Security Tokens Are Bringing Liquidity To Sustainable Land Development

Intelligent finance for the development of real estate assets.

Security tokens bring a number of significant advantages to real estate developments that are now beginning to be utilized. As blockchain technology is adopted on a wider scale we may see opportunities for the utilization of security tokens which extend beyond commercial applications in real estate. The blockchain is improving the liquidity, safety and value of owning land and opening the market to greater numbers of global investors.

Security tokens are the digitization of traditional securities such as the ownership of land. However, they deliver a number of significant advantages as they are issued on the blockchain. Security tokens are inherently more liquid than traditional securities as they can be continuously and globally traded on digital exchanges.

The international nature of security token trading provides access to greater numbers of investors than can be achieved through traditional shareholding structures. Security tokens are stored in an investor’s digital wallet and can be traded from any smart device with an internet connection. The tokens themselves can be programmed for fractionalization allowing investors to purchase and trade in small quantities that lower the cost of entry. Enhanced liquidity is at the heart of the tokenization process for both developers and investors.

The ability for security tokens to act as smart contracts on the blockchain allows them to be programmed in innovative ways. Sales or holding periods can be specified to define how and when tokens can be traded. The technology can also be leveraged to streamline the voting process in the management of real estate developments. Due to the immutable nature of the blockchain, ownership and voting rights cannot be falsified which will improve the corruption associated with land sales in some territories.

In Japan, Tokai Tokyo Financial Holdings and Tosei are working together to offer security tokens which leverage the rental income from their commercial real estate assets. Unlike other real estate based security tokens which offer investors the opportunity to profit from a rise in the asset value, these tokens will deliver proportional dividends from the rental income of the properties. Information such as occupancy rate and maintenance status could be programmed into the tokens to improve transparency. The digital nature and programable options achieved through the blockchain will improve the ways in which developers communicate and distribute dividends amongst investors.

The size of the security token market is rapidly increasing and currently outperforming traditional markets. STM’s Security Token Market Report last month showed that the market capitalization of the 20 tokens listed on stomarkets.com was $392 million with $8 million traded during the month of July. Month-to-month the aggregate security token market capitalization increased over 45% to nearly $145 million and last month security tokens outperformed major US indices like the Dow Jones, Nasdaq and S&P 500. Blockchain-based tokenization allows investors to trade on secondary exchanges which is driving demand in a market that values liquidity.

The market for security tokens has an enormous impetus for growth which is being strengthened by the increasing number of international exchanges. Singapore, Monaco and Luxembourg are all aggressively positioning themselves to take advantage of the expanding global market.

The digital nature of the blockchain is opening these markets up to global investors who need only undertake a few minutes of online verification to satisfy KYC and AML requirements. As the number of global exchanges grows, so to will the inherent liquidity of security tokens.

From a commercial perspective, there are many advantages to tokenizing real estate assets. Enhanced liquidity, a global marketplace, smart contracts and streamlining through digitization are just the beginning. Perhaps in the future, we will see the technology implemented in land rights for indigenous communities.

Traditional custodians of land across the planet have often had their land rights manipulated. Security tokens would allow immutable ownership records and could bring international investment into our oldest communities. The money raised through security token offerings of indigenous land could be mandated for investment in either preservation or development projects. Security tokens could bring transparency to the ownership of indigenous lands and help to reduce corruption while providing funds for community development.

As the market matures we are set to see new and innovative implementations of security tokens and how they represent real estate assets. The enhanced liquidity they bring will assist in funding sustainable development projects which might otherwise have struggled to access the liquidity of traditional markets. The blockchain brings accountability and transparency to the marketplace which combined with a reduced cost of entry is sure to appeal to an increasing number of developers.

Sonata Capital is registered in the Labuan International Business & Financial Centre, and invests in companies successfully exploiting the vast opportunities of the digital economy.

100% of the equity in our funds have been tokenised, and will be listed on digital securities exchanges in Labuan and elsewhere. The equity of Sonata Capital Ltd (LL16076) has also been tokenised, and the rights to the equity is represented by the SONATA security token issued on the Ethereum network.

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