Business2Blockchain | Tokenizing Real Estate through Digital Securities
30/05/22
Does the Real Estate Market know how to Tokenize their Businesses?
The word “Blockchain is no longer unknown, and I would venture as far as to say most people can distinguish between Blockchain and Cryptocurrencies. Yes, they are two different/separate things!
Blockchain is a software or service solution and offer beneficial efficiencies on its Distributed Ledger Technology (DLT). Cryptocurrencies provide Transaction flows on the Chains and are highly volatile by nature.
Blockchain solutions bring about efficiencies and integrity that you currently just don’t have on the software and internet you do business on. Hence a powerful new world of communicating, selling, and trading is just around the corner, and Business2Blockchain is here to educate, connect and integrate these new efficient solutions to ensure a smooth process.
How, Where and with Who to Tokenize Property Asset businesses and Why this is important?
Securities as a financial instrument is defined as:
A fungible, negotiable financial instrument with a monetary value. Securities are used to raise capital in public and private markets and is represented in three primary categories:
· Equity - Ownership rights to holders
· Debt – Loans repaid periodically
· Hybrids – Combines aspects of Equity and Debt
Public sales are regulated by Governmental bodies like the SEC and most importantly the regulation is extended through to new digital formats in these trading processes with Blockchain Technologies. A looming global recession is a real threat to the housing market but dealing with Real Estate and Land investment in a more efficient and transparent way can ensure even better positive returns for investors long term.
· The current legacy software and systems in the Private Market and specifically the Real Estate Market that is valued at $280 Trillion. It is one of the largest markets but is plagued with illiquid, inefficient, high investment costs, non-transparency that tie investments for a very long time.
· If we Tokenize 0,5% over the next 5 years we will have an entry into this lucrative market of $1.4 Trillion.
· Business2Blockchain wants to make that 1% and facilitate an important role in Tokenizing the private market.
Over the last 6 years digitizing real estate investments into tradeable tokens has revolutionized the industry, all be it still in its infancy. Digital Tokenization offers larger market participation, increasing liquidity, take away intermediaries, and improve transparency through direct governance.
This article explains what tokenization is, how it works, advantages vs challenges, and how it compares to Real Estate Investment Trusts (REIT).
How Does Tokenization Work?
There are three key steps to Tokenization:
1) Structuring the Deal and the Shareholders
The Deal
Property owners decide the type of asset they want to Tokenize.
· Form a Special Purpose Vehicle (SPV), a subsidiary created by a parent company to isolate financial risk, or
· Form part of a Real Estate Fund or a REIT, which are funds that invest in real estate securities.
Shareholders
Have various rights to consider, dividends, equity shares, and governance options depending on the asset jurisdiction, expected funding, taxation structure, and type of investor under their regulatory frameworks.
2) Selecting Tokenization Platform
Property owners
A range of platforms are available that offer white label & back-office services to creating tokens, integrating, and building out new platforms. These platforms use Blockchain technology to generate automated agreements in the form of “Smart Contracts” highlighting transaction terms between buyers and sellers.
The Smart Contracts are essentially codified rules within the pre-determined agreements that follow the Security Tokens throughout its lifecycle. Smart contracts are the foundations of Blockchain’s, and the reason why Blockchains are immutable, (can’t change the information), hack proof, (encrypted and hashed within a block on chain), and cheat resistant, (through its transparency on the DLT).
3) Issuance, Regulation, and Distribution
The Security Token Offering (STO)
Digital Security Tokens are created and issued on a blockchain. These Tokens are Regulated Assets like stocks on the stock market. The process is offered during an Initial Public Offering or Security Token Offering. (STO). Issuing the Tokens and distributing them must meet certain regulatory requirement. This is very important to understand and therefor critical to be in consultation with various legal advisors in the specific jurisdictions.
Defining the Asset class (Category they fall under), of these Security Tokens may vary between different jurisdictions, from “Securities to “Properties, which will affect the way they are Taxed and regulated.
The same principles apply when deciding on the Token structure and could comprise of various options in PROPCO/OPCO/REIT’s. After the regulatory standards are met, Global investor participation can freely trade the Security Tokens on a secondary marketplace. These OTC marketplaces can be white label products that do all the heavy lifting or can be built from scratch on Chain.
