- What is blockchain, exactly?
- What is tokenization, and how does it work?
- What are some of the advantages of tokenization?
- What does it have to do with real estate?
Coingosh is a white-label real estate tokenization platform. In this post, we’ll go over what blockchain and tokenization are, as well as how these technologies might benefit the real estate market.
1. Tokenization, Blockchain, and Real Estate
Tokenization is the idea of expressing ownership of securities (stocks, bonds, etc.) on the blockchain as tokens. Security tokens, tokenized securities, or increasingly digital assets are all terms used to describe these tokens.
The blockchain is a decentralized global ledger (or more easily understood a database or excel sheet). The blockchain incentivizes members to maintain consensus on the contents of this database and substantially disincentivizes cheating. One method of cheating is to “double spend,” or spend one unit of digital currency twice to buy twice as much as you can afford, thereby defrauding one of the sellers. The controversial “double spending” problem was solved for the first time with blockchain technology, allowing us to safely and securely handle units of digital currencies (as well as digital assets).
Tokenization has a number of advantages, but in general, it makes the processing and management of securities considerably more efficient and cost-effective. Peer-to-peer transactions are becoming more common, without the need for middlemen who primarily supply value by maintaining centralized ledgers or databases that ensure ownership and value. These intermediaries may be removed from the process when the blockchain takes over, allowing investors to transact ten times faster and for ten times less money.
Enhancements to Efficiency
The advantages of tokenization may be divided into three categories: time and cost savings, new capabilities, and additional values. The real estate sector may profit from all of these advantages. The real estate industry’s most essential benefits are efficiency gains and new capabilities such as trading and fractionalization.
The capacity to digitize and automate operations is the most significant benefit in terms of efficiency gains.
The ability to interact with securities programmatically is made feasible by having them in a digital version. They can reside in users’ own wallets and are not reliant on a bank. “Software is devouring the world,” as Marc Andreesen famously put it, alludes to the reality that every time an industry becomes software-enabled, it results in a large gain in efficiency and a huge number of new innovations. In the realm of securities, the same thing happens.
Peer-to-Peer (P2P) Trading
Tokenization allows for easy peer-to-peer trading of tokenized assets, which opens up new possibilities. This is typically not conceivable with current technologies, and it is only possible now thanks to blockchain technology. Unlisted securities (real estate, SME company equity, energy projects, VC funds, and so on) are generally not tradeable and have extremely low liquidity. Listed securities are traded on exchanges and have significant liquidity, whereas unlisted securities (real estate, SME company equity, energy projects, VC funds, and so on) are not traded on exchanges and have extremely low liquidity.
As a result, investors are used to being tied into these investments for several years, and if they wish to sell before that time, they frequently pay a hefty liquidity penalty at the sales price. For investors, low-cost, efficient liquidity for unlisted stocks represents a whole new possibility. It didn’t exist prior to the blockchain and tokenization. Security tokens are being traded on specialized secondary trading platforms, which allow sophisticated trading. Companies like Coingosh provide simpler OTC-style marketplaces that issuers may run independently to give some level of liquidity for their projects. We anticipate real estate developers running their own trading exchanges in the future to give liquidity to their investors.
Fractionalization
Another new feature enabled by the x10 time and cost improvement is the capacity to fractionalize assets. With the usually cumbersome and paper-based processes for issuance, management, and trading of unlisted securities, including more than 10-20 investors in any project is uneconomical and prohibitive. However, when processes are digitized and automated, and they are controlled by an investor portal like Coingosh‘, it becomes practical and appealing to incorporate 100 or even 1,000 investors in each project. The site takes care of investor onboarding and token purchases automatically (shares).
Democratization
The process of fractionalization leads to democratization. For regulatory reasons, most real estate financing rounds in Asia are confined to authorized investors. This is advantageous to the issuer since it now has the ability to target institutional, accredited, and retail investors. It is also advantageous to regular investors, who may now diversify their portfolios in the same way that affluent individuals have done for many years.
It improves retail investors’ prospects of building and maintaining savings in an inflationary climate.
Other benefits of tokenization include greater design space by a factor of ten, worldwide standards and interoperability, and secure transaction recording.
Interoperability and global standards
As many may point out, digital securities have been available through banks and exchanges for many years. However, digital securities have only been offered through banks and exchanges, and have not been able to live independently on people’s computers or mobile devices outside of these institutions.
Banks and exchanges have, of course, charged fees and imposed delays in exchange for their services as guarantors of people’s portfolios and as mediators in any securities procedure.
Others would add that in the last decade, they’ve been able to participate in crowdfunding platforms and spend small sums of money in startup businesses. Real estate developments have recently been added to this list. This is correct. These platforms, however, are “siloed” since they do not employ blockchain technology; their version of digital assets is not standardized and cannot exist outside of their platform. Users of these platforms will be reliant on them alone, rather than benefiting from a huge and thriving ecosystem as with tokenization.
There are a number of dominant standards for tokenized securities and digital assets in the tokenization field, notably ERC-1400, which Coingosh uses.
Logging that is secure
The secure logging of all transactions is another big feature of blockchain and tokenization. Historic transactions cannot be edited or removed due to the nature of the blockchain, and they stay available indefinitely. This makes the blockchain ideal for tracking securities processing and trading operations, as well as accounting, auditing, and tax issues.
Personal and private data, such as name, address, number of shares, and so on, are referred to from tokens and saved in password-protected off-chain documents that can only be viewed by verified people like the owner and issuer.
Increasing Design Space in an Exponential Way
The most significant and long-term advantage of tokenization is the huge new design space created by securities becoming digital, autonomous, and programmable, as previously mentioned. This design area expands because we now have programmers, software architects, crypto folks, and DeFi people thinking about securities, in addition to finance professionals.
Security tokens with various types of participation rights, such as physical access to real estate, are some examples of securities that benefit from tokenization. These include securities with voting and dividend rights that are dependent on the duration of ownership or other characteristics, designer securities that combine characteristics of equity and bonds, and security tokens with various types of participation rights, such as physical access to real estate.
Tokenization of Real Estate
As a result, the following question arises: Why is all of this important to real estate developers?
Real estate developers are interested in this technology for a variety of reasons, including the necessity of being first to market with new technologies. They also recognize the value of being able to digitize and automate numerous procedures linked to project financing and management, as well as the ability to fractionalize and encourage new types of retail investors to join. They also want to be able to access the international market and provide liquidity to investors through a trading marketplace.
Real estate developers can benefit from the Coingosh white-label platform, which provides a structured framework for expediting and managing activities connected to financing, refinancing, and selling real estate development projects.
Furthermore, they will be able to effectively and consistently manage a group of project owners, including everything it requires, such as maintaining the share cap table, facilitating shareholder meetings, paying dividends or interest, and reissuing missing tokens, among other things.
If you are interested in learning more, please contact Coingosh at admin@coingosh.com