Security tokens offer great potential. Nowhere is this more evident than in the world of real estate.
One of the largest markets in the world, with an estimated market cap of $225 trillion, is known for not being liquid. This creates a host of problems when trying to buy and sell properties.
For this reason, security tokens are thought to be a solution. They will provide instant liquidity while also reducing the time it takes for transactions to complete.
Thus far, the market is rather slow to develop.
That said, there are a number of projects starting to embrace this mode of oepration.
A French fintech firm, ID Distribution partnered with Groupe JRI to tokenize a number of Paris properties.
According to a June 17 announcement, ID Distribution and Groupe JRI plan to jointly issue security tokens and a Frankfurt listed bond to acquire buildings in downtown Paris. The total amount of funds to be spent, 70 million euros (about $78.5 million) will be allocated to acquire five buildings which will be then leased.
Obviously, in the real estate industry, this is not a huge deal. Nevertheless, it is a starting point which bigger ventures can be built upon.
One of the advantages to the tokens in this project is they return 6.5% yield.
Security tokens are authorized by the regulators, having to meet requirements similar to other securities. This is not the "Wild West" that many idealists seek yet it does open the door to much greater flexibility.
To start, on the secondary markets, the tokens can be offered. This particular project is going on a private blockchain but they can just as easily go on a chain such as Ethereum.
Once on the secondary market, individual investors should be able to get involved at levels unseen before. This is where the idea of fractional ownership enters the picture. In the past, the idea was to find a small number of heavy hitters who could bring lots of money to the table.
It is possible that the new model will be to find large number of users who can bring small amounts of money to invest. Cryptocurrency, as it expands, can offer this type of solution. Eventually, we could see billions of users with cryptocurrency who can fund different projects.
This is where we will see a mixture of old and new. Our financial system is still built around the old model which was used for decades. Cryptocurrency and tokenization is bringing upon rapid change to some areas that haven't been altered in a half century.
There is obviously resistance from old institutions as they seek to maintain the status quo. FIntech, over the last decade, has certainly changed some of the old financial world.
While security tokens have not found mainstream acceptance within the traditional financial community, there were some rather large deals already completed.
In March, a Texas company named Red Swan, tokenized $2.2 billion worth of commercial real estate with the intention of doing another $4 billion more.
We are still in the very early days of these innovations means we will see a lot more variety in the future.
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Posted Using LeoFinance