Real estate is one of the vastly spread industries which is currently facing a bit of a downfall due to the many challenges involved with the business. One of the major challenges among them is “illiquidity”. In the traditional real estate business, the properties and assets such as stocks, bonds etc, cannot be easily sold or converted into cash. This makes the process long, tedious and ends up in solid loss. This is where “Tokenization” comes into play. Tokenization is set to be the hope for future investors that reduces illiquidity and also many other challenges involved, ensuring a smooth, successful business. The demand and popularity for tokenized assets are rapidly growing by each day, and it is believed to disrupt the real estate industry.
What is tokenization? How asset tokenization improves liquidity than ever before?
Tokenization is the process of converting assets into digitized tokens which are sold in exchange for other digital currencies or fiat money. The tokenized assets represent the value of an individual property or a basket of properties. The tokens are backed by blockchain technology, which helps control, secure, verify transactions and completely protect the investor’s interest with a chain of blocks coded with cryptography.
As mentioned earlier, tokenization helps reduce the problem of illiquidity, by integrating the tokens with high-volume liquidity through fractional ownership and more. To make it easier for you to understand, let me walk you through a small example of how tokenization works.
Say, Person A wants to sell a property but could not find any buyers. And Person B, wants to invest in a property but has minimal funds. Tokenization helps connect them and makes it efficient for both. Person A tokenizes his property and fragments into various shares, and fractional ownerships which person B can make use of. The tokens are highly liquid which helps with quick and easier business for both. This is how tokenization answers the problem of illiquidity. Tokenization also involves several other benefits. Let’s take a look at them.
Benefits of tokenization along with blockchain technology:
- Broad investor base– With real world assets, it is highly impossible to fraction the ownership of the property or sell a fraction of the property quickly and efficiently. Whereas, with tokenization, comes fractional ownership which opens doors to a broad investor base. Tokenization paves way for new investors to participate in the ownership of a property and widen their investments.
- No geographical restrictions– A blockchain based tokenization platform removes geographical restrictions and comes with automated KYC/AML verification, which allows global participants to involve and secure transactions can happen anywhere around the world.
- Quick settlements- Tokenization platforms come along with smart contracts which helps with instant peer-peer transactions and also allows a 24/7 trading process, which initiates quick settlements.
- Easier amplification- As tokenization is a completely digitized process, it doesn’t involve any traditional infrastructure challenges and enables faster, easier fundraising process.
- Blockchain ledger– The blockchain ledger allows store multiple records in the platform for each shareholder such as the share and ratio of profits, voting rights distribution, buyback rights etc which helps avoid any confusion in the future and enables smooth business.
- No involvement from third parties/ transaction fees- Tokenization allows peer-peer transactions from and to anywhere around the world, which removes third party involvement, thereby eliminating transaction fees and risk factors.
- Transparency- Tokenization enables easier management of asset liabilities and provides transparency to the users.
- Regulatory framework- Tokenization platforms are legally compliant and come with necessary regulatory framework, which helps with secure, smooth business and blockchain additionally offers immutability which completely protects the investor’s data.
Thus, tokenization serves as a solution for the many loopholes involved in the real estate business and is set to transform the industry into a whole other phase. Tokenize your property today with a reliable tokenization platform development company, maximize your profits and benefits, become a real estate pro!