Tokenization Advantages
Reducing the Entry Barriers
By providing new marketplaces Blockchain Technologies offer
· Access to trade for a larger public market
· Reducing cost on entry through fractionalization
· Automate intermediary and admin processes
· P2P transparency and direct Liquidity
· Cross border, 24/7
Diversifying Investments
With the market open to a larger pool of the global population, people can now find themselves in opportunities to diversify their portfolios or at the very least be able to invest in a market previously closed to them.
Liquidity is one of the Biggest Advantages
Traditional Real Estate investments require “lock in” periods. Digital Security Tokens however can be transferred on a Blockchain Distributed Ledger (DLT) immediately, P2P and the transaction can be viewed on the open network’s explorer. This kind of transparency is not available in the traditional market.
Direct Token transfer therefore increases liquidity and brings a cheaper, easier, and faster process to a larger market.
Blockchain Efficiency
Very simply Blockchain Technology automates mundane admin processes and cuts out intermediaries like brokers and agents. This obviously brings about cost and time efficiencies.
Other key driving areas for efficiencies is:
DLT Transparency
Blockchains are built on public ledgers. The ledgers record every transaction that the Security Token is linked to and of course this can be viewed by anyone on that Blockchains Explorer unlike having access to a Banks ledger or a Real Estate transaction record.
Understanding the Concept of Tokenization
First, we need to understand Blockchain. Blockchain Software comprises of a network in a Decentralized Database. Each Database or “Block” takes in a certain amount of encrypted or “hashed” information, until that “Block reaches a capacity of data it can store. Then the next “Block is formed within this “Chain” of data management. “BlockChain”.
This Decentralized Ledger is immutable, meaning you can’t change the data once it has been hashed or encrypted on the Blockchain. To make Blockchains easier to manage and provide for increased automation of processes “Smart Contracts” are encoded on the Blockchains. This basically means that an agreement between you and I or a buyer and a seller or a company and its structure can be coded to facilitate the transfer of value between any party in an automated fashion, within the lifecycle of the Security Token.
Smart Contracts the basically is coded agreements for the transfer of value on a public ledger.
Real Estate Tokenization is the process of fractionalizing property into Tokens which is stored on a Blockchain. The Smart Contracts gives investors secure direct ownership in the underlying, tangible asset. Trading the Real Estate Tokens brings about a safe management vehicle for the transfer of value. Further to the Securities Token structure investment into the Equity, and or Assets and Business can be structures
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Challenges for Tokenization
Regulations
Uncertainty about regulation in cross border jurisdictions poses the most significant hurdle to Real Estate Tokenization. There is no International regulatory framework to reference, therefore it is critical to seek regulatory clarity in respective jurisdictions to clarify the Security Token structure prior to issuance. For larger operations thorough vetting processes should be in place for due diligence.
STO Market place platforms must have KYC/AML integration in place to ensure integrity.
Lack of Public Awareness
This article is aid of the lack of public awareness of Real Estate Tokenization. Cryptocurrencies have over the last few years taken centre stage in public awareness, not Real estate Tokenization. The adoption from large Real Estate companies have been slow, but this is changing as they are forced to find more efficient ways to do business. This intern will drive public awareness and greater adoption from the public.
Volatile Cryptocurrencies vs Digital Securities
Public awareness of Cryptocurrencies has for the last decade been driven by the volatile and speculative nature on the Crypto markets. The broader public have not been able to distinguish between Crypto/Utility Tokens/Digital Assets/Security Tokens/Stable Coins/CBDC. It is therefore imperative that we bring the knowledge to the consumer to help them understand Security Tokens as a fungible product.
The basics of this comes down to
· Cryptocurrencies has NO backing of physical commodities.
· Security Tokens are backed by physical properties.
Tokenization vs REITs
REITs offer similar attributes than fractionalization. REITs operate under well-defined regulatory frameworks with TAX efficient structures. Tokenization of Securities has got these processes underway but have not yet been structured under a global framework. As discussed in its current state Digital Security Tokens on a Blockchain ledger poses some legal and jurisdiction due diligence until such time a global framework is formulated.
REITs are restricted by investment minimums and historically have given low returns. Real Estate Tokens are open to anyone and mostly have no minimum investment.
REITs also provide an option to invest in various real estate assets, whereas Tokenized Real Estate provides an option for specific investment linked to a property.
Conclusion
Real Estate Tokenization is changing the way investment into Real Estate is looked at and can be done. The technology is certainly available, and adoption is growing. Companies like Business2Blockchain is there to assist with placing the right Legal and Blockchain Software network which intern takes a lot of pressure off Real Estate developers with uncertainty on who to approach and what to believe.
