Hassan Maishera
The global real estate industry has always experienced ups and downs, but on the whole it is one that is growing fast. In 2021 the global real estate marketplace was valued at $2.9 trillion, according to a report by Research and Markets, and is forecasted to grow to as much as $4.9 trillion by the end of 2031, representing a compound annual growth rate of 5.3% over that timeframe.
Despite its impressive growth, the real estate market is one that remains behind the times in many ways. Due to the high value of real estate in most markets, it has traditionally always been reserved to an elite club of wealthy and accredited investors, resulting in a distinct lack of liquidity in the market. In addition, the process of completing transactions in the real estate market is incredibly cumbersome, involving multiple third parties and long time-frames.
This explains why there is so much excitement around the prospect of real estate tokenization, which refers to the process of transforming physical properties into digital tokens that can be represented on the blockchain. By tokenizing real estate, it can be traded much more effectively while opening the door to fractional ownership, which is where multiple investors can all own a share of a physical property.
These digital tokens represent a share of the real estate property they are tied to. They can be freely traded on any decentralized marketplace, and when acquired, the investors effectively own whatever share of that property the token represents. Investors can buy and sell as many of these tokens as they desire.
The benefits of real estate tokenization include increased liquidity in the marketplace, superior transaction efficiency and transparency, and greater accessibility as fractional ownership substantially lowers the barrier to entry.
Who Are The Major Tokenization Players?
Interest in real estate tokenization has soared, and there are a number of startups and companies that now offer platforms for issuing and selling real estate-backed digital tokens.
Blocksquare
Based in Slovenia, Blocksquare has created a comprehensive set of tools for creating and managing real estate investments on the blockchain. Its vision is to power hundreds of individual real estate marketplaces across the world, connecting investors to promising investments.
The company offers three main products. In addition to its dedicated real estate tokenization protocol, which makes it possible to digitize real estate assets on the Ethereum blockchain, it also offers a white-label platform for any real estate company to launch its own investment marketplace. Further, it has also entered the decentralized finance space with the launch of its Oceanpoint.fi protocol, enabling real estate token holders to leverage those assets in DeFi markets.
Blocksquare’s tokenization platform uses standard Ethereum ERC-20 smart contracts that enable a maximum of 100,000 tokens to be issued for each property. The smart contract identifies the specific property each token relates to, and also enforces the specific transaction rules for that token. Whenever a new property is tokenized, the platform creates a public corporate resolution that’s subsequently signed by its legal representative, who is mandated by token holders to hold the title to the property. This signed resolution is then published to the blockchain via IPFS, which can then be accessed via a fixed web address. This provides full legal protection to investors should any disputes arise. The smart contract dictates the royalty percentage each token holder is entitled to and ensures prompt payment on a specified date each month.
In addition to performing actual tokenization, Blockquare also enables companies to launch their own, branded marketplace for investors to search for and manage real estate investment opportunities. So a real estate company or property management firm can expand its business activities to include tokenized investments and make them compatible with any stablecoin. Each marketplace includes monitoring and reporting tools that can be made available to any investors, as well as support for token buybacks, which may be required in the event the underlying property is sold to a third-party buyer. Other features include automated KYC onboarding, support for fiat payments, revenue distribution, full transaction histories for each property, and a decentralized marketplace where investors can freely trade their tokens via the client’s platform.
Blocksquare is also one of the only real estate tokenization platforms that connects to DeFi, which is done through the Oceanpoint.fi protocol. Through Oceanpoint, real estate token holders can access additional passive income-generating opportunities by providing liquidity, staking their tokens and more.
tZERO
Most of Blocksquare’s competitors are asset-agnostic platforms that support the tokenization of physical assets other than real estate, giving investors access to additional investment opportunities. One of the leading U.S.-based platforms in this respect is tZERO, a decentralized marketplace for trading security tokens and other kinds of digital assets. It’s one of the oldest protocols of its kind, having been founded in 2014 and based in Salt Lake City, Utah. The project was created by Overstock.com and is aiming to improve the transparency and efficiency of capital markets while boosting liquidity in them. In addition to real estate, it supports investments in simple agreements for future equities (SAFEs), which are an alternative means for startups to raise capital outside the securities market. Other investments include tokenized art and commodities.
One of the best aspects of tZERO’s platform is the powerful suite of tools it offers to companies wanting to launch their own security tokens, or STOs. Like Blocksquare, its smart contracts are hosted on the Ethereum blockchain, it provides extensive support to ensure its tokenized offerings are compliant with U.S. rules and regulations, including those of the Securities and Exchange Commission.
ADDX
Based in Singapore, ADDX is primarily focused on providing a way for startups and other companies to raise capital by issuing digital securities. It requires companies to pass an internal due diligence process prior to issuing their security tokens, and in return it promises access to a diverse group of investors. This focus on due diligence is one of the most appealing aspects of ADDX’s platform, as it ensures that companies have a sound financial footing. On the downside, it means only accredited investors can participate, though it does provide the flexibility for trading digital securities offered by private equity and hedge funds, as well as traditional stocks, bonds and real estate assets.
