The 4.0 industrial revolution has begun and has also started changing the real estate industry. Among others in the crypto space where real estate owners show interest in Security Token Offerings (STOs) launching real estate security tokens through companies like Tokeny, Mt. Pelerin only to name two recognized players in Europe.
Real estate firms seem to be very interested in engaging and partnering with security token providers to develop tokens for their real estate. As of today only equity can be tokenized – not buildings or real estate developments themselves – a security token resembles a real estate company traded at any stock exchanges in the world. This is also the reason why it is called ‘security token’ and has to hold against comparisons with the current possibility to exchange real estate stocks or REITS.
However, the underlying question is – how and where can you exchange these security tokens? The tokenization of securities is useless without fully-functional exchanges.
This blog takes a look into rising security token exchanges and their attitude towards real estate as far as they unveil it. It also takes a closer look into challenges an owner might face, when considering tokenizing one of his high-rise buildings in Manhattan.
Blockchain-powered transparency and accountability coupled with financial market authority control are the significant aspects behind the widespread acceptance of security tokenization. The industries promise is that nobody can tamper or manipulate the control of digital assets available for security token trading. Blockchain’s public ledger preserves records about all trades carried out on the trading site, making them permanent. Since Security Tokens have to comply with regulation, frameworks from times before the 4.0 industrial revolution are applied to the blockchain. The question is, will these ‘old school thinking’ allow for the paradigm shift the crypto technology is aiming for?
At the moment all kind of assets are tokenized such as shares, assets, commodities, insurance plans, equities, and STE swaps in the form of blockchain-powered security tokens.
Real estate owners at the initial stage of the contract structuring, must make informed decisions on the terms and conditions put forth by security tokens, since the token provider can program many ‘features’ into the security token and jet it is not clear, what will be the important features, when it comes to trade real estate security tokens.
Even tough ‘tokenizers’ like Tokeny or Mr. Pelerin are approached by quite some folks form the real estate industry and real estate owners, it seams that the ‘tech-guys’ have a hard time to understand the complexities of real estate. Reading through some of their case studies, gives you the feeling (as a real estate expert) to be somewhat retarded, since some of the real estate processes are still analog (like land administration). This simplification is astonishing, since many of these companies are promoted by famous service providers or well established law firms.
We are not only witnessing the emergence of new security token exchanges – but stock exchanges are also adapting to the ever-changing environment. In almost all countries major stock exchanges engage in a blockchain projects. Almost all significant compliant Token Exchanges have a real estate premotor in the background. Nobody wants to miss the opportunity. Above all in the real estate industry, where the illiquidity of the subject and its complexity has hindered investors for years to fractionalize investments in buildings as well as developments. Some US security token exchanges where trading real estate was or is explored include: Uniswap, Polybird, Propellr/Fluidty, Ubiquity, Reinno. Where as some of them have already been shelved in the meantime.
Given the nascent stage of tokenization, here are some underlying obstacles like legal and regulatory hurdles, confidentiality, technical issues, and cultural differences. Even though the crypto world promises transparency and secure registry on the blockchain, as of today almost all exchanges have been hacked, Binance the biggest crypto exchange included. Never the less real estate tokenization is progressing at a dynamic pace and it promises an immense capability for development. The unbroken development, that continued frictionless during the pandemic of COVID-19, of companies setting up tokens and security token exchanges is and was impressive. It will inspire more issuers and investors to enter the market together with the recognition of ‘Bitcoin’ as a currency that needs to be taken seriously.
But will we witness the tokenization of billions of dollars of real estate in the coming years? We’re sure the future of security tokens will be interesting and the one of exchanges even more, since different agents have started emerging together on this endeavor.
In our next post we will further into the underlying obstacles of the nascent stage of tokenization and exchanges trading real estate.
