FQX brings Companies’ Debt Funding to the Blockchain

ABOUT THIS EPISODE

We want digital debt to be registered, issued, transferred and eventually traded on our infrastructure. Benedikt Schuppli, Co-Founder and Co-CEO of FQX

Executive Summary

FQX is a Zürich, Switzerland-based fintech with great aspirations. They want to digitize company debt and this digital debt to be registered, issued, transferred, and eventually traded on their infrastructure.

Promissory notes are known around the financial world. These instruments are fairly standardized. So, if you put this on a blockchain, you have an extremely powerful financing tool. Benedikt Schuppli, Co-Founder and Co-CEO of FQX

The Founder

This time we interview Benedikt Schuppli (https://www.linkedin.com/in/benedikt-schuppli/), a founder from Switzerland. He is the co-founder and co-CEO of FQX (https://fqx.ch/), a fintech startup from Switzerland offering electronic IOUs. Benedikt is a lawyer by training but took his first job after graduating with a Swiss fintech pioneer named Lykke as Chief Legal Officer. He there realized he wanted to be an entrepreneur and co-founded a smart contract startup called Lexon.

The Startup

FQX (https://fqx.ch/) is based in Zürich, Switzerland. Promissory notes, a version of IOUs is a stable of company funding in the German speaking area. Now with digitalization they get the ability to become much more widely used and listed on capital markets globally. A single issuance of promissory notes by one issuer is normally between 50-150 million Euros each. According to a recent statistic Q2 2021 alone saw the issuance of promissory notes worth 2,5 bn Euros in Germany, compared to 3,2 bn Euros in Q2 2020. Right now, they have a premium for not being tradable, but this is about to change with FQX.

Learn more here: We want digital debt to be registered, issued, transferred and eventually traded on our infrastructure. Benedikt Schuppli, Co-Founder and Co-CEO of FQX

Executive Summary

FQX is a Zürich, Switzerland-based fintech with great aspirations. They want to digitize company debt and this digital debt to be registered, issued, transferred, and eventually traded on their infrastructure.

Promissory notes are known around the financial world. These instruments are fairly standardized. So, if you put this on a blockchain, you have an extremely powerful financing tool. Benedikt Schuppli, Co-Founder and Co-CEO of FQX

The Founder

This time we interview Benedikt Schuppli (https://www.linkedin.com/in/benedikt-schuppli/), a founder from Switzerland. He is the co-founder and co-CEO of FQX (https://fqx.ch/), a fintech startup from Switzerland offering electronic IOUs. Benedikt is a lawyer by training but took his first job after graduating with a Swiss fintech pioneer named Lykke as Chief Legal Officer. He there realized he wanted to be an entrepreneur and co-founded a smart contract startup called Lexon.

The Startup

FQX (https://fqx.ch/) is based in Zürich, Switzerland. Promissory notes, a version of IOUs is a stable of company funding in the German speaking area. Now with digitalization they get the ability to become much more widely used and listed on capital markets globally. A single issuance of promissory notes by one issuer is normally between 50-150 million Euros each. According to a recent statistic Q2 2021 alone saw the issuance of promissory notes worth 2,5 bn Euros in Germany, compared to 3,2 bn Euros in Q2 2020. Right now, they have a premium for not being tradable, but this is about to change with FQX.

Learn more here: https://medium.com/startuprad-io/fqx-brings-companies-debt-funding-to-the-blockchain-83c8528515a3 

