The Legal Guide to Real Estate on Blockchain: The Jurisdiction

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This series outlines the legal aspects of tokenizing real estate on a blockchain, and is created by Volodymyr Havrylyuk-Yensen, Legal Counsel at DigiShares | Digital Securities & STO, and Emil Holtemann, Marketing Manager at RealEstate.Exchange.

Disclaimer: This material is intended for general information purposes only and does not constitute legal advice.

The Tokenization: How Real Estate Can be Tokenised

Generally, the process of tokenization may be compared with securitization. Both convert low-liquidity real world assets into high-liquidity financial instruments, with the key difference being the method of conversion and medium of operation.

Tokenization turns low-liquidity assets into highly-liquid digital tokens enabling fractionalization, trading and compliance by design powered by the functionalities of distributed ledger technology (DLT) and decentralized finance (DeFi) ecosystem.

In practice, real estate tokenization refers to the process of securitizing the real estate assets in a Special Purpose Vehicle (SPV) and tokenizing an instrument issued by the SPV (e.g. shares, bonds, derivatives, etc.) in the form of digital tokens which are offered to investor in a Security Token Offering (STO).

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Jurisdiction

The choice of jurisdiction for the tokenization vehicle and conduct of the offering is a crucial piece of the puzzle as it determines the applicable law and regulatory constraints. The ability to tokenize certain financial instruments (e.g. shares, bonds, derivatives, etc.) is determined by the applicable corporate and securities laws, therefore, the chosen jurisdiction must allow to compliantly represent these instruments with digital tokens.

In many jurisdictions, the main obstacles for tokenization of these instruments are typically archaic processes and outdated requirements, such as the requirement for notarization to effectuate transfer of rights, non-recognition of digital shareholder registers, and legal uncertainty with respect to enforceability of smart contracts.

The following is a (non-exhaustive) list of suitable jurisdictions that avoid these pitfalls either through introduction of dedicated digital asset legislation or targeted removal of obstacles to tokenization:

  • United States (Delaware, Wyoming, California)
  • EU/EEA (Germany, France, Spain, Denmark, Luxembourg, Liechtenstein, Estonia, Malta, Portugal)
  • Switzerland
  • UAE (Dubai, Abu Dhabi)
  • Asia (Hong Kong, Singapore, Malaysia)
  • Africa (Nigeria, South Africa, Mauritious)
  • Offshore (BVI, Bermuda, Cayman Islands, etc.)

Learn More About Tokenization of Real Estate:

You can learn everything about RealEstate.Exchange through LinkTree — here you can also subscribe to the newsletter.

If you feel ready to talk about the steps of asset tokenization, reach out to me personally on LinkedIn: Emil Holtemann.

I will guide you through the steps, and set you up with the right people for your tokenization journey.

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