Jakob Drzazga – ScalingFunds by Brickblock

“What inspires me about blockchain technology, is the ease of exchanging value in real-time without the need for trusted intermediaries. Currently, you are exposed to counterparty risk all the time, when purchasing a property or even when buying shares of a publicly-traded company. This is changing.”

Jakob Drzazga is Co-founder and CEO of ScalingFunds by Brickblock. Founded in 2018 the startup empowers real estate fund managers to digitise the entire fund lifecycle. Jakob is also Co-Chairman of the INATBA Real Estate working group, which is a European Commission spin-off focused on connecting international policymakers with blockchain-based companies.

Q: Tell us a little bit about your background.

Before I became a FinTech CEO, I was a real estate developer investing in German real estate. I had developed and completed numerous projects when I started to explore the feasibility of launching a private equity real estate fund. The significant barriers to entry and extensive pain points in attempting to set up my own fund led to disillusionment very quickly.

I now understood why many talented individuals become discouraged in setting up their own funds – It is a very slow, painful and confusing process.

In 2016, in conjunction with a good friend of mine, I explored the world of blockchain. I realized quite quickly that this technology could redefine the processes of the fund universe and have even more significant implications on the broader financial landscape.

Q: Does blockchain have an impact on sustainability as well?

Absolutely! There is much more demand for sustainable investments than you think. The rise in ESG (environmental, social, governance) funds, is a determining factor for investors when deciding where to allocate capital. However, many ESG projects are not accessible to the wider public, only enabling large institutional investors to participate in green bonds, for example. This can change with the use of blockchain technology, which reduces the need for an overly intermediated market and therefore reduces transaction costs significantly.

Blockchain can also provide a verifiable record as to who buys what from whom. This means that companies’ claims of being resource-positive and reducing their environmental impacts can be counter-checked and verified.

Q: Are you working on ESG funds currently?

Actually, we are working on three ESG funds at the moment. One is an investment fund in the UK which helps local housing associations finance the growing need for social housing. 

Another project we are working on is an infrastructure fund. This particular project is managed by one of the world’s top 20 asset managers. The fund’s primary aim is to provide funding for hospitals across Europe, which is great timing during the current Covid-19 pandemic.

The third is a large-scale green energy and construction project in India to re-develop a neighbourhood.

Q: How are you including blockchain technology within these projects?

Our clients are using our ScalingFunds platform, which uses the blockchain as a database for the shareholder registry.

The users themselves do not realize that they are using blockchain. We have learned that using a username and the password is always better for usability, instead of memorizing private keys and public keys. You achieve the best user adoption by making the clients follow their intuition. Or do you know what technology you are using when sending an email?

Q: What challenges were you facing as a blockchain startup founder?

In 2017, our biggest challenge was to find the right people who were able to create software using the newly released solidity, which is the programming language for smart contracts on the Ethereum blockchain. Smart contracts are the small software pieces on the blockchain which automate specific actions. Previously this needed to be done manually by notaries, accountants, clearing agents or transfer agents. 

In 2018, we had the challenge of regulatory compliance. We had all the tech ready, and we had the clients to launch. But making a fund launch in a compliant way, was a major hurdle and needed interactions with many regulators around the European Union.

In mid-2019, all our efforts were rewarded. The first investment fund in the EU to utilise our ScalingFunds platform and by default blockchain technology went live.

Q: We didn’t talk about the major opportunities of blockchain in real estate yet. Can you tell us your views on this?

I just held a guest lecture at the University of Regensburg, IREBS. The topic was “real estate asset tokenization – the opportunities and the limits”. I think the most significant opportunity is to reduce the burden of intermediation. Every single transaction people execute has to be intermediated by ever-expanding institutions. We have to pay them to make sure that the operation is safe, so either as a buyer or seller you get what you agreed to.

This also applies to transactions of properties, companies who own the real estate, and real estate funds. Blockchain makes these transactions much more efficient reducing processing time and errors and reconciliation significantly.

Q: What are your thoughts on the future of blockchain?

This is a good question. I think blockchain has gained a lot of traction in the last few years. Currently, we are seeing the Central Bank of China issuing central bank digital currency. We are seeing the Bank of France making pilot projects using central bank digital currency in exchange for tokenised bonds. We are seeing other big institutions like Franklin Templeton, Natixis, Credit Swiss, Clearstream, following these trends and applying blockchain technology in their relevant areas of operation. 

This leads me to believe that blockchain technology will change the way we make financial transactions, no matter the industry or sector organisations like Fibree and INATBA are major catalysts to drive this adoption forward, and I’m very excited to be part of it.