Welcome to start up bread, that I own, your podcast and Youtube blog covering the German startup scene with News, interviews and live events. Hello and welcome everybody. This is Joe From Start Operator Day, all, your start up podcast and you de Block from Germany, covering startups in Germany, Austria and Switzerland, and I'm more than happy to have benedict here with me today from a startups on Switzerland, qutzy. I don't it is a pleasure to have you here with soon talk about what you guys are doing, because you are, not surprisingly for Switzerland, a thin tech start up. But first I would remind you that this interview is brought to you by start up Ravingcom, the fastest and easiest way to look for startups, investors and coppered co operation partners. And Benedict, I have been looking at your linkedin profile and, as everybody who's listening to this podcast can tell, it will be linked down here in the show notes, and I found that you are a lawyer about training, but somehow you ended up being the entrepreneur. How on Earth did that happen? Yes, well, thank you for that. or I guess I have to also be very thankful for doing that transition, because it turned out I think I'm a better suited as an entrepreneur than just being a lawyer. So I always said as much. I always had a lot of fun, also in university, delving into the law, researching law, especially when it came to, you know, the intersection of technology and law. So when blockchain came around, I got super interested in this field and realized this is something where I can actually, you know, move something, learn a lot, but also made create something new. And while then really becoming a blockchain lawyer, so to say, around to two thousand and seventeen eighteen, I also realized I want to be involved not just in legal questions, but more broadly, because I'm more of a generalist, I think, than a specialist, and so that's why being an entrepreneur suits me more than just being a lawyer. But you have been taking a look outside of Switzerland as well. I have seen you also participated in a program off London School of Economics and made that picking university right. Yes, that was back in two thousand and thirteen actually with my other cofounder and Co CEO, Stefan Mayo, with Fux, and we were there actually together both. Well, we're still studying law at the University of Surrek and yeah, that was really really great program where we, you know, we're able to immerse our selves in this. Back at then, really still, you know, quite a new up and coming economic force. We take the perspective of the last maybe fifty years. And Yeah, and just looking back now, you know, there's been nine years and how much has changed already just in this short time since we've been there. I see your first notable stint has been as a chief legal officer with a Swiss fintech pioneer. How is it pronounced? LOOKA. It's called look. It's based on a Danish work, I think, for happiness. And Yeah, so this was the background of this startup. It was an amazing experience, you know, being able to to be part of this venture so early in the beginning. Look at really was quite visionary. You know, they have played with and for seeing some trends that are now really relevant in blockchain. But five year, five years before so, I joined...

...in two thousand and seventeen. I became chief legal officer and was able to see the team grow. So, you know, from just a handful of people to almost more than a hundred, and that was extremely valuable as an experience, but also showed me again that I don't just want to be a lawyer. I wanted to become an entrepreneur basically, as as a result of this experience. And then you move on to cofound LEX on from what I've threat I take it it's a kind of a smart contract start up. Yes, correct. So I think this is where also I was able to bring in kind of my legal training and some of the academic work that I've done in the blockchain and law space. So really looking at how smart contracts and the law intersect to see what are the boundaries of a legal contract or just a contract, and how it can be implemented in to a smart contract, because these systems they sound similar just from the terms and a lot of people use the term, but if you think about it, a smart contract promises immutable execution, whereas the law is actually something that needs to be flexible and adaptable because circumstances can always change. So there are a number of pillar pillars and principles in law that give you the right, as someone who's part of a contract, to step back from a contract, for example, if you know, we've entered into it under some wrong or some misperceptions, and now you have to find a way how to integrate this with the immutable nature of a smart contract. So legs on really was about creating a smart contract programming language that can be read and written by lawyers, so lawyers which just right a legal code, so to say, in their own language or slightly adapted from English, with a particular grammar, and this can then be directly executed and compiled into, you know, the the leading smart contract programming language, such as solidity now and those was really amazing. There reloted people involved, you know from academia, but also some people from, I know, leading management consultancy firms such as Spcg, digital ventures, etc. And Don was quite a nice experience. What did happened, was a too hard of a task to actually get Lloyds to code. So I like song, still exists and I would still probably consider it still more of a research project than a business. And the challenge really was, looking back that in two thousand and eighteen smart contracts were still a fairly novel concept. So trying to innovate on top of a innovation which hasn't reached maturity yet. Is always difficult, right. So will still take years before people actually fully embrace the notion of smart contracts. So that's why I believe, you know, the the case for legs on still is there and I think it has a big potential. But I will take some years until it reaches amateurity and we see how things progress in this space. And already now you can tell that, you know, just four years and in blockchain can be decades in other areas. And so I guess now people that I interact with on a daily basis, people from the financial sector, are already much more comfortable with the idea of smart contracts. They actually understand what it means. They have interacted with them at some point, you know, whether they're using some decentralized finance application or have half, you know, minted in enough t or something. So we are progressing...

