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Oct 21, 21  |  Sharjeel Ashraf

Tokenization of Real-World Assets: How, Why & When?

We are in the middle of a digital revolution. Cryptocurrencies, especially digital gold is no longer a farfetched idea, it is a reality.

Non-fungible Tokens (NFTs) are changing the way digital copyrights. Pirated digital content is witnessing its own sunset.

It is high-time when real-world assets like real-estate, bonds, stocks, and other liquid or non-liquid assets are digitized. 

But what do we mean by digitizing?

When we talk about digitizing real-world assets, what is the logic behind it? Are we talking about tokenization of these assets? Are we trying to turn the documents digital? Or are we trying to create replicas of the real-world assets in the digital world?

In this article, we will discuss what digitization of real-world assets actually means and how it can impact the business and finance world today.

Tokenization & Digitization of Real-World Assets

There are two theories of real-world asset digitization. The first one is to create tokens for real-world assets so that more people have access to assets.

Here is how the whole process works.

Consider this. A real estate property in New York is worth $10 million. Not everyone can invest in this property and only a few people who have $10 million available can invest in this property.

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What if this real estate property is digitized and tokenized?

So, for $10 million, there will be 10 million tokens available.

1 token = 1 dollar

This property will then be available in the market as a token. Let’s say the property appears on Binance or Coinbase and investors that are looking to purchase property, or just invest in it, can do so by buying digital tokens online.

You may ask,

Why Tokenization of Real Estate Property?

The point is simple. Real estate property is something that not everyone can purchase today, especially for investments.

Why do people purchase real estate? For investment, right? Because one house is enough for anyone to live. Real estate is considered a safe value for people to invest in. It is obviously not a scam because you can always see the development of the property and see it in real life.

ICO of Real Estate: Giving Everyone Access to Investments

Tokenization just gives more people access to real estate investment. They can invest in properties that are out of their reach. 

It is just like investing in stocks of a company. You can’t buy the whole Apple Company but you can buy a share of it in the shape of stocks.

Real estate tokenization will allow more users to invest in the property, driving its value, increasing profits for everyone, and giving an actual market value to the property - not a hyped value that most property investments have today.

How? 

When people will invest in real estate using tokens, they can push the price up or down depending on user sentiments. Just like Bitcoins. People think Bitcoin investments are of value, that is why they invest in them and resultantly the prices increase.

By tokenizing real estate investments, more people will have access to the properties from any part of the world. As a result, they can invest in them, buy or sell them as and when they want to, and own the properties without getting into any scams.

Everything in the digital world has a trail and the trail of these real world assets will be clearly visible to the people who are holding them. Similarly, holding the real estate property creators or societies accountable in case anything goes wrong will be a lot more easier.

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Asset Pools with Tokenization of Real Estate Properties

Digitization of assets is a process in which the rights to an asset are converted into a digital token on a blockchain. Ownership rights are transmitted and traded on a digital platform, and the real-world assets on the blockchain are represented by digital tokens.

How Is Real Estate Tokenization Possible? 

Real Estate Tokenization is like breaking the whole property into smallest units that can be tokenized.

So, for a real estate property of 1,000 yards, it can be tokenized in this setting.

Calculating Real Estate Token ICO

0.001 yard = 1 token

1 yard = 1000 tokens

That would be 

1,000 yards = 1,000,000 tokens

That will be one million tokens for the real estate property value.
That would mean that anyone that wants to hold 1 yard of the property will have to buy 1,000 tokens. 

The real-estate firm that will be responsible for the tokenization of the property will decide the initial value of the token.

For our example, we can put the token value at $1. So, the total value of the 1,000 yards property will be $1 million dollars at the time of launch on the market.

But after the property token is launched on the market, its value will be decided by the number of buyers that are willing to buy it. This setup will give it an actual value.

So, let’s say we launch the property on the market for $1 for each token. But the buyers decide that the property is worth investing in, then the price of each token can rise to $3 or even $5. 

That would mean that the price of the overall property would be $5 million in a matter of days from $1 million when it was launched.

This market-driven pricing helps decide what projects are worth investing in and which ones aren’t.

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Limited Real Estate Tokens Release

Moreover, the real-estate company that was the actual owner (now the management) of the real-estate property can decide to release only partial tokens for the real-estate property to the market. 

If it decides to only release 20% of the tokens in the market at a value of $1 for each token, then it will hold 80% of the tokens or $800,000 worth of property value.

Now if the token value increases to $5 for each token, then the overall property value would be $5 million only.

This way, the value of the tokens that the real-estate firms hold at this time would be worth $4 million and only $1 million will be released to the public - just like the stock market.

Benefits of Tokenization of Real-World Assets

  • Tokenization of real-world assets help more people invest in a promising project

  • People can buy or sell the tokens at will without the need of a property manager

  • More people investing in the property can ascertain the true value of the asset

  • By tokenizing a real estate property, management can also give tokens to the employees instead of just pay at the end of the month

  • Tokens can also give more investments to the management of the real-estate property that it can use for building other promising projects. As a result the overall investment pool will keep increasing. 

  • Since the real estate property tokens are backed by a REAL property, there will be no fear of holding paper money only

Want to Tokenize Your Real Estate Property?

Tokenizing real estate is the NEXT BIG THING in the real estate industry. If you are someone that wants to tokenize their real-estate project and become a pioneer of real-estate digitization, then we have the right people to get the job done.

At Distinguished.io, b2b ratings and reviews platform, we have the list of best blockchain development companies available. These blockchain companies can help with:

  • plan and structure tokens for your real-estate projects
  • Create tokens for real-estate project
  • release tokens on the blockchain market
  • Manage tokens released to the public

Check out the reviews and ratings of these blockchain development firms today and see which one will best suit your use case.





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