Property owners and Real Estate developers should therefore consult knowledgeable legal, securities, tax, accounting, and Blockchain professionals during the early stages of tokenization to minimize the risks and costs that could be associated with navigating these “new technologies.
“Through clear communication, collaboration, and teamwork we will be able to assist our clients in the most effective way for the best results in bringing Blockchain Technologies to their businesses in the easiest ways.
If you would like to discuss how to integrate or build Blockchain and Payment solutions, I am here to help you. You are also more than welcome to contact me should you wish to discuss any partnership opportunities.
I am
Morne Olivier
Founder/CEO Business2Blockchain
Let talk!”
+27614400762
Who is Business2Blockchain? (B2BC)
Business2Blockchain PTY (Ltd) 2019/555012/0 S.A was established in 2019 in South Africa. Business2Blockchain has built up a reputable business through a vast international Blockchain community. Our corporate Identity was established in 2021 and provides access to Blockchain Technology.
It is my goal to establish a Blockchain Industry business, that will be far better suited to the regulatory landscape. Connecting businesses with Blockchain Ledgers does not conflict any interests like for instance Cryptocurrency businesses. Blockchain Digital Securities further enhances this approach and from there any secondary DeFi market can be developed or incorporated.
B2BC Blockchain services Incubator
We have three key partnerships that connect our Blockchain services network.
These three pillar services provide:
1) Tokenization for Digital Securities
- Our 1st pillar provides an easy, safe & regulated entry with Blockchain Technology. Targeting the private market, enabling efficient investment into a market still untouched. Our goals are set on the Real Estate market, marketing our services to connect Tokenization, and developing smart contracts to facilitate automated OPCO/PROPCO/REIT & fractionalization options.
- We have partnered with a regulated white label platform to do the heavy lifting and make it easy for any business to on-board and not worry about the Technology.
- On the other hand, we can assist in incorporating/building own initiative platforms for individual approaches directly on the right Blockchain.
- On-boarding the white label product starts at $20 000 and up to $30 000 for full services.
2) Payment & Banking services
- Our 2nd pillar provides easy access cross border regulated banking and payments solutions, including API service. IBAN/SEPA for USD/GBP/EUR/ZAR – USDT/USDC/DAI & Top Crypto all in one platform makes it easy for any business to do global transactions instantly.
- The platform allows for Fiat On/Off ramp, direct swap to Crypto or Stable Coin and using those Blockchain vehicles to transact instantly.
- The platform incorporates individual Wallets, Merchant on-boarding, Payment Invoicing, Adding Bank accounts and Team members, API integration and a 4% APY.
- On-boarding includes full KYC/AML
- On-boarding costs are $2500 with a transaction fee structure available.
- B2BC has several other payment solutions and secondary options available that includes Card facilities, Open Banking and Telco’s.
3) Consulting
- Our 3d pillar provides a spectrum of services connecting Blockchain solutions in Identity, Data management, Securities & Trade, Climate & Carbon solutions.
- Finding the best Blockchain solution for your business and assisting projects with launching and after-market management
- Consulting can be discussed depending on our clients needs
“Through clear communication, collaboration, and teamwork we will be able to assist our clients in the most effective way for the best results in bringing Blockchain Technologies to their businesses in the easiest ways.
If you would like to discuss how to integrate or build Blockchain and Payment solutions, I am here to help you. You are also more than welcome to contact me should you wish to discuss any partnership opportunities.
I am
Morne Olivier
Founder/CEO Business2Blockchain
Let talk!”
+27614400762
Great point about shareholder rights! 💼👍. As Warren Buffet said, "Price is what you pay. Value is what you get." So true when it comes to equity shares and dividends. Let's maximize their values! 💯🚀 #ValueInvesting #WarrenBuffetWisdom
Your breakdown of tokenization in real estate is insightful, Morne! 🏘️ Generative AI could streamline the structuring of deals and shareholder agreements by rapidly analyzing legal and financial data to optimize decision-making. Imagine AI-powered platforms enhancing your tokenization process, from smart contract creation to regulatory compliance, ensuring precision and efficiency at every step. 🤖✨ Let's explore how generative AI can elevate your blockchain endeavors. Book a call with us to unlock new potentials in your real estate tokenization journey! 🚀 Christine