...quite a fast pace, I believe, I see. And then you got to co found fqx. How did this idea start in wood you guys are actually doing there. So fqx started when I was still at legs on and we were working together with our one of our now co founders, frank went, who was coming from a more traditional finance background. So No, who's doing trade finance, Treasury Consulting, etc. For for a couple of decades and really had his hands on market experience, and his idea was really to digitize the promissory note. Can Be, I guess, translated into German in the variety of ways. So you know, it's either a shuold shine, but it can also be a translated as the basic and the idea was to digitize this instrument, which you know, has existed for more than a thousand years and it's probably the most standardized financial instrument in the world, and digitizing it using blockchain technology. And this is kind of where we came in. So then I decided, together with frank, to start this as a business and with our other co founders, Stephan and the later also Philip, who joined a half year later. So the idea really was to digitize the promissory note, to just really merge the benefits of digitization with the benefits of the blockchain but at the same time the benefits of having this unique instrument that it's known around the world, it's already very much standardized and now you have an extremely powerful blockchain based financing tool, and this is what Fqux really is all about. So basically, for everybody is not from financial services, we talking about an electronic iou here, so you could translate it very, very simply into sheet of paper. I write on it, I owe you five hundred years, name, date, place and I hand it over to you. That's basically yet absolutely this is very well put, very simply put, and this is all what it's about. It's the simplicity right, because we also believe that the financial system everybody engages with today is much more complex than it actually needs to be, and we believe with the powers of decentralization and digitization, as has already been done with with other parts of the financial system using blockchain technology, we also believe this should happen for actually debt based financing. So we believe, you know, in the future you will just have one basic financing instrument and it's a digital blockchain based IOU. And with this digital blockchain based IOU, in the form of an enote as we call it, which is fqx's instrument, you can basically fulfill almost any financing purpose, whether it's just getting a bilateral loan between you and another company, but also where you say I want to obtain liquidity from a variety of investors and I'm just going to issue a hundred of these io use or emols two investors, and these investors could be anywhere right. These could be investors in jurisdiction a, these could be traditional investors, these could be very new digital acid investors. The asset could be on the blockchain directly, or it could also be more in the traditional financial infrastructure. So where, let's say you currently hold your if you have any apple shares in custody at your bank, this acid could...

...also appear in this environment. So basically, this you are digitizing diouse. You make them flexible and I heard and read something about you guys doing it as a smart contract. Is that true? So the basic notion of digitizing the premissory note is that in the physical world you had this paper certificate, right, and this makes it not just a bilateral contract, it actually makes it a trigger warning here security. That's not the regulatory term security, but the private law term security. So this is a certificate which can be transferred to any other party with the same rights and obligations. Now this is not the case just for any contract. Write. A contract is a bilateral arrangement, whereas the certificate, I'm that Pappia, can be transferred, and this makes it extremely powerful. And now the challenge was always how do you bring this paper based, physical certificate into the digital world, where we know things could just be copied on and you wouldn't be sure that there's just one unique object? And along comes, of course, and blockchain technology, and so in the form of a token, now you can have this digital on legally binding, unconditional iowe you as an e notte. We can use and leverage smart contract functionality for the delivery versus payment, so that only the token is transferred once the party says, once a party transfers the financing amount. So in your case, I say I want to pay you in a month five hundred euro. If you give me four hundred fifty, your right now. So I need liquidity. I'll pay you back in a month with interest. So what you gave me is the financing amount and I give you, in turn, this unconditional promise to pay in the form of an NTE. So for this we can leverage smart contract functionality. We can also use collateral, for example, which is very common in the unsecured, or, sorry, in the intersecured landing space. So you could say, yes, I give you this, these four hundred fifty your right now, if you give me five hundred a month. But in order for me to be sure to trust you, I want you to post some ether as collateral, for example, and this is also something we can reflect. So, basically, for everybody using not into financing, would you just described is what you call a money market transfer, a short term landing, and, as you can realize, it's very simple on wood, you guys to and how would be curious about a few things here. Now you have to promissory note, the note as a token. Basically, if they're standardized, could you trade them? And the second question would be you talked about color call lateralization of those loans, meaning you post something valuable that could be sold if you don't pay up. Could it only be digital items like bit coin, ee, theorym and stuff like this, because they are they are a little bit volatile, or could it also be something like simple securities or even the house? So the first question, yes, you knows, can be traded, and I think this is also a benefit of them. Right if you have, let's say alone with your bank right now, which is just bilateral, it is based on, you know, many, many pages of contract. It's not really transparent for you what maybe the basis is or not. Basically, just end up signing and what you have is a contract, but it's not a tradable acid.

