Hassan Maishera
The tokenization of assets isn’t an original idea, but it’s one that’s enjoying a lot of traction now as the pieces needed to make it happen fall into place. As organizations begin aligning with Web3 paradigms, a growing number are exploring how tokenization can transform a range of traditional assets.
Tokenization is the process of creating a digital version of a traditional asset that resides on the blockchain. With more of these assets being transformed into tokens every day, it’s estimated that tokenized digital securities will be valued at almost $4 trillion by 2030.
The idea of tokenization first emerged in the last decade, but it faced a lot of setbacks then due to technological constraints, market volatility, complexity and the lack of any regulatory frameworks to govern them. However, as blockchain technology evolves and becomes more accepted, these issues are slowly but surely being resolved.
We’re seeing a lot of progress made in tokenization of a variety of assets, while regions such as the EU, Japan, Singapore and the U.K. have all introduced regulatory frameworks for digital assets. And nowadays, the very idea of tokenization is much more widely understood.
Numerous assets can potentially be tokenized, but few are more promising than real estate. In 2022, the market for tokenized real estate assets was estimated to be worth approximately $2.7 billion, but that’s expected to grow to $18.2 billion by 2032.
Why Is Real Estate Tokenization Beneficial?
There will be numerous benefits to a tokenized real estate market. Traditionally, the sector has always been attractive to investors due to the high value of real estate and its potential for gains, but the market has always struggled with issues such as low accessibility, a lack of liquidity and a cumbersome transaction process without transparency. Tokenization can fix all of these problems.
For instance, in the traditional real estate market, investors were always forced to buy and sell the entire property as there was no easy way to divide ownership. However, tokenization makes that much easier, enabling seamless fractional ownership, where one hundred individuals can each own just 1% of a property. By breaking down real estate assets into smaller, more affordable pieces, it’s much easier to find new investors. Also, the lack of an intermediary means that transactions can be performed almost instantaneously. This means that more liquidity will be injected into real estate markets, and at the same time, it also becomes much more accessible, as investors can enter the sector without large amounts of capital.
By eliminating intermediaries in transactions, we also benefit from lower costs and less complexity. Finally, the use of blockchain ensures full transparency into every transaction involving a specified property, with anyone able to access its history of transactions and establish who owns what, how much they paid, and when they paid for it. Moreover, the information stored on the blockchain is almost totally tamper-proof, ensuring that these ownership records are accurate and reliable.
Resolving The Regulatory Challenge
Although real estate tokenization can fix many problems in the industry, it still needs to overcome some roadblocks that have, until now, prevented it from going mainstream. One of the most important is the lack of clear regulatory guidelines in many markets.
Many investors are loath to embrace tokenized assets while they remain unregulated. In many jurisdictions, regulatory bodies are still working on the development of legal frameworks and guidelines for digital securities and blockchain assets. For traditional financial institutions, the lack of regulation can be a legal minefield, as they’re legally obliged to ensure compliance with regional laws to protect the clients they represent.
At present, there are very few DeFi ecosystems that provide regulatory compliant yield-generating products, and very few that insist on KYC/AML screening. To resolve this, MANTRA is looking to develop a fully compliant appchain by working hand-in-hand with regulatory bodies in key financial markets.
Having spent a good number of years working on projects in the DeFi industry, MANTRA’s team has identified several important gaps that exist within DeFi platforms today. One of the most pressing is that the vast majority of DeFi protocols do not perform any kind of KYC checks on their users, and nor do they screen transactions for suspicious activity. While this may please fans of decentralization and privacy, it also exposes users to possible interactions with entities on sanctioned lists, whether directly or indirectly. Due to this, many institutions and investors are unwilling or unable to partake in DeFi activities.
How Does MANTRA Solve These Issues?
MANTRA provides governance, regulatory compliance and transaction monitoring as a protocol-level primitive and applies them to its up-and-coming decentralized exchange dApp and makes them available to third-party developers building on its network. Its platform is already operating under robust frameworks and is regulatory compliant in a number of jurisdictions, enabling a more secure investment environment that is paving the way for compliant real estate tokenization.
One of MANTRA’s key visions is to act as a bridge between the old and new financial worlds. It sees itself as the perfect venue for onboarding institutional investors into tokenized assets, and to achieve this goal it is actively collaborating with regulators across the world to build products and features that are regulatory compliant. With its additional focus on risk management, MANTRA is totally committed to building a sustainable ecosystem that will enable every investor to participate in tokenized markets.
In terms of real estate tokenization, which is just one of several markets it’s building products for, it strives to bring suitable investment opportunities to its customers. It has built one of the most robust blockchains of all, with a strong emphasis on the user experience, reliability and transaction security.
Having built its regulatory-compliant blockchain, MANTRA is poised to debut a number of institutional investor-friendly DeFi products this year, including its central limit order book-based DEX that will enable the trading of tokenized assets such as debt, equities, real estate and more. In addition, any third-party dApps that build on the MANTRA Chain will also benefit from being fully compliant at the protocol level, meaning they can provide regulated access to digital assets within a fully transparent ecosystem.
Finally, MANTRA ensures strong data availability, meaning that nodes can download all of the data stored on its blockchain and independently verify each and every transaction. This ensures that it’s possible for anyone to verify that transactions are compliant.
A Rapidly Maturing Industry
Real estate tokenization represents the best hope for a more open and accessible real estate industry and that is why it’s such an exciting frontier of development. It provides unprecedented opportunities to boost liquidity in real estate markets and improve accessibility, and with the innovation of projects like MANTRA, it is now tackling the challenges around compliance head-on.
As the real estate tokenization industry evolves further and matures, it will gain more traction among institutional investors until it reaches the point of no return. And from there, tokenized real estate will soon become the normal way of doing business.
