This week saw an update on a couple of projects that will have an impact on the world of tokenization.
Real estate is projected to be one of the major markets that are enhanced by tokens. One of the biggest challenges with real estate is that it is a rather non-liquid market. This means that property transactions are slow and costly.
Tokens seek to remedy this by providing the frictionless transaction ability that we are seeing in other crypto segments.
One of the biggest impacts is that it should instantly raise the value of properties. There is a cost in value when an asset is not liquid. In other words, liquid assets tend to trade at a premium over their non-liquid counterparts.
For a market like real estate, that becomes a very large number. It is estimated the liquidity cost is a reduction of between 5%-10% on the value of the property.
With the global real estate industry estimated to be valued at over $200 trillion, even 5% is a lot of money.
Using security tokens, real estate is about to be transformed. Since we are dealing with high-value assets, the total amount in this market is expected to grow quickly.
One project sees the partnering of tZero and Tezos. They agreed to tokenize over $600 million for a real estate development. It will tokenize portion of properties financed by a U.K. company.
This is what the CIO of the company, Alliance Investments, had to say:
“Raising funds through an STO is more efficient, cost-effective, autonomous and democratic than traditional financing. We believe that we are at the forefront of a technological change that can disrupt the current funding paradigm.”
The first project will kick off in Q1 2020. It is a $20 million waterfront project.
Another project that took a major step forward this week is Harbor, a security token startup. The company received its broker-dealer license last month from FINRA. This week, it got another license which ensures interest and dividend payments to investors.
This is vital in the world of real estate investment. The idea of tokenization of this industry is to enable fractional ownership. We will see people all over the world having stakes in many different projects. Since tokens are traded the same regardless of the asset it represents, people will end up with very small shares.
Getting the licensing was important for Harbor. The firm already completed a $100 million real estate offering using tokens on 4 different projects. This took place on the Ethereum blockchain.
Harbor hopes to become a one-stop-shop for this kind of financing in the future.
These are just two projects in what is expected a blockbuster industry. The projects from just these two companies amount to close to 3/4 of a billion of dollars. A few hundred projects will easily reach into trillions of dollars.
Security tokens are going to offer a great many opportunities to investors over the next few years. The real estate market is just getting started. Within a decade, the way we buy and sell real estate today will seem archaic.
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