The tokenisation of real estate properties and portfolios makes it possible to make illiquid assets liquid. Delays in being
able to convert an asset into cash for a fair market value can cause concern for holders of these assets. Therefore, investors
demand a ‘liquidity premium’ for illiquid assets, in which their funds are locked up over long periods. Since the listing
on stock exchanges is expensive and time consuming, most real estate investments are not listed and as such are not very
liquid. An automated tokenisation process of properties with a direct connection to a secondary market leads to increased
Finally, unlike traditional stock markets, token exchanges are currently open 24 hours, 7 days a week, allowing
Accessibility / Property tokenisation
Real estate investments are usually only accessible for large investors. By tokenising real estate properties and portfolios
the real estate market is also opened up to retail investors, who did not have the same access before. The investors benefit
from access to a previously closed market with transparent information and leaner, more cost-effective online processing.
This low barrier to entry for retail investors gives them the chance to create a portfolio and to optimise asset allocation.
This also includes cross-border investments, which would be simpler than ever before.
The blockchain immutably stores the history of all transactions and data. The records are not only held by a single centralised
entity. In the case of a public blockchain, all information is always available to anyone who has access to it, and is virtually
unchangeable. In the case of a private blockchain, the data is still stored immutably, however, access to the information
may be controlled. This gives an unique opportunity for transparent real estate deals and will increase the level of trust
between all participants. There are numerous pieces of information and data, which could be stored on the blockchain to increase
transparency, e.g., who owns the property and independent valuations.
By eliminating middlemen and intermediaries, blockchain technology, i.e., smart contracts, allows more efficiency to be brought
to outdated processes. In the case of bond settlements, for instance, traditional parties, such as banks, paying agents,
trustees and Clearstream become increasingly obsolete. The issuance of securities is very cost intensive since a lot of legal
structuring and administrative work is involved. Smart contracts not only lead to a reduction of time but also fees and opportunity
costs. Executing predefined actions also helps to have less errors, duplications and human inefficiency. Lower costs for
intermediaries could potentially result in a higher return for investors.
Automated Compliance (KYC/AML)
Today, there is no standard for the process of businesses needing to verify the identity of their clients, whether they are
an online business or a financial institution. These processes are the so called ‘Know your customer’ (“KYC”) processes designed
to prevent money laundering (Anti-Money Laundering, or “AML”). The requirements differ from jurisdiction to jurisdiction
and clients usually have to identify themselves multiple times if they would like to use the services of a different provider.
The blockchain gives the ultimate opportunity to store identities which could be used across different services, and do so
in a way that leaves the control of that data up to the customer themselves.
In the current centralised world, data, services, assets and so on often exist only within each service providers walled
garden. Applications don’t work across platforms (Mac, Windows, Android, for example). Similarly, it can take a number of
steps to exchange, say a small segment of your long term savings account for this month’s rent, if it’s even possible. With
decentralisation and tokenisation as central tenants of the blockchain ecosystem, the ERC20 token standard, for example,
provides the opportunity to create a standard for information exchange between different systems, and potentially in the
future for standardised exchange between tokenised assets.
Reduced Transaction Times
Local and cross border transactions can be executed immediately on the blockchain. Having a lot of intermediaries in all
processes is very time consuming and of course increases fees – everyone wants to earn something on these deals. Blockchain
technology not only makes it possible to have real time updates between all parties but also allows the near to real-time
trading of ownership interests and to significantly lower costs. In capital markets, the term “settlement” describes the
transfer of ownership from a seller to a buyer. The ownership of equities, for instance, usually changes hands only T+2 days
after execution of the order. Blockchain technology allows for immediate settlements, which leads to far lower uncertainty
and counterparty risk.