Property and Security Tokenization

By Gerry Brady | Blog

Apr 04

The property industry is ripe for disruption. Many other industries have already seen the huge impact of new technologies and new business models. The taxi industry has been disrupted by the arrival of Lyft and Uber — companies that own no cars. And the accommodation industry has been disrupted by Airbnb — a company that owns no accommodation. So how can new technology and new business models disrupt the property market?

To understand the answer, you must come to terms with the complex world of Crypto and especially the coming rise of Security Tokens.

You may know nothing about Bitcoins or blockchains. And being blissfully unaware sounds comforting but, if you ask any taxi owner, you will soon be warned to pay attention. The Crypto world started with Bitcoin being issued on a blockchain in 2008. Confused already? Relax — a blockchain is just a fancy word for a new form of self maintaining database and we are all very familiar with what a database is and what it can do.

Since 2008, we have moved through the promise of alternative currencies, the promise of better payment systems, the promise of “utility coins” and the promise of these digital “coins” being a possible store of wealth. After 10 years, it is now obvious that most of those overhyped promises have not been fulfilled.

However, the next iteration of this phenomenon has already started and that is where the property market could be disrupted. This new phenomenon is the digital tokenization of anything of present or future value — including assets, future assets, revenues, future revenues, profits, future profits, cash flows and future cash flows. This is called Security Tokenization and it is very different to all the previous iterations of the blockchain world. Why? Because it is concentrated on being strictly legal, accepting at the outset that these digital “tokens” are, in fact, securities and that their issuance complies fully with Securities Law.

So — how can Security Tokenization change the world of property?

The fact is that it already has. The St Regis Aspen Ski Resort in the USA late last year issued a number of digital tokens as a “Tokenization” of their REIT (Real Estate Investment Trust) and sold those tokens to private investors for US $ 18 Million. It was an offer only to “accredited investors” which generally means high net worth or very high income individuals. The minimum investment amount was $ 10,000. In this case, as far as I am aware and to the best of my knowledge, Aspen token holders were not granted any voting rights. Token holders may receive distribution payments in the future but that was not guaranteed. They are “locked in” investors for 12 months which means they cannot sell during that time period. Despite all these negatives, the capital raise was successful.

The website describing the investment offer (in general terms)  is still online here.
A media article on the matter is here.

Quote: “An Elevated Returns spokesperson wrote, “We’ve tokenized a portion of the St Regis Aspen which we formed as a single asset real estate investment trust (REIT). In accordance with the terms of the deposit agreement, each Aspen Digital Token will represent an indirect ownership interest in one deposited share of our common stock (the REIT which was formed for St. Regis Aspen). Essentially you have the best of both worlds with REIT structure in place and blockchain technology with smart contract for St. Regis Aspen. The REIT provides tax efficient structure while the blockchain provides peer-to-peer investing and cross-border transaction made simpler for investors.” Unquote.

Not long after, a US company called tZero issued tokens to raise US$ 134 Million. They proposed to become a sponsor, a mentor company, to help other companies move into the world of Tokenization. They also planned to establish an online exchange for the secondary market trading of security tokens.  You can read a media article about that here

And, just 2 weeks ago, a German company called BitBond issued the first German Bond-like financial security as a Token. That financial instrument was approved by the German regulatory agency.

It offered a Security Token with a 10 year duration. Interest of 4% is payable annually (1% per quarter) plus a variable bonus coupon payment annually. It is called the BitBond Token (BB1). After 10 years, the BB1 matures and is bought back at its original face value of 1 Euro per token. The funds raised will be used to create loans for SMEs based all around the world.

The issuer of the token is Bitbond Finance GmbH, a company fully owned by Bitbond GmbH. Bitbond is a crypto-currency based lending platform for business loans that operates globally. Founded in 2013, Bitbond now facilitates more than $1 million in business loans every month.

Germany’s first security token will be issued on the Stellar blockchain. With a processing capacity of over 1,000 transactions per second, transaction costs at a fraction of a cent, a built in decentralized exchange and a global network of active partners using the platform, Stellar is one of the most efficient blockchains for payment processing and token issuance.

Who can invest in the BB1 token?  Answer — Anybody around the world who is not a US or Canadian citizen. The project received approval to issue this tokenized bond from Germany’s Federal Financial Supervisory Authority (BaFin).

BitBond are hoping to raise a maximum of US$ 113 Million and a minimum raise of $ 3 Million.

If you wish to learn more about Bitcoin and Blockchain, I summarized the history of Blockchain technology in some detail in my February article titled “The Birth of Bitcoin” which was in my New Technologies Mid Week Report 20th February 2019. You can read that here.

But here are the key points —

  1. The first Cryptology BlockChain paper occurred in 1991 — 27 years ago. It was essentially a cryptographic description of a “chain of blocks”.
  2. The National Security Agency of the USA (the NSA) released a paper on 18th June 1996 — 22 years ago. “How to Make a Mint – The Cryptography of Anonymous Electronic Cash”. It was published by MIT October 31st 1996 — the Massachusetts Institute of Technology.
  3. Satoshi Nakamoto released the original paper on Bitcoin on October 31st 2008 on Bitcoin.org. The Source Code was implemented early 2009 — 10 years ago.

Bitcoin was the first so-called “digital coin” that was created and promoted as an alternative currency even though all national currencies are digital and have been digital for over 50 years since computer ledgers were developed by the banking industry. Since Bitcoin was launched, thousands of such “digital coins” have been created and sold in exchange for national currencies. Some say that this is the greatest crime of fraud ever perpetrated in history. People have essentially handed over hard earned fiat currency for various packets of data that had some rather questionable claims attached.

But the new Crypto world of Security Tokenization is very different indeed.

A discussion group will be held at Avestix on this matter (and others of interest in the property world) at the Avestixlab headquarters 143 Wickham Terrace, Fortitude Valley on Wednesday 17th April.  Registration 5.30pm Start time 6.00pm. We look forward to a vigorous discussion and we hope to see you there.


Make your own conclusions, do your own research. Avestix does not offer investment advice.

Disclaimer: All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research. Neither Avestix nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

Charts: Charts from Stockcharts.com The red arrows are drawn by Avestix and indicate price pulse directional dominance. Arrows indicate PAST price action (not future). No predictions are implied from past action.

About the Author

Book your first week in our co-working space for FREE! Limited spaces available sign up today!

>