Security Tokens Coming To The Real Estate Industry Soon

Cryptocurrency analysts are convinced that security tokens may soon make it possible for holders to invest in illiquid assets. Several industries have already been highlighted as likely candidates, but real estate has taken the center spot.

There is a big difference between utility tokens and security tokens. Utility tokens function as a way to sponsor businesses by advancing their products and services in advance. Security tokens, on the other hand, function as debt securities or equity. They are regulated by the Securities Exchange Commission (SEC) and can be used to purchase rights to shares to a wide range of properties. This is what qualifies them for use in purchasing shares in real estate property.

Analysts hope that security tokens will work like REITs, which are essentially mutual funds used to invest in real estate property. In fact, this strategy is already at work. Harbor is a San Francisco-based startup that claims to have invested in several real estate properties using security tokens and other digital assets. It is also offering Security Tokens Offering (STOs), which are similar to ICOs when it comes to fundraising.

Currently, most lucrative real estate investments are open only to wealthy investors owing to a concept known as illiquidity discount. To this end, it becomes more cost-effective to limit the number of investors to a few individuals capable of raising hefty investment sums instead of many people with smaller investment sums. This also gives the few privileged investors the leverage to bargain for a greater stake of the property.

Security tokens will change this by making it possible for thousands of people to invest in a single property. This will be done using Blockchain technology to ensure security, privacy, and proper keeping of records. Experts argue that developers will embrace this setting as the increased number of investors will reduce individual investors’ leverage, thus boosting liquidity in the real estate industry.

Experts also argue that more opportunities for liquidity will open up with time. This will happen when security token holders and investors will be allowed to resell their tokens – much like reselling one’s shares.

Harbor is just one of several companies pursuing this concept and offering STOs. However, it may be the most significant yet considering that it has unusually strong backing.

David Sacks, the co-founder of PayPal, is one of the individuals backing Harbor – he is the startup’s chairman. Another notable figure inside the company is Josh Stein, the company’s CEO – Stein has plenty of legal experience working for highly regulated industries such as insurance, healthcare, and aerospace. According to David Sacks, the idea to form Harbor came from the existing challenges to raising funding for certain investments through ICOs.

Security tokens have already been used to purchase shares to real estate property. The recent deal between St Regis Aspen Hotel and a New York-based management group to sell $18 million worth of the hotel’s shares through digital assets and security tokens is the latest proof of this.

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