Why the future is bright for Real-world asset tokenization?

Real-world asset tokenization refers to digitizing assets and representing them as tokens on the blockchain network. It can be owned by investors in the form of digital shares or security tokens. It works in a decentralized fashion and is not controlled by any central entity.

Tokenizing real estate solves the accessibility issue by making it more affordable to retail investors and not just accredited investors or institutional investors. Currently, the real estate industry is suffering from enormous amounts of paperwork, the cumbersome role of multiple intermediaries in the form of brokers, agents, and banks, and a lack of easy ways to liquidate the investment by selling the shares beforehand. It is also affected by fluctuating prices, various rules for stakeholders, and unpredictable transaction costs.

Tokenization helps as it automates all the processes and reduces the costs incurred and the time spent in the execution of various tasks. It also facilitates access to new types of investors and multiple sources of capital by ensuring direct trading between different individuals. Property developers will benefit as they can reduce their cost of financing and boost the liquidity of their assets.

The step by step process followed in Tokenizing Real Estate

• The tokens offered to the investors can either be utility tokens or security tokens.

• Utility tokens will be used for buying different products and services on the company’s platform.

• Security tokens will represent a real ownership stake in the asset. Future price appreciation in the asset will benefit the holders of the tokens as the value of the token will increase.

• The tokens can also be sold by organizing crowdfunding campaigns.

• Investors can trade the tokens by listing it on an exchange or an alternative trading system (ATS) just like how public companies are traded in stock markets.

Advantages rendered by investing in a Real Estate Tokenization platform

• It helps in improved management of assets as the smart contracts provide the self-regulated logic. The process of purchasing and selling assets will be simplified due to the streamlined system. The tokens can be customized based on the region where the property is located, the buyer’s history, and the type of asset.

• It provides irrefutable proof of ownership even for small investors through immutability in the blockchain ledger. There is less chance for frauds to take place as users cannot sell others’ tokens without entering the private key. Hence, the falsification of transactions and the tricking of investors cannot happen at all.

• More transparency is ensured as the blockchain ledger can track the history of every single token. Investors can get access to past dealings and avoid resorting to underpaying or overpaying by paying a realistic price.

• A higher level of security is assured through cryptographic encryption supported by the private keys. Only the token owners can get access to their exclusive assets.

Challenges to the growth of Property tokenization

• It has to follow different government regulations and guidelines especially the KYC (Know Your Customer) and the AML (Anti Money Laundering) norms.

• An international framework is needed for the uniform recognition of tokens and ensure that they are distinguished clearly from securities to ensure that investors can have a legal ground to associate themselves with pieces of property.

• Not many countries have formed laws related to cryptocurrencies. Hence, tokenization will be considered illegal in those jurisdictions.

• Though blockchain technology removes the role played by the middleman, a regulatory compliance structure is needed for optimizing the massive potential of tokenization.

• Many licensed platforms need to be set up for operating and managing security token offerings. Multiple trial and error methods need to be carried out before developing a fully functional platform.

• Supreme security for digital tokens needs to be provided by establishing custody integration solutions. In case, the tokens get lost or hacked, the consequences would be costly as the reputation of the firm will be tarnished.

• Some nations have not formulated tax laws to govern cryptocurrencies. This leads to complexity as the tax structure would be different across various countries leading to an unfair advantage for one investor over the other.

The future in store for Real-world asset tokenization

The global real estate market is currently valued at a whopping $228 trillion. Tokenization of assets helps in bringing the much-needed liquidity to the traditionally opaque industry. The main competition to Real Estate tokenization lies in Real Estate Investment Trusts (REITs). However, they have certain limitations as they require a high minimum investment, high upfront and brokerage fees, and represent a large portfolio of companies rather than showcasing a single property. Tokenization can also impact other illiquid assets such as private equity and venture capital.

It offers access to broader investor groups, real-time tracking of asset ownership, and instant investing processes. Blockchain implementation and increasing adoption of tokenization will streamline the entire real estate market without turning it on its head. It opens new and profitable opportunities for owners, investors, and developers. It ensures less bureaucracy and more financial inclusion. Tokenization has made significant progress in the US and Europe.

Since the real estate is slow towards adopting emerging technologies, property tokenization will take some time to become accepted. The concept of fractionalizing assets needs to be backed up by high demand and the market participants must be comfortable with using blockchain technology. Sometimes, the demand can be underwhelming due to liquidity and lack of skillsets in valuing real estate investments. It is best to invest in blockchain-supported solutions making use of economically advantageous innovations with a proven demand behind it than taking a huge risk by undermining the appeal of the technology by misapplying it.

Blockchain App Factory has the privilege to have successfully completed 30+ end to end Icos with different combinations of tech stacks (Like using the Erc20 token or own Blockchain and Minable coins) and Ico Marketing.