Real Estate Tokenization
In recent years the transformation of technology has allowed users to become a totally active element and protagonist. Going from being a mere spectator or passive element to participating. In an incipient way in collaborative projects in a totally different way than before.
Doing until now a process known as the evolution of Web 1.0 to Web 2.0 and finally and more recently to Web 3.0. (we explain this interesting topic in another article).
In this framework both the economy and technology are moving in the same direction. Promoting innovative financing mechanisms based on the collaborative economy. Such as for example, the security token offer -STO. Which through the tokenization of assets. Is able to offer hope and opportunities to small and medium investors.
This mechanism allows users to choose the role they wish to play at any given time. (seller, buyer or investor) as well as the performance of both at the same time.
To explain how this financing and opportunity vehicle is changing. The current financial paradigm and understand what benefits real estate tokenization offers. We must first understand what asset tokenization consists of.
What is tokenization?
Tokenization is understood as the process that allows linking the unique right of any asset -tangible or intangible- with that of a digital asset. Which we call a “token” allowing its storage and fractional registration within the blockchain.
As we say this process can be applied to any asset. Such as intellectual property, carbon footprint, reputation of a citizen. Financial products real estate etc.
Tokenization Technology
The blockchain is equipped for the creation of these tokens. So thanks to the use of this technology tokenization has the advantages of registration. Traceability and immediate transmission of its accounting units “tokens”, allowing the issuance of these tokens. To through what is known as the Security Tokens Offering through which users from all over the world can acquire said tokens.
These security tokens are considered digital and negotiable financial instruments. That is a digital representation of traditional financial assets within the blockchain. Such as equity debt or fractional ownership among others.
In this sense the possession of the token grants the holder the real rights of the asset or any type of right that the token is representing.
The tokenization of real estate assets brings a large number of benefits both to the sector. The different actors that are involved in real estate investments and among which is one of the main ones the investor.
Benefits of tokenization
Before talking about the advantages offered by the tokenization of real estate. It is important to note that as in any investment the most important part to achieve success. The underlying product that is the object of investment where in this case it would be the property. Capturing the value of real estate and offering the best investment opportunities to the market without the investor having to worry about this process.
Once a property with great economic potential has been chosen. The application of tokenization makes sense allowing numerous people with small monetary amounts. To take part in real estate project investments making them economically accessible and opening markets that previously seemed unattainable.
Possession of these tokens grants investors an economic right in the form of interest. The result of the economic exploitation of the property through the revaluation of the property or the income generated through rental.
As we can see tokenization contributes to lowering the barriers to entry into the sector and consequently the democratization of the sector. But this is not the only advantage the reduction of friction involved in the creation. Purchase and sale of tokens brings endless benefits for investors as we will see below.
Benefits of Tokenization for Investors
Improvement of liquidity levels. Tokenization makes assets potentially more liquid. It is important to highlight this potentially since, if an asset does not arouse interest among the public. Even if it is tokenized it will not become more liquid by the simple fact of digitizing it. It will always depend on the law of supply and demand hence the importance of a good choice.
In this way the digitization and fragmentation of the asset. The almost instant settlement and the fluidity in transactions between peers contribute to the significant improvement in terms of liquidity. In addition in an analogous way.
It allows the investor to sell their “shares” through secondary markets. Such as decentralized exchanges -DEX-, which act as a bridge between the entire network of investors. Unlike traditional systems where transactions must be concluded outside of the platform. Making it difficult to find potential buyers and exposing both seller and buyer to counterparty risk.
Immutability.
As we already know the token is capable of representing legal rights or responsibilities to its owner. Since the token can only exist within the blockchain. It allows the registration and link with its owner to be immutable. Which means that no one can erase it. Adding more security in favor of the investor who at any time could consult and verify the property of the asset in an indisputable way.
Transparency.
The blockchain allows the registration and traceability of transactions in real time. Offering the possibility of tracking the history of the asset each time it changes hands. This allows an improvement in transparency and trust between the parties. As well as greater protection and effectiveness in compliance with the legal regulations for the prevention of money laundering data protection.
On the other hand Digishares will use this unique feature of the technology in favor of its investors. Introducing the contracts and legal documents involved both in the issuance of tokens and in the development of the project that is carried out.
Increased profitability
The fact that the blockchain is a decentralized database, and that it allows peer to peer transactions, without the need for an intermediary, reduces costs significantly in juxtaposition to current rates. Unlike traditional systems, token issuers can program the behavior of assets, as well as automate, for example, the payment of dividends or interest to their investors, which translates into lower project costs and higher profitability for investors.
Portfolio diversification
The reduction in the price of an asset by orders of magnitude, and the ability to freely choose where to invest, opens up a new investment approach, endowed with greater personification and security by diversifying the portfolio into different assets, reducing risks compared to the investment of a property without tokenization.
As we can see, tokenization offers a large number of benefits, and Digishares takes advantage of them in favor of its investors, opening up a new environment of opportunities that was previously impossible to imagine.