Tokenization in general promises an increase in efficiency, especially for stock trading, but also in other assets and banking. Still, it’s an oddity that hasn’t yet found its way into the mainstream. There are already companies that use the benefits associated with relying on blockchain technology. We caught up with FINEXITY’s Paul Huelsmann and Tim Janssen to gain insight into how the company is marking up various types of assets and selling them as investment products.
How did you get this idea? How does one come to want to set different values as an investment?
Paul Huelsman: The idea came to us when ICOs were a big topic. And what we liked about the ICO was how the payment or investment was processed through the blockchain. Although this is a great advantage in efficiency, the assets themselves, therefore in the form of shares in the company, are not a good investment for the retail investor. As a result, we dealt more with these areas, because of course we also asked the personal side: How can you invest, what kind of access do I have, what financial means are there in the market?
And what we have been missing is direct access to high quality assets and high performance. This is how FINEXITY finally came about.
In the beginning we were focusing 100% on real estate because it is one of the most important components of portfolio allocation for a retail investor. Real estate provides constant cash flow. All depreciation costs are distributed and as an investor you also benefit from the repayment of the debt and the possible increase in the value of the property. Later, we expanded the range to include more systems.
There are completely different visual properties that are marked. Including luxury watches, real estate, art and cars. How do you ensure expertise? How are these very different things evaluated? After all, Rolex is a completely different building site than fine wine.
Paul Huelsman: We have internal and external experts. Before adding an asset class, we cover for up to two years and then we invest first. What sets us apart from the market is that we have better access to the asset classes we offer today through our shareholders.
We are independently funded by venture capital firms, which means that over the past four and a half years we have always aimed to bring in shareholders who can provide us with additional value in terms of asset selection or brokerage. These include large real estate companies, but also family offices, for example, which offer us unique investment opportunities. We also have diamond experts, but eg B. also art experts through a major international art dealer. We have therefore created a network so that we can always ensure that we have the best access to an individual’s property.
As far as valuation is concerned, this varies greatly from property to property. In the real estate industry, we use eg B. fall back on the same tools that banks use. In the field of art, this is run through databases or through data from public auctions and extends to networks of wine dealers.
There is a cheese from Serbia that costs €1,000 per kilo because it is made from the milk of donkeys, whose breeding number is more than 200 animals. So there are many valuable or unique things. How is it determined which tangible assets are included in the portfolio at all?
Paul Huelsmann: We do not focus on unusual factors, but we focus on asset levels that also have a certain market size to ensure sufficient liquidity. This is not the case with such unusual or rare things as you have mentioned. There are several questions that we ask ourselves beforehand. How big is the market? How do we find or find this market? Do we have trusted partners? If not, how can I find them? Another thing is that we always try to create some connection in the portfolio. What happens if the real estate market crashes? What would the real estate market have to do with the wine market? If our clients invested in equity, could we deliver a more risk-optimized portfolio across all asset classes that would remain superior even in times of crisis?
Shares in value investments and investments are marked on FINEXITY. Did he Do clients actually deposit tokens directly into their personal, self-managed wallet?
Tim Jansen: Each customer can contribute from €500 until there is nothing left of the funding amount and the funding phase is completed. When it comes to financing, the face value of the token is €1. After completing this phase, this financial product or asset is created and a smart contract is prepared for it. A good contract has the exact number of tokens that were previously collected in the funding amount. In addition, the smart contract contains the name and selection of this product and then starts on the blockchain. After marking, we get the number of shares that will be distributed to each investor’s portfolio according to the investment.
Customers receive wallets from us on the platform and go through their onboarding process.
As a result, after developing and publishing a smart contract and the number of tokens is clear, we have a transfer method. This makes each token digitally transferable and the product moves from funding to tokenization to release for market trading. After a market trade is approved, clients can place buy and sell offers. Once the purchase or sale takes place, there is a transfer of credit and token in the transaction step by step. Any customer can send money to their virtual online account on the FINEXITY system. In addition to a crypto wallet for self-defense, each customer also has an electronic wallet. With this credit account, deposits and withdrawals can be made to your bank account.
So an outsider could not come and buy shares, but that is only possible among customers who are already registered?
Tim Jansen: That’s right, that’s only possible for our example of the Ethereum blockchain. We are working to be able to connect our platform to this blockchain with the release of Ethereum 2.0, because this has the advantage of not being tied to the public blockchain and freeing the client to keep his shares in his own wallet.
Ethereum 2.0 and Proof of Stake is still a hot topic after the merger. The climate protection debate about the meaning of mining is still ongoing. How do you approach this question? Is climate protection an important topic for FINEXITY in this regard?
Tim Jansen: You have to look at the whole issue from two sides. I am convinced that nowadays it is important to run a good model that does not waste too much resources. That must not be. As a company, we welcome our completely CO₂-neutral infrastructure in Frankfurt am Main. Our Ethereum node also runs there inside the cluster and we make sure that transactions are completed if they also have to be mined, which is generally more lenient.
But basically on the discussion itself. The technology we are talking about is still a very young technology, which is preparing to save about 99.98% of resources by switching from Proof of Work to Proof of Stake.
How long did it take for a diesel engine to comply with certain environmental guidelines? How many years do you think it took for the invention to happen in the automobile industry? We are currently changing the flow of money or the technology that supports them. Blockchain technology offers so much potential that it is only now being explored. I think the banking infrastructure as it is today uses a lot more electricity than it would if it switched to blockchain technology. If we implement the blockchain model of efficiency and if it is universal, then on the one hand we save the old infrastructure and have a real disruptive innovation in this environment and thus enjoy great benefits.
Does this general trend mean that Bitcoin should also change? There are actually a number of voices calling for this. yes this way Has Proof of Work expired?
Tim Jansen: If there really is an alternative with Proof of Stock that saves more resources, then I would say yes. The technology behind Bitcoin has always used a lot of resources. That is no longer worth our time. It has embedded Lightning network to process more small operations at high speed. Why doesn’t someone talk about the power of the fork and find a way to fix the algorithm as well? Bitcoin is perhaps the oldest among cryptocurrencies in this regard.
At the end of the day, such a use case is decisive. For us, Ethereum provided everything we needed for our applications. We need the ability to create a smart contract and the corresponding wallet infrastructure and we’ve got it all there. If you look at the systems that exist now and how modern and sophisticated they are, I would rather rely on it than Bitcoin.
We would like to thank Mr. Huelsmann and Mr. Janssen for an interview.