ADDX has enjoyed significant growth at a time when the poor state of the world’s economy has slammed the door shut on opportunities such as IPOs, and startup values are in decline. However, private equity funds such as KKR and TPG have proven to be much more resilient, and this is where ADDX is making its mark. It is currently exploring ways to make PE and hedge fund investments more accessible to individual investors through tokenization, with innovations around shorter fund investment cycles. For ADDX, this makes sense, as most PE firms see big potential in tapping this investor base.
BitBond
The German tokenization platform BitBond is one of the most mature protocols in the market, having launched way back in 2013 – even before Ethereum was launched. It has an impressive track record of supporting investment activity ever since then and ranks as one of the top tokenization platforms in the industry. It’s mainly focused on tokenized bonds, and boasts a client base that includes banks, fund operators and tokenized asset issuers.
BitBond also offers a white-label solution for banks and other clients to streamline the process of issuing bonds to clients. It promises a significant reduction in the overall costs associated with tokenization.
With BitBond’s platform, small businesses can issue tokenized bonds, fund shares, equities and other assets on blockchain platforms including Ethereum, Polygon, Stellar and others. Besides selling these assets, they can also be leveraged as collateral to access its short- and long-term loan marketplace, which enables individuals and institutions alike to earn interest by lending their crypto to interesting projects looking for funds.
ConsenSys CodeFi
Built by Ethereum Co-founder Joseph Lubin, ConsenSys Codefi is a tokenization platform that leverages Ethereum smart contracts to enforce the rules and regulations associated with tokenized assets.
It provides a suite of tools for companies to create enterprise-grade blockchain financial infrastructure for issuing and managing digital assets. The platform has worked with a number of financial institutions and global enterprises, helping them to build decentralized networks on which they can distribute tokenized assets.
Some of CosenSys Codefi’s key services include its asset tokenization platform and business process optimization tools. It enables enterprises to create and gain access to Web3 infrastructure, with no less than nine separate product modules or development tools. They include ConsenSys Assets, ConsenSys Orchestrate, ConsenSys Workflow, ConsenSys Markets, ConsenSys Payments, ConsenSys Staking, ConsenSys Activate, ConsenSys Compliance, and ConsenSys Data.
ConsenSys Codefi’s platform has already been used in applications such as issuing CBDCs (central bank digital currencies), capital markets, physical asset management and real estate tokenization, making it simple for almost any financial business to pivot to the decentralized marketplace.
DigiShares
Like Blocksquare, DigiShares is a white-lable tokenization platform focused specifically on real estate markets that handles everything from token issuance to management and trading in a decentralized marketplace.
Its platform has been widely used to tokenize traditional real estate assets as well as energy infrastructure such as solar and wind farms, and is said to be fully compliant with customizable workflows for KYC, AML and investor accreditation. It also supports secure payments in both crypto and fiat.
DigiShares’ platform comes in three flavors, with its primary offering supporting full crypto payment workflows and internal settlements. To sidestep the volatility of crypto price swings, DigiShares recommends using trusted stablecoins such as USDC, USDT or EUROC for payment and settlement. In this version, investors are required to use their own digital wallet for all transactions, which are performed on a peer-to-peer basis.
It offers a second configuration for companies looking to cater to non-crypto natives who may not be familiar with digital assets. In this instance, it provides support for fiat currencies such as the USD, Euro and others, with payment options including wire transfers, ACH, credit and debit cards. It’s a more centralized version of DigiShares where the marketplace operator retains full custody of any digital security tokens issued, so users are not required to set up a digital wallet.
Finally, it offers a third version that’s targeted specifically at institutional clients burdened by heavier regulation. It allows operators to provide investors with an internal wallet, which can be topped up with traditional stablecoins at any time. Since most issuers are not licensed to hold investor’s funds, this configuration of the platform requires the integration of third-party custodial services.
Is Tokenization The Future Of Real Estate?
Tokenization is expected to enable a transformative shift in real estate investment and ownership, bringing with it the benefits of greater accessibility, fractional ownership and increased liquidity. By streamlining transaction processes and opening the door to millions of new investors, tokenization can potentially revolutionize the real estate market investment landscape.
Investors will benefit from new opportunities and the chance to diversify their portfolios to include previously inaccessible yet high-value assets. There are still challenges around regulation and the technological complexities of tokenization, yet the benefits are so immense that it seems certain these barriers will eventually be overcome.
The excitement around asset tokenization is so palpable that many believe it will become one of the major driving forces behind the next crypto bull run. Whether it plays out that way remains to be seen, but one thing is looking increasingly certain – tokenization is the way forward, and as it becomes more widespread in the real estate industry, it may one day even become the new standard for all real estate transactions.
