The info portal for tokenization & digital change

Token provider in check: The Finexity platform

On the Finexity marketplace, investors can invest in real estate, art, fine wines and, most recently, diamonds. The blockchain maps the investment objects as tokens and thus enables trading with them. We have taken a critical look at Finexity for you.

Hamburg-based fintech Finexity operates an internet platform where investors can invest and trade in tokenized tangible assets. Finexity started in 2019 with the brokerage of real estate. One year later, the founders brought art and fine wines in the form of tokens as further asset classes onto the platform. Since July, the online marketplace now also offers tokenized diamonds as investment objects. More are to follow. Finexity co-founder and Head of Blockchain Tim Janssen says: “With our first real estate project, we have proven that the blockchain works as an infrastructure for such projects. With new asset classes, we can increasingly liberalize the markets.”

The blockchain as a new “internet of values”

Tim Janssen, like Finexity CTO Henning Wagner, is an IT specialist by background. CEO Paul Hülsmann comes from a finance background. None of them are classic bankers. But the three saw the potential of the new technology – and a sense of optimism that reminded them of the early days of the Internet. Blockchain is currently where the World Wide Web was 20 years ago, they said. But it is poised to become the new Internet of value, she said. “What we’re doing with our tokenization are applications we couldn’t have imagined before.”

Finexity with blockchain made in Germany

The crypto industry is seeing new Initial Coin Offerings almost daily, Tim Janssen says. Companies are issuing tokens for ideas that have not even been realized yet, he adds. That only works with very special legal constructs, he adds. “Acquiring a banking license in Malta seemed dubious to us. We wanted to create a platform that operates according to German standards and under German regulatory framework conditions.”

Finexity therefore has a so-called “permissioned blockchain” in use. This best fulfills the legal requirements – also with regard to data protection. The blockchain “made in Germany” creates trust among investors. “We have the blockchain in use as a basic technology. We develop the application according to applicable standards. So we always have the option of also using a public blockchain or connecting additional marketplaces.” Soon, the Ethereum 2.0 protocol will be available, he said. “Then we will look at other possible uses.”

With Finexity, we wanted to create a platform that operates under German legal framework conditions.

Tim Janssen, Finexity Co-Founder and Head of Blockchain

How does a product get to the marketplace?

A project goes through four phases until customers can invest in the tokenized asset on the Finexity platform

1. Scanning: Depending on the asset class, Finexity employees or external consultants scan the market and identify suitable investments.

2. Scoping: In the scoping phase, all clarifications are made that are necessary to bring a product onto the platform.

3. Advertisement: In a period of three to four days, Finexity initially announces the project to internal customers.

4. Sales: After the pre-sale, the project goes into direct sales via the platform. In this funding phase, Finexity has to collect the set funding amount from the investors

Project selection is crucial

For real estate, project selection is done in-house. Finexity employees scan the market for suitable properties. Asset classes such as art, wine and diamonds require great expertise. Here, the platform follows recommendations from external consultants. In the scoping phase, Finexity defines all the framework conditions for the project. In the case of real estate, much of this is done in a standardized manner using software. In the end, it is always the expert opinion that counts: It determines whether an investment property meets the purchase price – and Finexity’s standards.

Tim Janssen explains: “In real estate, for example, we only look at A-locations and residential properties. For us, it’s crucial that we have a healthy risk-return ratio in our portfolio.” However, the blockchain specialist also admits that this is not easy with all asset classes. “Diamonds are very specific. Clarity, cut, color and weight determine the classification. The smallest details make all the difference. This is where we have to rely on our experts.”

PROFILE – this is Finexity

Company headquarters
Holzdamm 28-32, D-20099 Hamburg, Germany
Year founded / Location
2018, Hamburg
Number of employees
35
Asset classes offered
Real estate, art, fine wines, diamonds
Financed projects
8
Registered clients
6000
Investment minimum
500 Euros
Source: Finexity

Controlled by the liability umbrella

Because the Finexity platform brokers financial services as defined by the German Banking Act (KWG), German regulation takes effect. The company therefore operates under a so-called “liability umbrella“. This controls all contractual documents. Only then does the product go into distribution. Before a customer can invest, he must identify himself in a so-called “KYC process” (Know Your Customer). The liability umbrella approves the investment. Only then does digital money flow into a special purpose vehicle set up specifically for the project.

