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January 25, 2022 at 01:22 PM
What You Need to Know
- With crypto, you can securitize any asset, including relatively illiquid assets like real estate.
- Sellers get more liquidity; buyers get new investment opportunities.
- Make sure you evaluate security tokens the same way you would any other type of investment.
Has someone suggested that you invest in a security token? Make sure you understand them before you invest.
In the crypto world, tokens are a means of exchange, and we can generally think of them as similar to shares and coins, just by a different name. There are many kinds of tokens, and we’ll focus here on security tokens.
The name is a misnomer, because this type of token has nothing to do with cybersecurity. Instead, the name refers to federal securities law.
Security tokens are a digital representation of a real, physical asset. You know that a deed represents ownership of a house and a stock certificate represents ownership of a company.
Likewise for a security token: It represents ownership of an asset, and they can be used to raise capital and provide liquidity for anything — including assets that have, historically, been highly illiquid.
Can you think of an asset that is worth a lot of money but notoriously difficult to sell? You got it: real estate.
It would be cool to own, say, the Empire State Building. But the building is worth $2.3 billion. That’s not only a problem for you (since you don’t have that much cash in your checking account) but for the building’s owner. When it wants to sell, it must find buyers with very deep pockets.
Using security tokens, the owner of the building could tokenize the property — issuing security tokens just like Apple issues shares. Each token would represent part ownership of the building, and if the tokens are priced affordably, millions of investors could buy them — and then easily trade them among themselves, just as they do with stocks.
This isn’t science fiction. The first tokenized real estate deal was completed in 2018 — a $30 million luxury condo building in Lower Manhattan. More recently, in 2021, Dubai real estate company Arms & McGregor International Realty launched the Mideast’s first real estate tokenization platform, using tokenization infrastructure provider Blocksquare.
Real estate is the most valuable asset class in the world — $280 trillion, according to Savills World Research, or roughly three times more than the global stock market — and all of it can be tokenized, creating a massive new asset class for investors. And by doing so, one of the world’s largest but illiquid assets can become as easily tradable as stocks.