With our instruments you generate the ability to transfer it to third parties and it's can be relevant for the investor who says, you know, I want to have the security to know if I need to, I can liquid it. Of course you need a buyer for that, but just generating already the legal and technical trend and transferability is the first pardon that. And now is fqx. We Plug Ug to, we plug into existing markets. So we've entered into a partnership with Stx, which is the digital asset exchange of the Swiss Stock Exchange. So it's also a blockchain based financial market, so to say, and soon our enotes will be then also tradable and transferable on this market. That's the first question. And the second question you're going to have to help me out right now. And how can you collateralize the mode? Is it on these digital currencies, is it securities, or is it even possibly a piece of real estate? Yeah, so exactly. This question is very, very good question. I think right now the the emphasis lies on using digital asset as collateral because in the end it's with Bitcoin, eath and all these cryptocurrencies, you have created very liquid instruments which can be used very, almost perfectly as collaterally STF fluctuations in value. But if you think about it, collateralized lending, as it's done in the decentralized finance space, using digital assets basically as just digitized the Lombard loan right, where before, if people wanted to get additional liquidity but they didn't want to sell their assets, they could go to a bank and say I have, you know, a hundred Volkswagen shares and a hundred apple shares and I post this as collateral and now you bank give me some extra liquidity on top of that. The bank says that's fine, I give you that, you have to pay the interest and we hold the assets, the securities, as collateral. And Defy has really decentralized this and I think this is an extreme step forward. But yes, as we progress with Oracle functionality and we progress with the Internet of things more and more. Also, physical assets could then be posted as collateral. Now, of course we could already do that today, to have a physical asset posted as collateral. But the problem is, in order then to really have this Deli reversus payment and if it's not paid at maturity, the collateral is being transferred to the investor, you have to have some form of digital representation of this physical asset. Now you can do that with, let's say, you know, a tokenized real estate, tokenized bottle of very, let's say, rare whisky or something. But for this other parts of the ecosystem still, you know, need to be built and they need to be trustworthy. In there again, if you have the physical asset, then again there's this layer of extra trust that's needed. Some third party needs to make sure that actually this is the asset that's referenced, that the token that is transferred also generates ownership of this physical asset. So that's why doing it just with smart contracts and collateralized securities or collateralized digital assets is, I think, the first step. Sounds of very digital, very flexible and for everybody who's listening to this, not from the financial serious area, and you now can be as smart as you can say, Oh, it's a lambard credit and HMM, it means do do you give me money? I give you securities.

To make it very simple, and it is. My understanding is you do this very digital f q x is working with as the X. not to be confused. I guess you get it. It's a kind of a bit confusing there and but so it's doesn't need to stop there. You know that the three letter syllables, you have it just anywhere. If you're in the space. That's basically what you hear almost every day is just a lot of three letter abbreviations for different things. Yeah, it's a TLA Yah, the three letter acronym. Uh Huh. I understand it will soon be tradable. But you guys, as I've heard, are already running on a bank, bank license, bank certified infrastructure. Right. Can you tell us a little bit about that? Correct? So this is the Swiss trust chain, which is a permission blockchain. It's a private blockchain, is main tained by a Swiss common the Swiss post, and for us this was relevant to in the beginning to start with, because we wanted to prove in a sense to the world that our infrastructure, our instrument, the note, can be used from really a big public listed company to a small same all over, to someone in the crypto space, and so to generate the trust for these more traditional companies, having the Swiss trust chain was really was really great. But now, as the blockchain world is also really progressing and more and more institutional companies, like you know, large companies, but also institutional investors, are embracing the idea of interacting with a public blockchain, we are also expanding, and so fqx will soon also be available on a public ledger. I've also heard you're talking about creating an ecosystem with more and more startups working into this system, working with this system, earning money there. Can you explain us a little bit? What are you looking for here, especially addressing the startups out there that are interested in Huh? How could we work together here? Yes, so it's a very good, good call. So I think there's two ways. Right. We of course invite every startup on in the fintake and blockchain space, or also outside of that, that can add value to what we're building, to have a discussion with us and fux is building the decentralized infrastructure for the future of finance and it's the decentralized debt infrastructure that we're building. So if anybody you know is working to also provide one cog in the wheel for this future finance, then we all want to work together. And this is what I really love about this space where in this blockchain space, you know, there's a very different mentality, it seems then, compared to traditional finance, or tratfy as it's called, and that is people know what they're currently building is, you know, could be quite impactful for a new, more equal, more accessible and more, just, yeah, simple financial infrastructure. So there is not this notion just of competition that, you know, you're working against each other, but you're working together to build a better system, and so that's why we love to work with other startups on this. And you just could be anything from companies, again, as we said, building a better layer to collateralize physical world assets into the blockchain, companies which have, for example, a very novel approach to having a AI based credit rating, which can be very helpful for an instrument. So there is...