Consumer protection forum warns investors

Once a project has made it into the Finexity portfolio, registered users can invest digitally from 500 euros. They must make their investment decision based on the information Finexity publishes on the respective product page. Investors must rely on Finexity’s correct valuation of the investment and realistic profit expectations. Tim Janssen comments, “We can’t make a prediction. But we can see from past purchases or sales how expensive a square meter was and or how the prices of an artist have developed.”

The consumer protection forum points out that “despite all the promising promises, there is always the risk of total loss.” To it also the targeted net yields would not change anything. Particularly since a total net yield of 10.54 per cent already after one year running time in prospect appears quite questionable according to financial experts – for instance with real estates.

Investment with a fixed contract term

Every investment has a predefined contract term. In the case of real estate, this is usually 15 years. Finexity holds the tokenized wines for between six and twelve years. Art remains in the possession of the respective special purpose entity for nine to ten years. The two tokenized diamonds are to go on sale after six years. In this context, Finexity reserves the right to sell investment items early if the current market situation offers this. At the end of the contract, investors will receive the redemption amount and benefit from the investor capital gain.

Finexity secondary market officially launched

After 8 months of intensive coordination and implementation, Finexity has just launched Europe’s first over-the-counter marketplace for tokenized investments. The Finexity secondary market officially launched in early July. With this peer-to-peer trading, the company is one of the pioneers in the industry. Customers now have the option to post both buy and sell offers. This allows them to trade their tokenized securities at any time, free of charge and in the form of real-time transactions.

E-wallet integrated into the platform

They get the proceeds from the sale paid out to their e-wallet integrated into the platform. This digital credit account assumes the function of a virtual wallet. Compared to traditional tangible asset investments, the Finexity secondary market offers investors flexibility and liquidity. At least in theory. After all, it is not guaranteed that a buyer will also be found for the token securities.

Blockchain investments with risk

In addition, investors must rely on the platform to objectively evaluate its products. Financial expert Niels Nauhauser of Verbraucherzentrale Baden-Württemberg warns in a Capital article, “Investors cannot assess the risks themselves and must rely on Finexity’s evaluation.” According to the company, the projects go through a strict selection process. In addition, Finexity itself naturally has an interest in seeing the investment properties increase in value. After all, it wants to earn from the subsequent sales proceeds.

But the market for real assets still has its own rules. That doesn’t change when valuable assets are tokenized. Finexity founder Tim Janssen is convinced, however, that in the future any type of tangible asset will be possible as an investment on the blockchain. In this respect, the Finexity business model can be interesting for investors – provided they are technology enthusiasts and keep an eye on the risk.

FAQ – Frequently Asked Questions

Which tokens can I invest in with Finexity?

On the Finexity platform, you as an investor can invest in tokenized real estate, art objects, wines (Fine Wines) and diamonds from an amount of 500 euros. You can hold your shares to benefit from the potential projected increase in value. But you can also sell them again on the secondary market – if a buyer can be found.

What are the risks of investing on the Finexity platform?

As with any investment, you as the investor bear the risk yourself. For example, Finexity may not have correctly valued a tokenized investment. Or the return forecasts could be unrealistic. If a project fails completely, you may face a total loss of your investment.

Does Finexity have a banking license?

No. Finexity is a financial services provider and does not have a full banking license. A KWG license would allow the company to conduct securities transactions. However, it is not easy for a start-up to obtain this. Finexity therefore operates as a “tied agent” under a liability umbrella.

Sabine Melichar

Editor | MBA University of Cologne / San Diego State University.
Main focus: Tokenization | Enterprise Digitization | Vocational Education | Society

Sabine Melichar

Redakteurin | MBA Universität Köln / San Diego State University
Schwerpunkte: Tokenisierung | Digitalisierung von Unternehmen | Berufsbildung | Gesellschaft