more information as soon as it is cleared for public release.

On a final note: A few weeks ago, I had the chance to speak with dozens of fund managers at MIPIM Cannes. They all mentioned the same inefficiencies: long subscription processes, paper-based administration, and high minimum ticket sizes, while having to pay substantial amounts to placement agents. Our solution solves all of these issues and allows fund managers to more efficiently raise capital from a larger, global investor pool.

I am thrilled with our team’s effort in building the product and cannot wait to see our tested solutions fully utilised in the coming months.

– Jakob Drzazga, co-founder & CEO, Brickblock