One way is to use tokens to directly represent the ownership of real estate, and the other way is to tokenize the shares of private equity funds that invest in real estate.
Original title: “U.S. Real Estate Token Market Infrastructure (5) What kind of rights are tokenized? 》
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
In the previous articles of this series, I introduced the infrastructure of the US real estate token market. Compared with two years ago, the infrastructure in this area has been greatly improved. However, in terms of the business model of the real estate token business, progress in this area has been relatively slow. In terms of some basic factors of the business model, I think some mainstream business ideas are inappropriate. For example, I mentioned earlier that the US real estate tokenization market relies too much on qualified investors in the United States, which has resulted in too few users who can participate in this business. This is one of the main reasons for the slow development of the US real estate tokenization market. In addition, I think there is also room for improvement in terms of which rights are tokenized.
The main idea of applying blockchain technology to the real estate market is to use blockchain technology to certify real estate assets and improve the transaction process in order to achieve better circulation of assets. But in terms of what kind of rights and interests are tokenized, so far, there has not been a mainstream model in the market. In the current operation, there are mainly two ways. One way is to use tokens to directly represent the ownership of real estate. This method is still a major mode in the real estate token market. Some websites in this area use this method to directly sell to retail users. In terms of specific operations, a limited partnership company is usually established for a single real estate asset. This company holds this real estate, and then sells the shares of this limited partnership company in the form of a pass. Another way is to certify the shares of private equity funds that invest in real estate. Raise funds in the form of tokens, and then invest the funds from this private equity in real estate. So far, the applications of these two modes exist, and a mainstream mode has not yet formed.
in my opinion. The first model is difficult to succeed. The characteristics of each real estate are different. If part of the rights and interests are taken out for circulation by means of tokens, it is difficult for investors to judge the value and risks of this asset. And because the volume of single assets is too small, it is difficult to realize the circulation of the secondary market. Therefore, this model is applicable in a small scale, but there is no business scalability.
I think it is a feasible model to raise and operate real estate private equity funds based on certificates. For overseas investors, they first focus on trustworthiness, and then the convenience of capital investment. If a private equity fund can gain their trust, the use of tokens and digital currency can facilitate their investment in the private equity fund. This private equity fund can operate in the existing way, purchase and hold multiple real estate, and regularly distribute dividends to fund holders. For investors, because there are professional investors to manage such funds, they do not need to conduct research on each real estate project to make investment decisions, and the convenience and efficiency of investment are greatly improved. For managers of real estate private equity funds, since the adoption of tokens has greatly reduced the investment threshold, they can obtain more funds for investment. In addition, most of their existing operating methods do not need to be changed, but the representation and circulation methods of private equity fund shares have changed. This is for them to make the smallest changes, but they can get very desirable benefits.
Comparing the above aspects with the situation in the stock market, it is easy to understand. Individual investors can directly invest in stocks themselves, or they can choose their own approved stock investment funds and invest their own funds in this fund. The fund manager analyzes various stocks and makes investment decisions. Based on the appreciation of the stock portfolio held by the fund, the fund shares will naturally increase. Compared with stocks, the size of individual assets is too small, so it is not worth individual investors to study them before making investment decisions. Therefore, compared with the stock market, private equity funds are more suitable for ordinary investors.
In summary, I believe that tokens are used to represent real estate private equity funds to raise funds and distribute dividends. This is a more feasible business model.