...a number of things that we can't to and we don't want to focus on, but that need to be part of this this new ecosystem that's on the side of the collaboration, on the side of users. I think what we are building is also a great way for startups to obtain debt financing because, if you look at it, many startups, you know, especially those ones, were on a high growth trajectory. They have a lot of access to equity from investors, but as soon as they want to get debt capital and they go to a bank, the bank will will treat them like any other sime. They don't really believe the high trajectory they post with the numbers. They don't believe in the potential per se of these high grow of startups. So what we see is really that you have companies, maybe even some UNICORNS or multicorns, if they want to get a bank loan, they still have to pay, you know, as much as your maybe I don't know, bakery on the corner, enough to pay huge amounts of interest rates to the bank and this is, I think, very combersome and this is not the way I believe the financial system should work. So we believe investors would be willing to more directly finance actually also these high growth, pro private companies, such as startups. In our instrument could be actually a tool to to make this connection, to create this more direct access, because they, you know, is as many investors take a bet investing in the equity of startups, I think some of them would also be willing to more directly lend to high growth companies using our instrument. This almost a little bit spooky because it totally fits out. We did not talk about this before, but my next question I prepared is apt. When does it make sense for startup or company out there to consider your market place for fundraising? Well, there we have it, and so we I think what's important to note here is fqx is more than just a market place. We see ourselves as an infrastructure and we want digital debt to be registered, issued and transferred and eventually also to be traded on our infrastructure. And so our infrastructure can be accessed either directly, so someone on boards on Fqx and they can, you know, make a peer to peer transaction with another company, another investor, but we can also on board existing platforms. So if there is a vintech platform, for example, out there which is already doing peer to peer lending and they're connecting companies with investors. We can increase or expand their their product offering, with their product universe by having them now be able to to use the e Notte, which is something. Again, it's a security. It has an Isin number and is in number, so this makes it integrable into the traditional banking system. So this is why we're also integrated into a number of startups actually that have financing platforms and on their financing platforms you can use you notes, our instrument. So that means they have to go to different place in order to get funded via an e note. We will link your what set down here and I do assume there will be a few links to the respective platforms. Talk about funding here. Your current investors include early bad ventures, six fin tech ventures and several business angels. You raised six point seven and building he as donbles so far. Would you be open to talk to additional investors? Sure, absolutely we are. We're planning to do a follow up fundraise as still this year, in the next couple of months, and we are looking for...

...additional investment and our investors has to meet, let's say, a couple of criteria so we want to work with institutional investors, you know, work with ventor capital funds that have, let's say, a experience in blockchain that are willing to work together with a startup that has a really, let's say, grant vision for what we want to achieve and how we want to change the financial infrastructure, so to the let's say, brave investors out there who really believe in the vision and belief that if you work hard towards it, you can you can achieve that. Yeah, very, very open and happy to discuss with you. And Yeah, so we're already, of course, I've set our eyes on the stress we want to have fingus round and who knows, maybe there's others out there that would also be interesting. Well, we almost talked now for thirty minutes. So everybody who like to learn more, you can go down here in the show notes. There's a link to company website, as well as you directly to your linked the profile where people and investors can reach out to you. Only thing left for me to say is thank you very much, with pleasure having he has a guest. Thank you so much to them, the player talking to you. Have Good Day, by bye, bye. That's all the folks find more news streams events at interviews at www dot. Start of bread that IO remember share is cary.

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