The real estate market represents one of the oldest and most significant investment classes. Real estate investments yield competitive returns and are particularly effective hedges against inflation, however, there have been several persistent barriers to entry, including the high cost of entry and low liquidity.

With digital currencies emerging as a new asset class, their underlying technology – blockchain networks – have evolved to not only serve transactional systems but also confer, hold and transfer value in general.

As the industry and technology continue to develop, there is considerable room in merging the old with the new, and few areas hold potential equal to the tokenization of real estate.

Tokenization, as the name suggests, is the representation of an asset or equity, in token equivalents, which can be fractionally divided and owned.

A tokenized property would be akin to a real estate investment trust (REIT), but much more flexible and with very little middlemen fees.

 

Unparalleled liquidity

 

Tokenized equities and real estate will witness unparalleled liquidity, given how the ease and secure settlement of cross-border transfers in tokens can take investment pools truly global.

Fractional ownership/Low cost of entry

Since tokens support fractional ownership, they considerably lower the cost of entry, further opening up the investor pool and unlocking developing regions and economies around the world.

Efficient administration/No middlemen

Tokenized securities can be further programmed for efficient administration – this is done via the use of smart contracts, which can easily send out dividends and support other functions, such as voting rights. Moreover, since all of these activities are recorded on the blockchain, management overheads are significantly reduced, middlemen are removed from the picture and costs are lowered for both investors and issuers.

Increased transparency

Not only are blockchain networks secure, but they are also immutable and allow for increased transparency, where every transaction and value transfer is recorded on a ledger. Access to the ledger can be permissioned if required, and overall, blockchain implementations are flexible.

Current challenges to tokenization of real estate

While the prospect of tokenized real estate is quite attractive, its implementation is not without challenges.

First, there is a need for improved security practices and general awareness around the custody of digital tokens. Time and again, we see exchanges getting hacked and/or cryptocurrency owners losing their holdings due to security lapses as simple as phishing attacks and keyloggers.

Until institutional-grade custody solutions and exchanges become mainstream, the dream of tokenized real estate will be difficult to realize.

While there are several reputable platforms, such as Polymath and Swarm, they only take care of the technology end of tokenization. Before there can be any meaningful adoption, regulatory developments need to be made. Even when tokenized, real estate tokens fall under securities law, and compliance procedures need to be followed. Unfortunately, there is the feeling of a lack of clarity surrounding digital securities, and presently, industry stakeholders have adopted a “wait and watch” approach.

Promising ventures in the real estate space

Recognizing the potential in this space, the BitBull Fund already has exposure to promising ventures like TrustToken (which supports the tokenization of most real-world assets), and we are observing other projects such as Harbor, which supports digitization of various kinds of securities, RealBlocks, which democratizes access to alternative investments by tokenizing real estate investment funds, and Meridio, which allows property owners to liquidate their assets flexibly using smart contracts and issuing digital tokens backed by the underlying real estate.

 

Given the benefits of tokenizing securities (particularly the reduced buy-in price and increased liquidity in real estate), it is all but certain that the future will see a larger-scale adoption of digital securities, and it will be better for the industry that it happens when everyone is ready for it.

This is a view shared by industry pioneers, such as Perrin Quarshie of RealBlocks, who says, “I think adoption will come when blockchain projects can efficiently deliver on the value proposition that tokenization offers. Some of that will take time, but we’re beginning to see a lot of banks and other organizations recognize the intrinsic liquidity enhancements associated with tokenization.”

Disclosure:

As of the publication date of this report, BitBull Capital Management LLC and its affiliates (collectively “BitBull”), others that contributed research to this report and others that we have shared our research with (collectively, the “Investors”) may have long or short positions in and may own options on the token of the project covered herein and stand to realize gains in the event that the price of the token increases or decreases. Following publication of the report, the Investors may transact in the tokens of the project covered herein. All content in this report represent the opinions of BitBull. BitBull has obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind – whether express or implied.

This document is for informational purposes only and is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and BitBull’s views as of this date, all of which are accordingly subject to change without notice. BitBull has no obligation to continue offering reports regarding the project. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific token, and is not expressed as, or implied as, assessments of the quality of a token, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or token discussed herein.

The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond BitBull’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all tokens discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.

This blog may contain forward-looking statements that are based on BitBull’s experience and expectations about the markets in which the fund invests and operates. Forward-looking statements are sometimes indicated by words such as “anticipates,” “expects,” “believes,” “seeks,” “may,” “intends,” “plan,” “should,” “attempts,” “will,” “intended to,” “designed to,” “seeks to” or the negative of these terms or other similar expressions. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made. Forward-looking statements are not guarantees of future performance and are subject to many risks, uncertainties and assumptions that are difficult to predict. Actual results may differ, and such differences may be significant. Neither the fund nor BitBull Capital undertakes any obligation to revise or update any forward-looking statement for any reason, unless required by law. The forward-looking statements contained in these blogs are expressly qualified by this cautionary statement.

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