Plutux Blog

Fractionalizing The Shares Of A Property Through Asset-Tokenization?

Posted by Matthew Tang on Oct 16, 2018 7:17:45 PM

Tokenizing an asset in real world

Asset tokenization is built up under the principle of blockchain technology. It implies the process of changing the right of an asset to a kind of digital tokens.

Tangible assets can certainly be tokenized but what makes asset tokenization interesting is that even intangible assets or revenue generated from the tangible assets could be fractionalized, meaning that you hold a fraction of an asset.

In other words, any kinds of an asset or any kinds of the right associated with the assets could be tokenized in the blockchain.

As the digital assets can be freely traded in the market, it allows transferring ownership of assets or objects outside the blockchain. In some cases, the owner can share the entitlement of the rental income but not the ownership of the assets.

Let's use housing  apartment to illustrate the example.

Benjamin currently has a saving of $2,500,000. He would like to invest his money in the property market but clearly, he cannot afford the down payment alone. An alternative way option for Benjamin is to tokenize the right to receive rental income to fund the down payment.

Benjamin could call his friend to join the purchase of the apartment. By issuing tokens, Benjamin can fundraise the necessary amount of money to settle the down payment for the flat.

Specifically, suppose there is a $5,000,000 apartment and its monthly rent is $5000

Tokenization can transform this apartment into 100,000 tokens (the number is arbitrary, we could have issued 5 hundred tokens). Thus, each token represents a 0.001% share of the underlying asset.

 

plutux-real-estate-tokenization

The key idea of tokenization is that:

  • Blockchain is a public ledger that is immutable
  • No one can “erase” your ownership even if it is not registered in a government-run registry

 

Risk of Tokenization

Tokenization is nice, yet it causes problems that have to be solved. Tokenized an asset consists numerous of terms, hence, it always leads to a sophisticated document. We called this "Document Risk", meaning that if a single term that should be written hasn't existed in the contract, it may cause a huge legal problem. So far no countries have regulations but they do play a key role in the asset tokenization. Let's say companies that handles tokenization sells the property? As token owners just own tokens, they are neither protected by the law nor have legal rights. These new business model surely requires a legal amendment.


Plutux is actively exploring to obtain a securities license to deal security tokens in a compliant manner. Upon acquiring a securities license, Plutux will bridge the gap between traditional and cryptocurrency markets by developing into a fully compliant securities token exchange that will enable the investing, and trading of securities token on the blockchain.

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Topics: Crypto Investment, blockchain, Plutux Exchange, tokenize, real estate