July 12, 2019

Panel discussion “The Ecosystem” at the ASDToken London 2019

Steve Nson

Steve Nson, the CEO and Founder of AnySizeDeals gathered a focused group of professionals in real-estate tokenisation on June 13th, 2019 in London. Fintelum’s Managing Director Liza Aizupiete weighs-in on preliminary questions on “The Ecosystem” and participates on the panel discussion about the tokenisation ecosystem.

Steve Nson: Why hasn’t the ecosystem taken off?

Liza A: Let us look at an example for real estate tokenisation in terms of cryptocurrency investor. As you remember, the ICO phenomenon was the first large-scale use case for cryptocurrency. Besides purchasing a coffee at the local cypherpunk cafe, one could anonymously invest one’s “toy-money” towards an exciting idea, based on a white-paper claim. Now that the regulator has scrutinised the sector, with the aim of protecting the investors, many projects turned out to be securities. If something is a security, it needs to comply with the globally prevailing securities laws.

There are no obstacles in order to sell real-estate as a security offering. The laws are there to protect investors. The existing legally acceptable structures, such as REITs have worked well and perform still today. Other more recent tokenisation precursors work well in the form of P2P lending against real-estate collateral, cf. EstateGuru, and many more. The difference here is that the investment payment is done in fiat and portfolio management does not involve a cryptocurrency wallet. Whereas for tokenisation as in: payment and portfolio management and subsequent secondary trading, necessitates non-anonymous affluent and tech savvy interest groups. This combination is rare.

Now, if we consider tokenisation in terms of token ownership. Even if the investment was made in fiat currencies. The result is ownership of a cryptographic representation of a legally protected investment agreement – a token. This can then be either held or exchanged. In real-estate, as in other sectors, the most attractive appears to be the availability of a secondary market liquidity.

For relatively small capital investments there are already secondary trading or swapping market places, which do not involve managing a cryptocurrency wallet. For tokenisation however, this often is an obligation. Optionally, of course, the platform can perform broker-dealer function and manage the clients fiduciary interest on their own books. We at Fintelum have resolved to allow investors to have a P2P trading possible in security tokens.

Steve Nson: What are some of the challenges you face?

Liza A: There are no obstacles to tokenise real-estate as a structured ownership. There is, however, a difficulty in tokenising a piece of land or immovable property on that land as a collective ownership, because of the paperwork and administrative costs to register each and every individual (fractional) owner. Unless the land registry can be itself made available as a public (decentralised) ledger, we will not see any “tokenised property” per se anytime soon. What you can tokenise however, is a company, which is a registered owner of the property. An LTD can serve as a vehicle for tokenisation structure.

HM Land Registry is already exploring the options

Steve Nson: What can be done to build out the interest in real estate tokenisation?

Liza A: It will take a bit more tech savviness to manage a cryptocurrency wallet. It will also take much more attractive investment opportunities on the tokenisation table. Either higher ROI than elsewhere available or some other unique value angle that cannot be had otherwise. A good example is a fractional ownership of some sought-after asset. And finally, the availability of the secondary market. Once these aspects have properly been understood, we should see a much more vibrant tokenisation environment.

Watch a short video of this panel discussion here