Real Estate Tokenization Collapses Amid Unrealistic Expectations
November 26, 2019, by Marko Vidrih on ALTCOIN MAGAZINE
Security token offers with the participation of a limited group of investors will provide direct liquidity to an outdated financing system in the real estate industry. It was on this premise that the Fluidity technology service provider joint venture, supported by Consensys founder Joe Lubin and Galaxy Digital’s Michael Novogratz focused on the digital asset-focused broker-dealer Propellr, was based.
The cooperation of the two companies received significant media attention, for example, it was viewed from the positive side by the famous real estate broker Ryan Serhant (star of the cable television show “Sell It Like Serhant”) in the video on Bloomberg. However, the long-awaited transformation of the multi-billion dollar industry never happened, CoinDesk writes. Fluidity and Propellr quietly turned off the project this summer and each went into their own business, agreeing that the tokenized asset market was not yet suited for implementation in the real estate industry.
“The market was just too young at the time,” said Sam Tabar, a co-founder at Fluidity. “It didn’t have sufficient institutional appetite.”
“Tokenized real estate came with an embellished promise,” said Todd Lippiatt, CEO at Propellr. “It came from a place where people were actually mixing verbiage. From my personal perspective, what they were claiming as liquidity, is really market access.”
Institutionals want to see liquidity before they re-equip their structures to work with this type of offer. Issuers need to bring tokens to the market in order to confirm their position, which is why a problem like “chicken or egg” arises.
Instead of institutional involvement, the hype surrounding tokenization caused a “negative selection”, attracting people who had no other means of raising funds, Lippiatt said, adding:
“I think at one point we had $3 billion worth of interest in tokenization,” Lippiatt said. “But once you started to sift through it all, there was a bunch of people who wanted to raise money for really bad deals.”
The same fate awaited a joint project between the blockchain startup Harbor and the real estate unit of the trading company DRW Holdings, which wanted to tokenize student housing worth $20 million.
According to a source familiar with the situation, one oversight prevented the implementation of the plan. The parties to the transaction reviewed the condition of the impossibility of transferring property in a mortgage agreement, and the holder of the preferred debt in the person of an American bank did not give permission.
A Harbor spokesman said the problem was not related to tokenization, but since then the startup has been focusing exclusively on technical issues and is not trying to organize fundraising campaigns.
“There is stuff in production,” said Harbor CEO Josh Stein. “We have clients with tokenized securities and there have been some trades in real estate. Is it flying off the shelves? The answer is no.”
Stein added that he sees this as a normal process of technology development, which in this case showed a discrepancy with the expectations.
Author: Marko Vidrih
