Hong Kong-based financial technology startup FinFabrik announced last week the completion of its seed round of funding, led by BitMEX Ventures, an arm of the cryptocurrency exchange and derivatives trading platform BitMEX. Alex Medana, FinFabrik’s co-founder and CEO, told EJ Insightthat his firm plans to work with BitMEX in a push towards digitizing traditional assets, using FinFabrik’s proprietary blockchain and machine learning technologies.
In 2016, Medana co-founded FinFabrik, which aims to transform financial services by leveraging blockchain and artificial intelligence (AI) to achieve broader financial participation. Targeting capital market players, institutions, and asset owners, its main products cover three areas: issuance (Crosspool), trading (CryptoFabrik) and market-making (QuantFabrik) of digital assets.
The company will utilize the fresh capital to expand its technology platform to drive innovative new products based on digital assets.
“Owners may digitize and fractionalize their tangible and intangible assets, raise capital, and reach investors in a frictionless manner using FinFabrik’s proprietary blockchain and machine learning technologies,” Medana said in an interview.
“Through our framework, we aim to transform traditionally alternative, illiquid assets into fungible digital asset-backed securities (DABS),” he added.
Asset digitization and tokenization have been the strongest trend in the cryptocurrency and blockchain industry. Real-world, tradable assets, like equities, fixed income, real estate, or fine art, are divvied up into fractional equity ownership and transformed into digital assets that use blockchain technology, the virtual ledger of activity that underpins cryptocurrencies like bitcoin.
Last year, crowdfunding platform Indiegogo enabled the owners of the St. Regis Aspen Resort in Colorado, the United States, to sell real estate security tokens on a blockchain. This is what’s known as a security token offering (STO).
This January, Estonia-based DX.Exchange launched a trading platform allowing investors to buy shares of popular Nasdaq-listed companies such as Apple, Tesla, and Facebook, indirectly through security tokens, each of which is backed by one share of the company and entitles holders to the same cash dividends.
A key difference setting security tokens apart from other cryptocurrencies is that they are asset-backed and fall within regulatory parameters. For example, the digital stocks trading on DX’s platform are regulated under the European Union’s investment services regulation Mifid II directive.
Asked whether FinFabrik will develop products related to real estate tokenization, Medana said “real estate is one of the many assets we are focusing on… put very simply, we bring supply and demand together for quality assets from quality and trusted sources.”
With the new investor onboard, Medana told EJ Insight that the two companies have several “exciting projects in the pipeline”, which will be announced in due course. He noted that partnering with crypto asset custody providers, like BitMEX, is the best approach for FinFabrik to scale up.
Before starting his own venture, Medana spent 16 years in banks, mostly in the brokerage business. In 2015-2017, he launched his first company, WIP Solutions, a blockchain consultancy in Hong Kong. However, the venture failed as both the technology and the market were not ready at the time.
Riding on the wave of the cryptocurrency market, his current venture FinFabrik meets the growing interest in blockchain technology from enterprises and institutions. That said, the crypto industry has been hit by the crash in digital currency prices since early 2018.
Medana said in the interview that there is not enough historical data to make an informed comment as to where the industry is in the cycle of “crypto winter.” But he noted that “2019 will be an interesting year for the crypto industry, particularly when it comes to STOs and DABS trading.”
As the industry expects institutional investors to come into the space, Medana believes “they will only come to the fore in a regulated environment.”
“In order to protect them, their clients, and their counterparties from undue risks, there must be clarity and certainty before institutions make a move toward STOs or DABS.”
With regard to the regulatory landscape, regulators worldwide have been looking closely at how to oversee digital assets and cryptocurrencies, and whether the existing frameworks are sufficient. In November, Hong Kong’s securities watchdog, the Securities & Futures Commission (SFC), set out a new regulatory approach for virtual assets, proposing a regulatory regime known as a “sandbox” for crypto exchanges in the Asian financial hub.
“Sandboxes” typically afford financial technology firms special regulatory waivers for a limited period of time.
Medana feels it’s too early to assess the attractiveness of regulators’ sandbox approach, but said “the creation of the framework indicates an important step forward for local projects and the wider industry in Asia,” praising Hong Kong as a “renowned center for crypto and blockchain businesses.”
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