As a follow up to my recent article regarding the illicit use of digital assets, I am committed to sharing insights on blockchain and tokenization from every angle, e.g., technology, policy, regulations, use cases, finance, etc. Up next, I will providing an explanation and examples of blockchain tokenization.
Let’s start by defining blockchain:
Blockchain is a recent innovative software technology, which, believe it or not traces its roots to 1995. A blockchain is a distributed database or ledger of “blocks” of information, e.g., transactions and agreements. There is no such thing as “the” blockchain. There are four types of blockchains, but two are the most common--public and private. Public blockchains have no central authority and are called permissionless. Bitcoin is the most famous example. Private or permission blockchains require permission from a central authority to interact. For example, IMB and Paypal use blockchain technology in their business processes. Click https://www.investopedia.com/terms/b/blockchain.asp to learn more about blockchain technology. For example, at Yoonify, we are blockchain agnostic, building technology compatible with any preferred blockchain.
On to tokenization:.
Tokenization is the process of converting the property right of an asset into a digital token. In other words, from paper-based to digital ownership. Tokenization facilitates new use cases that were previously inconceivable. For example, suppose you had a genuine Picasso painting. (Lucky you!). Further, assume the painting is valued at $10,000,000. You could create 10,000,000 tokens and sell each for $1 on an exchange platform. This concept can be applied to virtually any asset. Particularly compelling is the tokenization of real estate, which is among the best use cases for investors.
The benefits of tokenization and the problems it solves in real estate investing include:
Reduce the Barriers to Entry
Real estate is capital intensive. Before tokenization, only deep-pocket investors could participate in industrial, commercial, or multi-family real estate. Tokenizing real estate makes the underlying asset accessible to a broad audience. Investors no longer need millions or tens of millions to be direct partial owners of real estate. Even someone with a modest sum at their disposal could buy a piece of a trophy commercial property, for instance, the Empire State building.
Make the World Your Pool of Possible Investors
Anyone from anywhere in the world could be an investor with a computer and a web browser. Property owners can market their assets across the world to everyone. Real estate owners, buyers, or property developers are no longer limited to local big-money investors. For example, Yoonify offers access to every type of investor, whether big, small, or in between, regardless of whether they are next door or on the next continent!
Reduce Transaction Fees and Time
Furthermore, with tokenization, Yoonify allows you to avoid or minimize intermediaries and transfer ownership rights directly on exchanges using smart contracts. For example, with tokenization, interested parties can buy and sell some or all of their tokens, and the smart contract will immediately transfer corresponding ownership rights to the new owners. That means faster and cheaper transactions for everyone.
Transparency, Security, and Compliance
When your assets are at stake, security is priority number one. Yoonify exceeds industry standards for security by using blockchain technology with transparency. Moreover, with all transactions and data on the blockchain, your KYC and AML compliance burden is lighter for your compliance team and external auditors.
Proof of Ownership and Provenance
Tokenizing with blockchain technology means there are no ownership disputes. Ownership is on public display on a blockchain. All participants receive a copy of any ownership modification immediately. Yoonify offers investors unquestionable evidence of ownership. Every transaction is transparent. Transactions are immutable. You can trace the provenance and transaction history on the Yoonify technology solution.
Liquidity, Liquidity, Liquidity
One big reason real estate tokenization is gaining popularity with investors is liquidity. When you invest in real estate, you can expect your capital to remain locked up for several years. Typically this can range from 7 to 10 years; until there is a liquidity event or, in other words, when the entire asset is sold. Tokenization allows you freedom from the lock-up - since you can trade or sell a portion or the whole sum of your tokens after an SEC-mandated 12-month hold period on a blockchain exchange and receive your capital investment back in cash whenever you want!
In March, I will explain what happened at Blackstone, one of the world’s largest real estate asset managers, and how tokenization could have helped it deal with recent problems.
In the meantime, please contact me with any questions or comments about blockchain, tokenization or to learn more about our Yoonify offerings and solutions!
Rohit Tandon is Founder and CEO of Yoonify, a San Diego based wealthtech platform (www.yoonify.io). He can be reached at [email protected]