Blocksquare - Using Blockchain to muster Liquidity & Fractional Ownership in Real Estate
Disclaimer: I’m not a licensed financial advisor and this review is not intended as investment advice. It is for reference only.
Real Estate, although it accounts for 60% of all mainstream assets globally, is a relatively illiquid asset category. Publicly-traded REITs & Real estate crowdfunding facilitate the investors to a achieve a certain degree of liquidity, but their shortcomings are many. For example, the investors have limited control over the investment portfolio & there is a lack of a transparent, democratic governance model. The folks at Blocksquare, aware of these problems, are working hard to create a transparent, digitised & less error-prone network of tokenised commercial real estate assets using blockchain technology.
Tokenization is essentially the process of converting rights of an asset into a digital token on a blockchain. The assets could be stocks, gold, oil or real estate. The benefit of tokenization is liquidity, i.e an asset can be represented by a digital token that can be transacted through exchanges. Tokenization of Real Estate assets followed by the creation of a market to trade these tokens can increase the liquidity of these assets substantially by reducing frictions to trade. It would also facilitate fractional ownership of commercial real estate assets. This can be practically applied for all classes of commercial real estate assets- office, industrial, retail and multifamily. Blocksquare network in its early stages will focus on the growing market of professional short-term rentals (i.e. flats rented out through Airbnb).
Blocksquare aims to provide a standard protocol for Real Estate property tokenisation. This is called Proof of Title (PoT) & can be used to link any real estate property to a specific set of Ethereum based PropTokens, providing a trustless title verification method for PropToken stakeholders. The aim is to build a plug & play solution for companies wanting to build platforms to offer tokenized property investments. While doing this, companies need not worry about the blockchain architecture layer underneath.
How does it work?
Imagine a company that owns a real asset X & wishing to tokenise it. The company has to create a smart contract deployed on the Ethereum blockchain, known as a PropToken contract that stores all property related data (i.e. building number, individual part number, property ID, right ID etc). The PropToken contract will generate a set of tokens (BSPT) linked to the real estate asset. This generation event is known as a PTGE (PropToken Generation Event) & it is the process by which the tokens are made available to interested users in exchange for their Ethers. So, users can basically become the “partial owners” of the tokenised asset(X) by sending Ethers from their wallet to the smart contract address to receive the PropTokens corresponding to the underlying asset. The PropTokens adhere to the ERC20 token standard & total supply is fixed to 100,000 BSPT tokens. So, a property worth USD 1,000,000 would therefore result in a pricing of USD 10 per BSPT token. Blocksquare also aims to build a decentralised PropToken marketplace on top of the 0x protocol. This will enable users to transact tokens freely, effectively increasing the liquidity of the real estate asset.
By becoming partial owners, users are entitled to receive a portion of the income generated from renting-out the assets proportional to their stake which will be paid in standard tokens known as BST tokens. This is similar to how REITs pay out their rental earnings in the form of FIAT dividends. BST tokens are also ERC20 tokens that can be traded at exchanges. Besides being rented-out, any available short-term rental property within the Blocksquare Network can also be reserved and used by the token holders, subject to terms & conditions.
One of the great features of blockchain technology & the decentralised systems built on top of it, is that it allows for a democratic governance system. In case of Blocksquare, the PropTokens provide this governance function & the token holders have control over the most important aspects of the underlying real estate property that these tokens represent. This can be related to 1) change of property manager 2) revenue stream change 3)property expenditure etc. The stakeholders have the ability to put forward these preset motions by interacting with the PropToken smart contract.
Blocksquare also lays down the principles for Proptoken Privatisation, which means that there exist a way to convert the on-chain fractional ownership into a private off-chain ownership through the acquisition of the stakes. The motion for PropToken privatization can be initiated by a majority stakeholder. A majority stake holder will have to place a “Tender Offer Contract” allowing the minority stakeholders to send their tokens & the take over is subject to some other conditions described in the Blocksquare White paper.
BST tokens are ERC20 standard tokens that power the Blocksquare platform. The following facts drive the intrinsic value of the BST token :
- BST tokens are required by licensed real estate professionals to make use of real estate tokenization tools and create PropToken Generation Events.
- The rent generated from the real estate assets are renumerated to the stakeholders in BST tokens.
BST tokens are hence expected to gain in demand as the network of tokenized real estate properties grows.
About the BST Token Sale
The total BST supply is 100 million & Blocksquare will follow a multi-series token sale model to distribute the tokens. It will consist of presale, series a, series B & future series (C, D, E…) rounds. The team believes that this approach would facilitate long term growth by allowing gradual runway extension in the real estate industry. Denis Petrovcic, the CEO, explains the rationale for preferring this model over a single round model here
The first round i.e Presale is open to investors & information about it can be found here
The Blocksquare Team
Denis Petrovcic is the CEO of Blocksquare, an architect, entrepreneur & real estate investor, Denis holds an MSc in Architectural Engineering. He is a technology enthusiast who oftens contributes to the Hackernoon. Viktor Brajak is the CTO. The full details of the Blocksquare team can be found here.
Visit the Blocksquare Website — https://blocksquare.io
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