Understanding Real Estate Tokenization: Investing Without Ownership

If you've ever thought that buying a property token made you its owner, this is essential reading! Real estate tokens do not grant actual ownership rights over the property itself. So, what exactly do you get?

?? Personal Rights: When you buy a token, you’re acquiring a stake in the investment, not a right to own or possess the property.

?? Real Rights: These are ownership rights legally linked to the property through official records, notaries, and encumbrances.

The key difference is that real rights grant property ownership, while personal rights, represented by tokens, provide a financial or contractual interest in the operation. Blockchain technology promises to streamline this process, but it still doesn’t replace traditional records or provide direct ownership. In short, tokenization is a modern way to invest, not to own.

Recently, I came across a statement that encapsulates the potential of STOs:

"An STO can represent equity in a company, profit participation, voting rights, or even ownership rights over real assets, such as real estate."

While this statement is partially true, it’s essential to clarify what a Security Token Offering (STO) actually provides and what it does not.

What Is an STO?

An STO is a fundraising mechanism where a company or startup issues security tokens. These tokens represent traditional assets such as stocks, bonds, investment funds, or other securities. The key difference between an STO and other digital funding methods, like ICOs (Initial Coin Offerings), lies in regulatory compliance. Tokens issued in an STO are classified as securities and must adhere to specific regulations, offering investors stronger protections. (See book)

What an STO Does Not Guarantee

A common misconception is that an STO backed by a tangible asset, such as real estate, automatically grants ownership rights over that asset. However, this isn’t necessarily the case. An STO may be backed by an asset like real estate, but what investors actually acquire are financial rights linked to that asset’s performance—such as profit participation or dividends—based on their investment.

Put simply, purchasing a token in a real estate-backed STO does not make you a co-owner of the property, nor does it provide direct rights to use it. Instead, you gain a potential financial benefit from the property’s income, as long as the issuing company manages the underlying assets effectively.

The Role of Blockchain Technology

Blockchain technology is central to STOs, offering automation that enables investors to enter and exit their positions efficiently and securely. The traceability, transparency, and immutability of blockchain transactions ensure that token activities are recorded publicly and cannot be altered.

However, for full efficiency, the process must be entirely automated. If investors’ capital enters through traditional bank transfers and profits are distributed manually from wallet to wallet, this creates a hybrid process. While it uses blockchain, it does not fully harness the benefits of an STO. This approach can reduce efficiency and introduce uncertainties about the legal security of the funds See book

STOs offer many advantages: transparency, increased liquidity, reduced intermediaries, and the ability to fractionalize assets, potentially attracting a broader range of investors. However, it’s also crucial to understand that STOs are subject to regulations specific to each jurisdiction. Compliance is essential to avoid legal issues and to safeguard investors.

STOs are a powerful fundraising tool, bridging traditional assets and digital innovation. Yet it’s crucial to understand what you’re actually purchasing with an STO. It does not guarantee ownership of the physical asset itself but rather a stake in its generated profits. Blockchain technology adds a layer of security and efficiency, but only when fully and properly implemented.

Do you want to know more about real estate tokenization? ??

?? I invite you to discover it in my book, where we explore this fascinating topic in depth. Don’t miss out! ??? ??AMAZON