Recently, Harbor, a blockchain startup focused on tokenizing securities, such as real estate, fine art or private equity, launched its initial offering – the sale of a $20 million students dorm near the University of South Carolina. According to the company, the property will be split into 955 tokens valued at $21,000 each, for a total of $20 million.
New Age for Private Securities Investments
It is undeniable that it is profitable to invest in real estate, as well as others illiquid assets, such as company equity, investment funds, or fine art. Unfortunately, there are no easy ways to make money, and this isn’t an exception. Investing in real-estate might sound easy at first, but that quickly changes. Some even say that investing in real-estate is harder than in stocks and they would be right — the mountains of paperwork required are just mindboggling.
The other downside is that even if you do manage to get through the tedious process successfully, you will most likely end up selling it for less than its actual value. According to some researchers, illiquid assets are estimated to get about a 20–25% reduction to their value. But what exactly are illiquid assets?
To put it simply, “illiquid refers to the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.” This is usually due to the lack of willing buyers for the given asset.
The issue with tokenizing securities is that it takes a lot of work to comply with their regulations. To help with the tedious processes and solve the illiquidity issues of those assets, Harbor is building a protocol that ensures each token transaction complies with the securities laws all over the world.
Joshua Stein, the chief executive officer of Harbor, said that “At any given moment we can tell the issuer the exact person or entity who owns what and when.” Since this is required by law, the company demands new customers to go through a “know your customer,” or KYC process. Besides that, setting up an account on their platform is as easy as opening up a brokerage account.
Stein believes that the “Tokenization of private securities can bring liquidity to trillions of dollars of traditionally illiquid assets.”
The Mega-Dorm You’ve Probably Never Dreamt Of
The building, owned by Convexity Properties, is a 14-story complex that has “world-class amenities,” or at least that how it is described on the website. The rooftop of the build is complemented with a pool, a hot tub, and a 2,200 square foot fitness center.
With the initial sale of Harbor, the property owner intends to raise a minimum of $15 million. On the company’s platform, investors will be able to exchange USD, Bitcoin, and Ethereum for the tokenized securities.
In the wold of blockchain technology, there are a lot of buzzwords. It can get kind of annoying.
Between that and the endless theories about different use cases, the whole thing can come across as naive, even become kind of off-putting. One of the most important and developed use cases is tokenisation – that’s one of the brand new buzzwords you definitely want to remember.
Tokenisation refers to the practice of representing an asset through a set amount of tokens which are all stored on a blockchain ledger. Why is this a big deal? Well, it’s a similar idea to representing an asset with fiat – in this case, however, the transaction record is stored immutably on the blockchain, so it’s fully transparent.
I’m talking never before seen levels of transparency here: users can purchase a fraction of an asset and know with certainty where there money is going, how many other tokens there are, where they are, and proving the transfer of ownership is easy. The ledger can’t be altered, allowing investors to rest assured that they have indeed bought a token amount of their asset, that it belongs to them, and that no-one’s going to take it.Sounds good, if a little abstract – what kind of assets are we talking about here?
You can tokenise anything
Let’s see some examples, shall we?
Many projects are looking into the idea of monetizing real estate investment in a new way. Think Time Share, but even more abstracted – these projects will allow you to invest in houses and other buildings, even a tiny fraction. If the property value increases, your holdings increase, and you can sell your token amount whenever you want. Strange, but interesting.
Treehouse is a project aimed to transform the illiquid realm of real estate investment into a sea of opportunity, allowing anyone to invest whatever amount they like into promising real estate projects. The project proclaims itself to be borderless, agile, transparent, secure, and affordable.
A market that was once highly expensive and risky to invest in is becoming much more accessible with these kinds of projects, and they have the advantage of instant liquidity. Selling real estate can take months or even years in some cases. With tokenised real estate, if market conditions begin to change the transfer of ownership can be done instantly and with much greater ease than before.
The same goes for one of the most expensive luxury assets there is – art. Paintings are a hot commodity to say the last – Leondardo DaVinci’s Salvator Mundi sold for almost half a billion dollars last year, which is crazy when you think about it. $450 million for a painting. It’s not the first time it was sold, of course – it was bought and sold for profit (significant gains, in this case!). These things are usually private – maybe it was one buyer, maybe it was a group or an organisation.
Tokenisation allows ordinary people to get in on the potentially profitable world of art dealing. Imagine being able to purchase .07% of a DaVinci painting (I mean, not that DaVinci painting necessarily. 0.07% of that is still like over 300 grand, so…). By agreeing that a certain amount of tokens represent an the value of an asset and offering people the chance to buy them, you’re creating liquidity and fungibility in items that before now had zero of either.
Buying and selling tokens that represent an asset make them liquid and creates a secure system by which to transfer value.The Maecenas project is designed specifically to accommodate this process, describing itself as “the first open blockchain platform that democratises access to Fine Art”. Given that some of the greatest cultural treasures of every nation have before now been for sale to the superduper elite, that sounds pretty great in my opinion.
Tokenization opens up worlds of new weird and perhaps wonderful opportunities allowing for very specific investments in tokens representing a portion of an asset.
One of the most… interesting examples I’ve seen?
At the London Crypto Investor Conference earlier this year I came across an ICO whose entire proposal was to allow users to purchase a token amount of a luxury car. Now, as cars are notorious for depreciation and also, you know, being driven and not used as assets, you probably have a lot of questions to ask me before committing to investing in this innovative and forward thinking project.To answer all of your questions, yes. Of course the cars include Lambos. What do you think this is, amateur hour?
No link for this one, only because I think it’s kind of silly. Maybe I’m wrong. Some of the most major, least silly things you can tokenise are securities.
A traditional security are defined in Investopedia as “an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity’s bond), or rights to ownership as represented by an option.”
Stocks, shares, etc – these can now be tokenised for the masses. How is that different from buying them through the current system? Well, to buy securites through tradittional channels, there are a whole lot of brokers, bankers, and other middlemeen to get through, and unlike a blockchain ledger, they all have to eat.
Tokenised securities offer low fees, instant, safe and efficient transfers, and tamper-proof data protection. Securities actually are fungible, unlike a lot of the other assets now up for grabs, but tokenisation can still vastly improve the process and open it up to the public. Further to that, blockchain tokens are under the direct control of the users, not held by brokers or banks. We all know how that can turn out.
That’s why these projects refer to the process as democratization of assets – we’re entering an era where people no longer need banks and middlemen in order to invest in valuable assets. As blockchain advances, we get closer to controlling our own funds and financial futures. Want to invest $40 in a $1 million painting? Go ahead. Want to buy stocks without a stock broker? It’s in the pipeline.
Tokenisation is going to completely transform the world of investing forever, putting power into the hands of ordinary people and giving them options that before were reserved for the rich and powerful only.