Aug 167 min read

Tokenization Use Cases: Insights from Tokeny’s Case Study

Tokenization use cases are revolutionizing the way we think about asset ownership and investment. The real estate market, traditionally known for its high barriers to entry and illiquidity, is experiencing a significant transformation through blockchain technology and asset tokenization. This innovative approach has an influence on how properties are bought, sold, and managed, opening up new possibilities for fractional ownership and increased market accessibility.

To address the challenges in the traditional real estate market, companies like Tokeny are developing solutions to tokenize properties and create security tokens. These digital assets represent ownership rights and enable fractional investment in real estate. The article will explore Tokeny's case study to analyze the practical applications of real estate tokenization, its impact on regulatory compliance, and its potential to create more efficient secondary markets. It will also examine how tokenization is shaping the token economy and transforming property rights in the digital age.

Understanding Tokenization in Real Estate

Definition of tokenization

Tokenization in real estate refers to the process of dividing a property into digital tokens that represent ownership rights and liabilities [1]. These tokens are created using smart contracts, which are automated pieces of code stored on a blockchain [1]. Essentially, tokenization transforms a real estate asset into smaller, more accessible digital fractions [2]

Benefits for the real estate industry

Tokenization brings several advantages to the real estate sector:

Increased Efficiency and Transparency: Blockchain's decentralized structure makes transactions transparent and immutable, ideal for complex real estate processes involving multiple parties [1]
Enhanced Liquidity: Traditional real estate often suffers from liquidity issues, deterring many investors. Tokenization addresses this problem by making it easier to buy and sell fractional ownership [1]
Accessibility for Smaller Investors: Real estate has typically been an elite investment option. Tokenization opens up opportunities for retail and small-scale investors by lowering the capital threshold [1]
Cost Savings: Roland Berger's study projects that tokenized equity could reduce trading costs by €4.6 billion by 2030, with even greater savings when considering all asset classes [3
Automated Compliance: Smart contracts handle the entire process of tokenizing and selling on-chain, leading to transparency, automation, and security [2]

Tokeny's role in asset tokenization

Tokeny is a leading provider of tokenization solutions that enable seamless issuance, management, and transfer of digital assets on a secure blockchain infrastructure [4]. Their T-REX platform offers:

Flexible Infrastructure: Allows issuers to tokenize any asset on any EVM blockchain, regardless of jurisdiction [4]
Built-in Trading Solutions: Provides connectivity with a global network of trading venues [4]
Compliance Integration: Uses ERC3643 smart contracts to ensure digital securities can only be traded between qualified investors [4]
Data Enrichment: Allows issuers to embed additional data, such as up-to-date pricing, into the tokens [4]

By simplifying the tokenization process, Tokeny aims to bridge the technology gap and make blockchain-based real estate investment accessible to traditional financial professionals [3].

Key Challenges in Traditional Real Estate Markets

The traditional real estate market faces several significant challenges that impact investors, property owners, and the industry as a whole. These challenges have an influence on the market's efficiency, accessibility, and overall performance.

Localized and stagnant assets

Real estate assets are inherently tied to specific locations, making them less flexible compared to other investment options. This localization can lead to stagnation in certain markets, especially when economic conditions change. Investors often need to consider factors such as local economic trends, population growth, and potential for future development when making decisions [5]. The cyclical nature of the economy can have varying effects on different types of real estate, with some property types being more sensitive to economic fluctuations than others.

Low liquidity

One of the most significant challenges in traditional real estate markets is the low liquidity of assets. Real estate is often considered an illiquid asset class due to various factors specific to this industry [6]. Unlike stocks, which can be easily bought and sold on the market, real estate investments typically require investors to commit their capital for extended periods. This lack of liquidity can be a deterrent for many potential investors, as they cannot quickly convert their holdings into cash when needed.

Fragmented data systems

The real estate industry is notorious for its messy data ecosystems [7]. Information often resides in disparate systems, scattered across various platforms and formats. This fragmentation hinders effective management and creates silos that impede collaboration and analysis. The lack of standardized processes complicates the task of deriving meaningful insights from the available data [7]. Additionally, the fragmented ownership structure within the industry contributes to data remaining siloed and inaccessible, further inhibiting valuable insights [7].

These challenges collectively contribute to the complexity of the traditional real estate market, highlighting the need for innovative solutions to address these longstanding issues.

Tokeny's Solutions for Real Estate Tokenization

Tokeny has emerged as a leading provider of tokenization solutions, offering innovative approaches to address the challenges in traditional real estate markets. Their platform enables the seamless issuance, management, and transfer of digital assets on a secure blockchain infrastructure [8].

Global accessibility

Tokenization opens up real estate investments to a global investor base, breaking down geographical barriers and broadening the potential for investment diversification [9]. Tokeny's solutions allow investors from around the world to easily purchase and trade tokens representing fractional ownership in properties. This global accessibility has an influence on increasing demand for all properties and attracting a wider range of investors [2].

