Hamburg-based Finexity is one of the pioneers in blockchain-based investment platforms. Established in 2018, the company secured tokenized real estate securities after coordinating with the German financial regulatory authority, BaFin, in 2019. Finexity expanded its offerings to include additional digital assets within the private markets sector.

The company aims to tap into the mass market of private investors. "We want to make private market investments accessible to retail investors, allowing them to build portfolios with higher target yields," says co-founder and CEO Paul Huelsmann in an interview with Börsen-Zeitung. This approach serves as a valuable addition to traditional investments in stocks and bonds.

Finexity's platform primarily features real asset investments categorized as alternative capital investments. Some wealthy individuals allocate up to 45-50% of their portfolios to various real assets.

Potential strategic shareholders and partners for Finexity include not only real estate and private equity firms but also watch, diamond, art dealers, or collectors. "Initially, it was clear that we had to self-issue the products," Huelsmann explains. Depending on the asset class, Finexity either established a "single-asset special purpose vehicle," responsible for a single asset, or a "multi-asset special purpose vehicle," which encompasses multiple assets. These units then create a digital security token, Huelsmann clarifies. "We have organized the distribution through our marketplace as investment intermediaries."

From these beginnings, the focus now is on scaling, Huelsmann states. "We represent the primary and secondary market, but our strength lies in the primary market. Therefore, we try our best to connect issuers and distributors effectively." An issuer can tokenize their security through Finexity and distribute it to retail customers through affiliated investment intermediaries.

The company has already onboarded nine distributors, including Sparkasse Bremen, offering their customers real estate, art, and investments in renewable energy. The secondary market has been live for over two years and is essentially comparable to an over-the-counter (OTC) trading system.

In May, BaFin released an assessment on "the operation of a multilateral trading facility" (MTF). According to this assessment, such a system exists when "two potential buyers and sellers of financial instruments interact with each other. And this occurs on a platform or system operated by a third party." This applies even if the actual conclusion of the contract for the purchase or sale of financial instruments takes place bilaterally outside the platform.

Thus, Finexity has moved up a regulatory tier: the company currently possesses approximately 80% of the technology required for an MTF, notes Huelsmann.

As a specialist in Distributed Ledger Technology (DLT), Finexity's next significant project involves obtaining approval for the EU Commission's DLT Pilot Regime. The company is currently preparing an application for this purpose. It anticipates that the application could be approved within the usual timeframe of six to twelve months.

Finexity specifically plans to establish a DLT-TSS infrastructure, operated as a multilateral trading system and securities settlement system within the pilot regime. It aims to combine the services provided by a DLT-MTF and a DLT-SS (securities settlement system) and unify the functions of a market operator and central securities depository. This aligns with the appeal of blockchain infrastructure: optional intermediaries are eliminated, increasing process efficiency and reducing costs in a security's lifecycle.

Finexity has made over 160 security tokens tradable thus far, and the ecosystem continues to expand with regulation. In this context, Huelsmann is currently collaborating with an existing strategic partner on a project for international expansion. Details on this project are expected to be finalized in the coming weeks.