Investing in tangible assets is about to get more efficient and accessible. Very often high entry barriers and lengthy tedious processes prevent individuals from pursuing the opportunities to invest in art, diamonds and real estate. This might change with the introduction of blockchain technology and tokenization.
The problem with the current landscape
At the moment, investing in big value assets is challenging. It requires a lot of capital, leaving some potential participants out. A successful process depends on multiple steps and intermediaries.
For instance, a real estate investment is always preceded by an ownership check, an evaluation of the property value, payment confirmations and many trips to the notaries. The need for a trusted third party’s validation slows the transaction down and makes it more expensive. As a result of the above mentioned factors, the asset becomes illiquid.
The solution
Tokenization allows to represent traditional assets digitally and fraction their value. For example, if there is a property worth $200,000, we can represent it with 10,000 security tokens, $20 each. Consequently, investors are be able to purchase as many tokens backed by the asset’s value as they want, whether it is just one or all 10,000. This flexibility establishes a lower entry barrier and more trading potential.
The growing number of participants and capital on the market will increase the demand for such assets driving their values up and, therefore, increasing the value of tokens. With a proper platform in place, individuals should be able to sell and buy such tokens 24/7 regardless of their location with no need for the third-party verification. Consequently, traditional assets gain the liquidity they have never had before.
The technology
None of this would be possible without recent developments on the distributed ledger technology.
The initial value of an asset and the number of tokens backed by it are recorded on blockchain, just like any future transactions will be. Terms and conditions are outlined in a smart contract that nobody can abuse, alter or destroy. Once an investor acquires tokens, the fact of this ownership cannot be manipulated. Thus, blockchain also solves the problems of poor transparency and asymmetric information that buyers and sellers have.
Therefore, tokenization has multiple benefits:
Lower Risk — The option to invest in fractions of different assets allows to diversify a portfolio thanks to lower costs of each separate investment. Higher diversification reduces the risk of losses from under performance.
Higher Liquidity — With tokens representing only parts of the asset’s value, selling and buying becomes easier and more affordable, attracting new players to the market.
Efficient Processes — Automated platforms and smart contracts eliminate the need for middlemen, reducing the cost and saving time.
No Barriers — Thanks to blockchain and smart contracts, international investors can acquire tokens backed by the assets located anywhere in the world without living the country or compromising their security.
Tokenization is already changing the way people want to invest and there is no doubt it will have a huge impact on the industry. REINNO’s aim is to provide breakthrough solutions that will make it possible. From the Tokenized Fund to the REINNO Platform and even Lending, our services will offer something unique to everyone interested in real estate investments.
Do you want to learn more about real estate tokenization and its applications? Check out our website to see the solutions we are currently working on at reinno.io
