When seeking to build and retain wealth, real estate and cryptocurrency investments are two options that many investment experts have recommended over the past several years. With the emergence of blockchain technology, investors are finding a number of advantages in the real estate and crypto investment arenas.
There has been much buzz around security tokens lately, and for good reason. Through the use of security tokens, investors can enter into a more transparent and efficient way of buying, selling, and managing assets.
What are security tokens?
Security tokens are digital representations of traditional assets — such as stocks, bonds, or real estate. In investment circles, a security token is a digital asset that represents the ownership and other rights of the specific token’s individual holder. In essence, they are a digital version of what we know as traditional stocks and other assets, like real estate. Through tokenization, the criteria for these assets are set and then entered into the blockchain.
The idea behind security tokens is to make investments more accessible for everyone by removing the middleman and cutting out the need for financial institutions, like banks, that traditionally handle traditional investments such as stocks and bonds. Tokenization allows for fractional ownership of assets, automated compliance, and reduced transaction costs.
“Security tokens are an attractive option for both issuers and investors,” says Mark Fidelman of SmartBlocks. They can even be used to purchase fractional ownership in properties such as vacation homes or luxury condos or to invest in mortgages.
One confusing aspect of tokenization, however, lies in the concept of ownership. Say you have some gold bars in your basement, so you could create a security token (STO) for those gold bars, using the physical bars as collateral. The STO would be sold to investors who want a stake of ownership in the gold without having to take physical possession of the bars or figure out how to store them.
Real estate investments with security tokens
Real estate has been a reliable investment option for decades — if not centuries — and that doesn’t seem to be changing anytime soon, despite real estate costs rising in recent years.
“Security tokens can be a significant benefit to the real estate industry in several ways,” says Fidelman. “First, they enable fractional ownership, allowing investors to purchase smaller portions of a property, rather than having to buy the entire asset.”
Fractional ownership can allow investors who are just getting started in real estate investing to try the investment on for size before jumping in with both feet. “This democratizes the real estate investment process, making it more accessible to a broader range of people,” Fidelman explains.
Second, security tokens streamline the transaction process, with the potential to reduce fees, speed up settlements, and enhance transparency. “Real estate transactions can be complicated and rife with fees,” Fidelman says, “but tokenization can simplify the process, which also assists with the accessibility of these types of investments, and makes things easier for all parties involved.”
Lastly, security tokens can provide increased liquidity for traditionally liquid assets such as real estate by enabling the trading of tokens representing property ownership on secondary markets. “Through tokenization, real estate investors can better diversify their real estate holdings and take advantage of strong markets in regions that may not be near where they live,” Fidelman says.
Investment portfolio managers are given access to a wider range of investors because the investment required is less per investor. There are a number of real estate token options available to investors, from Harbor Token(HRB) for commercial real estate, Aspen Coin (ASPD) for luxury vacation properties, and RealT for rental properties.
Putting trust in cryptocurrency
Over the past year, some of the initial trust investors placed in crypto has eroded, as several well-known crypto companies — such as FTX — experienced very public implosions. It could be understandable if people were wary of crypto investments, or even wary of considering security tokens due to their alignment with crypto-adjacent blockchain technology. With there still exists some confusion regarding what exactly cryptocurrency and the blockchain is, and how security tokens fit into that world, people may be apt to avoid the market altogether.
“Trust in cryptocurrencies has been tested in the past due to market volatility and high-profile security incidents,” says Fidelman. “However, it is important to differentiate between cryptocurrencies and security tokens.”
Security tokens are subject to strict regulatory compliance and backed by real-world assets, which provide an additional layer of security and stability for investors. “As the blockchain technology and regulatory environment surrounding cryptocurrencies continue to mature, we believe that the benefits of using security tokens and other digital assets will become more apparent and help to rebuild trust in the space,” Fidelman remarks.
Changing the Industry
Security tokens are upending an industry that more and more people are taking an interest in for their investment needs. Tokenization has the potential to revolutionize the investment world in a number of ways.
“Security tokens can democratize access to investment opportunities, enabling a more extensive range of investors to participate in traditionally exclusive markets,” explains Fidelman. “Those who may have been hesitant to invest in real estate or cryptocurrency assets in the past can feel more comfortable and secure when diversifying their portfolio with these types of investments.”
Additionally, by streamlining the issuance, management, and trading of securities, security tokens can increase efficiency and reduce costs for both issuers and investors. Tokenization offers increased security — as their name promises — and transparency with real-time data on asset performance and ownership available on the blockchain. “Overall, security tokens can bring about significant positive changes in the way assets are managed and traded, driving innovation and growth in the industry,” explains Fidelman.
Security tokens are an exciting emerging technology that holds tremendous potential for real estate and cryptocurrency investors, offering an opportunity to get involved in projects they may not have considered before. Security tokens also allow investors to trade their assets on secondary markets without having to go through traditional exchanges like Nasdaq or NYSE. Instead, these platforms run off blockchain technology which allows users complete control over their money at all times — something which has never been possible before.
