3.0 Tokenization
Last updated
Last updated
Asset tokenization is the process of converting physical assets or their underlying value, into digital assets (tokens) on the blockchain that represent fractional ownership and rights to the real asset that is being tokenized.
The decentralized Propbase registry stores information in a digital ledger on the blockchain. These divisible tokens each represent a fraction of the share ownership stake in the real estate asset. Real estate tokens are similar to non-fungible tokens (NFTs), which are non-interchangeable units of data that can be sold and traded and tied to the value of the physical asset.
A clear benefit of real estate tokenization is the advent of smart contracts to distribute yield generated by real estate assets (i.e. rental income). Smart contracts can be written to disperse an amount of the income proportionate to a specific token value.
One of the greatest advantages that fractional ownership brings to the table is liquidity. Since high-value homes and commercial properties face difficulty being sold to a single entity, real estate assets have remained largely an illiquid asset class.
Fractional ownership opens the floodgates for participation from small-ticket investors. This brings much need liquidity to the asset class and enables retail investors to build a diversified real estate investment portfolio.
I. Lower barrier to entry
As mentioned earlier, by facilitating investment in fractional proportions of properties, real estate tokenization enables small-ticket participation and lower barriers to entry for retail investors. Lower minimums and smaller investment amounts thus enable access to the benefit of high-potential returns available from traditional real estate assets, which typically require significantly more upfront capital.
II. Ability to create BUY/SELL liquidity
Real estate tokens are easily and securely transferable by way of blockchain technology, allowing investors to diversify their portfolios, minimize risk, and trade easily in the real estate market. Conversely, issuers are provided access to a wider pool of potential investors.
III. Lower Transaction Costs
Through automated smart contracts processes and a permanent, unchangeable digital ledger, blockchain technology streamlines investment transactions and lowers transaction costs. As a result, there are higher potential returns for investors. Tokenization also provides a host of other benefits, such as real-time capitalization table tracking, improved accessibility, and greater transparency for investors.
IV. Diversification
Users can participate in a smaller shareholding through fractional ownership structure and diversify their investment portfolio across multiple assets in a variety of attributes, and across multiple countries or regions. Propbase offers real estate assets of different prices, property types, and locations.
V. Yield / Rental Income
Investment properties generate yield through monthly rental income, which is distributed through smart contracts directly to user accounts on a monthly basis. This income is considered profit and separate from the asset value.
