Real Estate Tokenization | Best Practices
This document details how and why real estate should be tokenized using the DigiShares platform. Also available for download: Here
1. Real estate tokenization – why?
At the time of this writing, the financial industry is seeing a very significant upward trend in tokenization projects and providers of tokenization solutions and services. DigiShares provides the main issuance platform as well as the platform for ongoing corporate governance of the real estate fund. Other companies provide secondary trading exchanges for security tokens, custody solutions, legal services, and more.Many different pieces of the security token puzzle are currently being developed and will be implemented within 1-2 years to form a more efficient, transparent and secure blockchain-based infrastructure for translation, settlement and securities trading.
Real estate is the largest homogeneous global market in which tokenization can have a value of $ 228 trillion in total assets. The real estate market shares the value proposition of the entire securities market. We believe that one of the biggest benefits of real estate tokenization is the ability to reduce ticket sizes by several orders of magnitude (from € 100,000 to € 1,000).
This became possible due to the extreme automation of the emission processes and after the emission, and this will dramatically increase and diversify the group of investors capable of investing in this fund. Another huge benefit is the very significant increase in real estate liquidity through the ability to trade real estate assets on stock exchanges. It will also increase the amount of money available for real estate investing and, on the other hand, make the asset class more interesting for investors.
Many startups are currently invading this market, but incumbent operators are also rapidly adopting tokenization technology internally and externally through investment in startups. Market standards (such as ERC-20) are emerging and increasingly adopted by industry players.
Industry reports show that real estate makes up a significant portion of the global STO (Security Token Offering) market. From the point of view of DigiShares, real estate will be one of the main market drivers in the next couple of years, with at least 25% of global STO funds attracted to real estate.
Some properties have some properties that are well suited to STO – for example, they are relatively safe investments, require significant investment amounts, are relatively easy to compare and quantify, and are notoriously liquid investments.
The real estate market as such will benefit from the “standard” value properties of blockchain, such as:
(1) the ability to automate and reduce the cost of issuing, transferring, settling and trading processes,
(2) the ability to automate and reduce the cost of management processes such as cross-border transfers, trading between investors, blocking periods, limiting the number of investors, etc.
(3) the subsequent increase in the ability to attract foreign investors and more (smaller) investors, thereby increasing the pool of investors for any given project,
(4) the ability to reduce or remove various types of intermediaries such as CSDs, transmission agencies, broker-dealers, etc., thanks to the trust level of the blockchain, thereby increasing efficiency and reducing costs,
(5) increased ability to attract investors through the previously mentioned advantages (additional liquidity), and
(6) the ability to significantly reduce the size of investor applications for the time being retail service i. investors through process automation.
Thus, we will see that good projects can raise capital easier, faster and at lower cost, investors will receive increased liquidity of their investments, good projects will receive a liquidity premium, and investors around the world will have access to previously inaccessible types of investments.
For several years now, crowdfunding platforms have offered access to investing and trading digitized real estate assets. Why is tokenization better? For two main reasons. Old crowdfunding platforms are fragmented and cannot interoperate globally. The global tokenization industry will use the same standards, so that tokenization platforms on different continents will interact with each other. This means that real estate tokens issued by DigiShares will be traded on exchanges in the United States, Europe and Asia. This also means that tokens issued by DigiShares can be held in a secure location by most security token holders around the world. Finally, this means that no investment