As securities, real estate assets are subject to a growing number of increasingly complex regulations, whether tokenized or not. It only becomes more complicated when you add tokenization to the mix. Real estate deals are complex in nature, and there’s a challenge in tying the physical asset to the virtual world of the chain.
With that in mind, let’s take a look at what will make your real estate tokenization project easier, beginning with the underlying blockchain infrastructure.
Why you need to pick a blockchain that’s fit-for-purpose
When it comes to the infrastructure underlying real estate tokenization, there’s no doubt that a purpose-built blockchain is better as it can give issuers and investors the confidence that complex requirements and regulatory needs can be met.
Polymath makes tokenization technology operating on Polymesh, an institutional-grade permissioned blockchain purpose-built for regulated assets, whose native token POLYX has received Swiss-regulator FINMA’s ruling as a utility token.
Polymesh was designed specifically for security tokens in light of conversations with key industry players and regulators around the challenges of bringing blockchain to regulated capital markets.
In essence, the problem is that capital markets' needs contradict the principles most blockchains were built on. Regulated markets require identity, compliance, confidentiality, and deterministic finality. Yet most existing blockchains were built for pseudonymity, censorship resistance, and transparency, and rely on probabilistic settlement.
By contrast, Polymesh integrates governance, identity, compliance, confidentiality, and deterministic finality into the chain’s core. The result? A blockchain that overcomes the challenges facing securities on other chains.
Let’s now take a look at how Polymesh’s purpose-built infrastructure can benefit issuers and investors of tokenized real estate.
How Polymesh benefits issuers and token holders
Polymesh is a trustworthy option for issuers, marketplaces, service providers, and token holders for a variety of important reasons.
Polymesh mitigates the risk and uncertainty of contentious forks faced on proof-of-work chains through its on-chain governance process, which ensures there is always exactly one canonical chain and offers a way to steer past potential disagreements.
It’s also kept secure by its permissioning system, which ensures that all actors on the chain have been verified with individual token holders going through a KYC process, while node operators who write new blocks to the chain must hold a financial license and go through a KYB process.
For many blockchains, compliance and confidentiality are a trade-off. This isn’t the case for Polymesh. Polymesh enables sophisticated rules and attestations to be automated based on on-chain compliance at the account level, without sacrificing privacy. Private transactions will be implemented on Polymesh soon through a patent-pending protocol called Mediated, Encrypted, Reversible, Secure Asset Transfers (MERCAT).
When it comes to asset management, Polymesh offers issuers and investors great flexibility and control. It allows for asset segregation via portfolios and provides integrated support for multiple custodial options, allowing for a smooth progression from omnibus/segregated accounts to a more granular model e.g. individual user accounts. Meanwhile, its primary and secondary key structure can give even finer-grained access control for identities, while its optional unique identity system allows users to have multiple accounts on-chain.
Finally, it’s an easy option to work with! Polymesh has an SDK so that developers don’t have to fully understand blockchain in order to build on top of Polymesh. In addition, Polymesh leverages the popular Parity Substrate framework to enable easy integration for the majority of cases. And low transaction fees make building and testing an MVP less costly than working with some other chains.
How Polymath makes tokenization on Polymesh easier
Industry leaders, regulators, and technology providers are constantly innovating and collaborating to come up with ways to overcome the challenges to tokenization– and Polymath has been at the forefront of these efforts from the beginning, first by establishing ERC-1400 and then by developing the code for Polymesh.
While the proper blockchain technology might be here with Polymesh, a few loops and hurdles remain.
One major question is how to tie the tangible “real world” asset to the virtual world of the chain. While there exist classes of digital assets which are inherently virtual (e.g. digital art, or virtual real-estate), most digital real estate assets are defined by the physical asset they’re tied to.
Another complexity is the marketplace. Real estate assets and deals are complex and nuanced in nature, and investors extract their value according to multiple variations and factors. Due to this complexity, there’s a need for more dedicated marketplaces for tokenized real estate assets than the more encompassing digital securities marketplace.
It might be tough to overcome these issues, but it’s not impossible. In the past few years we’ve witnessed numerous successful real estate tokenization projects in various locations, and the number of new tokenized real estate marketplaces seems to increase every week.
One of these projects is that of the commercial real estate marketplace RedSwan CRE. RedSwan has tokenized $2.5 billion worth of assets (and plans to tokenize a further $4 billion) using Polymath’s own technology, demonstrating real estate tokenization can work today.
RedSwan used Polymath’s Token Studio, the application which makes it easy to create, issue, and manage security tokens. See how easy it was for them to tokenize in our case study.
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