Improved liquidity

One of the key advantages of Tokeny's tokenization approach is the significant improvement in liquidity for traditionally illiquid assets like real estate [9]. By dividing properties into digital tokens, investors gain the ability to buy and sell fractional ownership with greater ease. This enhanced liquidity addresses one of the major challenges in traditional real estate markets, making it easier for investors to enter and exit investments [2].

Streamlined compliance processes

Tokeny's platform incorporates built-in compliance measures to ensure regulatory adherence. Their T-REX platform uses ERC3643 smart contracts to ensure digital securities can only be traded between qualified investors [8]. This automated compliance process reduces the need for costly intermediaries and streamlines the entire investment journey. Smart contracts handle the tokenization and selling process on-chain, leading to increased transparency, automation, and security [2].

By leveraging these solutions, Tokeny aims to bridge the technology gap and make blockchain-based real estate investment accessible to traditional financial professionals [8]. Their approach has the potential to revolutionize the real estate market, offering compelling advantages that drive efficiency, accessibility, and growth in this evolving landscape [9].

How it works?

Tokeny is the leading onchaing operating platform designed to offer the capabilities of token creation and real assets digitization. Security tokens are defined as securities from legal standpoint and hence typical securities laws from the issuer and investor jurisdictions apply. Hence there is need for these tokens to be allocated to eligible and approved investors only. As such, Tokeny is utilizing an official standard for permissioned tokens, ERC-3643. This is an open-source suite of smart-contracts that facilitates the issuance, management and transfer of permissioned tokens [12].

ERC-3643

With the ERC-3643, the compliance is programmed into the security token. Transfers to ineligible investors are impossible through the fast and secure validation system.

[Reference: https://www.erc3643.org/]

ERC-3643 token is fully integrated and compatible with ERC20 protocols.

Real-World Applications and Case Studies

Tokenization has begun to demonstrate its practical benefits in the real estate sector, with several companies leveraging this technology to streamline processes and enhance investment opportunities.

BlocHome's cost reduction

Luxembourg-based BlocHome has successfully implemented tokenization to democratize access to real estate investment. By utilizing Tokeny's T-REX solution, BlocHome has managed to reduce compliance and administrative costs by an impressive 90% [10]. This significant cost reduction has enabled the platform to offer fractional real estate investments starting from as low as 1,000 euros. BlocHome's co-founder, Jean-Paul Scheuren, emphasized the transformative impact of tokenization, stating that it allows them to "turn real estate into a liquid asset in a fast, secure, and most importantly, user-friendly approach" [10].

WeInvest Capital Partners' fund tokenization

In 2020, WeInvest Capital Partners took a pioneering step by tokenizing the first real estate fund in Luxembourg [11]. They selected Tokeny Solutions to provide end-to-end digital services for compliant investor onboarding and management. This initiative aimed to improve the transferability of their Premium Real Estate Fund [11]. Tokeny's solution facilitated digital onboarding and subscription of investors in compliance with WeInvest's Investment Memorandum. Additionally, it enhanced fund registry management by creating digital proof of ownership for each investor's position [11].

Conclusion

The tokenization of real estate assets, as demonstrated by Tokeny's innovative solutions, has a significant impact on transforming the traditional property market. By addressing key challenges such as low liquidity and fragmented data systems, tokenization opens up new possibilities for global accessibility and improved investment opportunities. The case studies of BlocHome and WeInvest Capital Partners show how this technology can lead to substantial cost reductions and enhanced fund management, making real estate investments more accessible to a broader range of investors.

Looking ahead, the adoption of tokenization in real estate has the potential to cause a revolution in how properties are bought, sold, and managed. As more companies embrace this technology, we can expect to see increased efficiency, transparency, and liquidity in the real estate market. This shift towards digital asset representation not only benefits investors but also has a positive influence on the overall health and growth of the property sector, paving the way for a more inclusive and dynamic real estate ecosystem.

FAQs

Q1: What does tokenization entail?

Tokenization refers to the process of transforming assets into digital tokens that can be exchanged on a blockchain platform. Initially, this approach was mainly utilized for fundraising, enabling startups to generate capital by issuing and selling security tokens through Security Token Offerings (STOs).

Q2: What applications are there for tokenized deposits?

Tokenized deposits function similarly to traditional bank deposits, which constitute over 90% of the money currently in circulation. These deposits are versatile and can be used for various purposes including domestic and international payments, trading and settlement activities, and serving as cash collateral.

Q3: How is tokenization applied at WeInvest?

At WeInvest, tokenization is employed to create digital versions of physical assets. Additionally, it is used as a method to safeguard sensitive information.

Q4: What challenges does tokenization address?

Tokenization addresses several issues by enabling more streamlined transactions and broadening access to investment opportunities that were traditionally limited to specific groups. This process also increases the liquidity of assets that are usually difficult to sell quickly, such as real estate and artwork.