Tok­eniza­tion of Real Estate

How blockchain tech­nol­o­gy is improv­ing the real estate market.

The mul­ti-tril­lion real estate indus­try has faced mul­ti­ple chal­lenges and dig­i­tal­iza­tion of assets, also known as Tok­eniza­tion, is start­ing to trans­form the indus­try and the rev­o­lu­tion has already start­ed. Prop­er­ty tok­eniza­tion is one of the most promis­ing use cas­es of blockchain tech­nol­o­gy. With a total asset val­ue of US$228 tril­lion glob­al­ly, real estate is a more valu­able asset class than bonds and stocks com­bined. Only in 2019, insti­tu­tions have aimed to tok­enize US$ 2.4 bil­lion of real estate.

Ben­e­fits

Tok­eniza­tion is able to break the large invest­ment amount of a real estate asset into small­er shares. Frac­tion­al own­er­ship of real estate opens up a new poten­tial cap­i­tal pool of investors. Tokens are stored on a dis­trib­uted ledger which uses an algo­rithm of smart con­tracts that val­i­date the token own­er­ship. The algo­rithm does not only pro­vide the investor with very high cyber­se­cu­ri­ty mea­sures but also reduces the admin­is­tra­tive costs that usu­al­ly come with trad­ing asset own­er­ships. On the sec­ondary mar­ket, investors can sell their tokens at any time for a very low cost. At the same time, tok­eniza­tion main­tains all of the reg­u­la­tions a reg­u­lar real estate project has to fol­low as it is sub­ject to super­vi­sion by the respec­tive finan­cial author­i­ties (e.g., Ger­man BaFin or U.S. SEC).

How does Tok­eniza­tion of Real Estate work?

The tok­eniza­tion process divides the real estate assets val­ue into shares or “tokens”, those tokens rep­re­sent a pre­de­fined share of the under­ly­ing asset. These tokens are called “secu­ri­ty tokens” and the fundrais­ing is often referred to as “secu­ri­ty token offer­ing” (STO). Tokens are stored on a dig­i­tal wal­let and can be trad­ed at any time. Tok­enized assets are being secure­ly issued, trad­ed and set­tled through a dis­trib­uted ledger. Dis­trib­uted ledger tech­nol­o­gy (DLT) has been around for over a decade but only recent­ly has its poten­tial start­ed to lever­age prop­er­ty man­age­ment. The tech­nol­o­gy makes use of smart con­tracts to val­i­date asset own­er­ship. The con­sen­sus mech­a­nism of the dis­trib­uted ledger offers very high cyber­se­cu­ri­ty mea­sures for issuers and investors.

One of the major chal­lenges of launch­ing an STO is legal com­plex­i­ty. As all the legal reg­u­la­tions have to be met and com­plied with, there­fore, issuers are strong­ly advised to seek pro­fes­sion­al help from an accred­it­ed STO advi­sor or ser­vice in order to avoid cost­ly legal mistakes. 

We, at Black Man­ta Cap­i­tal, are work­ing on sev­er­al real estate tok­eniza­tion projects at the moment, launch­ing the first tok­enized res­i­den­tial prop­er­ty in Berlin in Q1/2020. Pre-reg­is­ter on our Invest­ment Plat­form for fur­ther infor­ma­tion and updates.