The Real Estate Revolution: The Rise of Tokenization

It is clear that the real estate tokenization is leading a revolution, not only in the real estate sector, but it is leading a major change in the economy as we know it. A change that gives more power to those who could never have it, and the opportunity to own their finances. Today we bring you the origin of the Tokenization and their main differences compared to the securitization that led us to the 2008 crisis. Origins of Tokenization

It's debatable when exactly the term came in”Tokenization“in the lexicon of digital assets, but it may surprise some to learn that the origins of the concept in its current digital form lie in a data security system implemented in the United States to protect credit card data almost 22 years ago.

In 2001, the payment company TrustCommerce introduced a system that replaced credit card information stored on local servers, which was relatively poorly protected and therefore had an exploitable value. This information was replaced by Tokens -strings of random numbers- that greatly improved data security because they had no value of their own.

And the roots of the Tokenization go back much earlier. Think, for example, of casino chips and physical currencies, and you'll get the idea: value chips that have no inherent value, but can be exchanged for items with value in the real world.

Without going any further, the best example we can show you are the Tokens of our tokenized properties. Each of the Tokens of the real estate is valued at 100€, but the token itself has no value, but the value of the token is backed by the token itself value of the property. This means that its value will not fluctuate like that of cryptocurrencies, but rather that it is a stable and secure value, since it is directly supported by a real asset, in this case, our tokenized properties.

The advantage of using Blockchain technology

La Tokenization in the digital asset sector, it is a direct consequence of these representations of value, but with a utility enhanced by technology blockchain and smart contracts (or smart contracts).

A key function of the Tokenization in the digital asset space - and specifically in the decentralized finance (DeFi) sector - it is to make illiquid assets liquid and, therefore, easily exchangeable, which leads to a greater increase in their value.

The variety of assets that can be tokenized in DeFi is practically unlimited, from works of art to sports teams, to financial products such as bonds or real estate, which, as you may know, the latter is one of the most mature and popular asset classes for Tokenization.

At this point, it could be forgiven for having a sense of déjà vu: After all, didn't the last time illiquid real estate became highly liquid through the use of financial instruments end badly, in the form of a global financial crisis?

The answer is yes, and at the root of the crisis there was a process that has some similarities with Tokenization: securitization, that is, the grouping and sale of assets related to real estate (mortgages, in particular) as financial assets.

But to confuse the Tokenization of DeFi with the securitization that led us to the crisis, despite the parallels between the two, it would be an oversimplification, since the differences between the two processes are enormous.

At the most basic level, the fact that DeFi tokenization being based on blockchain eliminates many of the intrinsic weaknesses of securitization.

Tokenization vs Securitization

La immutability of the transactions of the blockchain and the fact that DeFi tokenization uses smart contracts offer a level of transparency which was almost completely absent in the processes by which assets linked to real estate were securitized and sold as investment products in the period leading up to the financial crisis.

Unlike values, Tokens can be traded in fractions -the Ethereum-based tokens that are used in much of the tokenization of assets can be traded in fractions of up to 18 decimal places, for example-, offering investors shares of any size and opening up market opportunities for even those with the smallest amounts of capital.

In fact that is the mission of Reental, thanks to our tokenized properties we want to be able to democratize real estate investment, so that anyone, from anywhere in the world can invest in real estate from just 100€. Thanks to this mission and thanks to the real estate tokenization more than 800 investors receive monthly returns for renting tokenized properties, without doing any management on their part.

Los Tokens confer a share in the future cash flows of the underlying assets, can be held directly by investors in digital wallets without the need for third-party guardians, they can be traded 24 hours a day, 7 days a week, with low-cost, fast and real-time settlement, and can automate regulatory compliance.

In addition, the Tokens are different from traditional securities in that the transparency they offer in relation to investor ownership facilitates more accurate pricing. This is because they reduce the problem of asymmetric information between the parties, a disparity that was most brutally exposed during the financial crisis, when investors found out the hard way that they had been sold assets that the sellers of those assets themselves called useless.

Conclusion

In short, the unique features of the DeFi tokenization, linked to the blockchain, seem to contribute greatly to overcoming the deficiencies of securitization, and among all the asset classes to which it can add value, the real estate sector is perhaps the most benefited.

In order not to miss any of the opportunities we present, we recommend that you join our group of Discord or Telegram To get to know others Reentels and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.

Welcome to the new way of doing finance, welcome to Reental.