Blog Post
Andrés Glennen

How to know if a platform tokenizes assets

The tokenization of real estate assets has revolutionized the financial world, offering new investment and financing opportunities. In this article, we'll look at how to identify trustworthy platforms that actually tokenize assets, as well as the regulations that govern this process in different parts of the world.

Real estate tokenization regulation

So far we have seen that the tokenization of assets is the process of transferring the representation of a real physical asset (real estate, works of art, shares or real estate) to a digital token on the blockchain. A tokenized property is a representation of the value of a property that is launched on a platform, such as Reental, materializing in a token.

It is important to understand the limits of this practice. In a general context, it is essential to recognize the regulatory challenges that a company that tokenizes assets may face. Property rights around the world are strictly regulated and their granting, modification, transfer or termination require public documents. Therefore, for the tokenization of real estate to be a reality, it would be necessary to make substantial modifications to the existing regulation.

The rule here lies in finding an articulation that links the parties, both the investor and the company that tokenizes, to find a common point that can harmonize rights and obligations on both sides. In general, we must adapt to private contracts within regulatory frameworks until the laws themselves are modernized to new trends.

Regulation European Union (Spain)

The most natural thing would be to directly tokenize a property, but today in Spain the Land Registry does not allow the possibility of registering addresses as owners on a blockchain, and that the change of owners is dynamic and can be carried out automatically and without bureaucracy. The land registry remains a centralized entity where property owners are forced to go through it.

Alternatives to the date there are several that can correctly articulate the representation of the investor and at the same time the legality of the transaction. The most common property rights in EU real estate tokens are diverse, but they mainly include:

  • Participation in the company that owns the real estate.
  • Participation in credit rights backed by real estate.
  • Participation in the benefits generated by real estate.

These tokens allow investors to have access to a fraction of the ownership of a real estate, giving them rights to exploit and sell it, although the owner will always be the company that issues the tokens. This means that investors can benefit from owning the property without having to purchase it in its entirety.

At Reental we are going to tokenize a participatory loan associated with each property. For this purpose, it is governed by the contract and by the provisions contained in article 20 of Royal Decree-Law 7/1996, of July 7, and by the Second Additional Provision of Law 10/1996 of December 18.

Through participatory lending, we are able to make an owner of the token (token holder) a beneficiary of the economic profit generated by the exploitation of the property. In this way, the dividends distributed will be full for the token holders, and their amount will depend exclusively on their performance in managing the property, the value generated by its rental and its possible sale.

Regulation (United States)

In the United States, the tokenization of real estate assets is subject to oversight by the Securities and Exchange Commission (SEC), which establishes specific requirements for the issuance and trading of tokens. The SEC is the body responsible for providing transparency and trust in financial markets, including the issuance and trading of real estate tokens. Security tokens, which represent traditional securities on the blockchain, must comply with federal securities legislation established by the SEC.

On the other hand, Reental, one of the leading real estate tokenization companies, operates under this regulatory framework, which means that any token issued must comply with these regulations. Therefore, each property is acquired through a new LLC that is directly linked to the property and its operation. This structure provides regulatory compliance for both accredited U.S. investors (through Reg 506 (c)) and international investors (through Reg S). Unlike in Spain, here we tokenize the shares of the LLC

Rest of the World Regulation

With regard to tokenization, the legal framework in Argentina is still evolving. Law No. 27,349 regulates Collective Financing Systems, with the objective of promoting funding channels for entrepreneurial projects.

Regarding tokenization, the legal framework in Argentina is still evolving. The creation of a token does not create an explicit legal link, nor does it guarantee and grant normal rights or obligations. For a legal link to exist, there must be a contract that guarantees it. Or a “smart contract” on the blockchain, backed by a private contract on paper or made before Escribano. In addition, whoever performs the tokenization and makes digital representations of securities available to the public may incur a public offering of negotiable securities without authorization from the National Securities Commission (CNV). Several bills are being promoted, as we discussed in the Next article, which refer to civil and commercial cryptocurrency transactions and operations, which could include the tokenization of real estate assets and blockchain-based crowdfunding in the near future.

A clear and flexible regulatory framework would be beneficial, to be able to generate and publicly offer tokenized assets, as well as the legal tool used to link the token to the good or thing to be tokenized, and its registration in the respective property registries.

How to identify if a platform performs the asset tokenization process?

Asset tokenization can be a complex process, which is why we define some simple steps to detect if a platform actually tokenizes an asset.

To ensure that a platform truly tokenizes assets, the first step is essential, consisting of verifying if the platform has experience and credibility in the real estate asset tokenization market. We refer to identifying the team of developers behind the project, the network through which they operate and the type of token and protocol they adopt.

Another point is to ensure that the platform offers secure wallets and reliable custody services to protect investor tokens. One of the most used and reliable wallets is Metamask securely protecting your tokens

In addition, investigating whether the platform uses smart contracts to design the issuance, regulation and transfer of tokens is essential. Here it is very important to ensure that it is linked by means of a contract in the “smart contract” that supports the private contract with the terms that govern the token, it must include the rights and obligations of investors, the terms and conditions for the payment of dividends and the sale process.

Finally, confirming that the platform complies with local and international regulations related to the tokenization of real estate assets is essential.

The tokenization of assets, whether real estate, stocks, or any other asset, offers new investment opportunities. It offers access to new sources of funding, through the issuance of tokens it allows investors to buy a fraction of the company's assets, which can be an attractive alternative for raising funds. By avoiding common mistakes and following key steps, investors can take full advantage of the benefits of tokenization and contribute to the growth and development of the blockchain ecosystem. Not only does this increase the speed of transactions, but it also reduces associated costs and simplifies the complexity of the process.

How does Reental do it

A prominent example of a platform that reliably tokenizes real estate assets is Reental. We have solid experience in the market complying with all relevant regulations.

  1. Asset Identification: Evaluate its current value and its potential income for tokenization. One way to evaluate the income potential of a property is to analyze the rental market in the area where the property is located. You can search for similar properties in the same location and compare rental prices to get an idea of how much you can expect to earn in rental income. In addition, it is important to consider factors such as the expected occupancy rate, the potential for revaluation of the property, the cost of maintenance and any other expense related to the property.
  1. Feasibility Study: The viability of tokenizing the asset is evaluated, considering its nature and value. A legal and regulatory framework must be established to comply with laws and protect investors. At Reental, each property has its own business or operating model, which must be reflected in a whitepaper, under CNMV or SEC regulations
  1. Token and Platform: For example, we use Security Tokens, since they are a regulated financial product operating within the Polygon Network. Always verify at this point the type of token and the blockchain network in which it will operate.
  1. Smart Contract: We created a smart contract that describes the terms of tokenization and guarantees the rights and obligations of the parties. The terms of the smart contract that governs the token must include the rights and obligations of investors, the deadlines and conditions for the payment of dividends and the sales process.
  1. Issuance and Distribution of Tokens: Once the above points have been completed, we lay the foundations for the correct issuance and distribution of tokens according to the terms established in the smart contract, defining the supply of tokens and other requirements on the platform
  1. Registration and Maintenance: At Reental, we comply with our corresponding legal and regulatory obligations, such as keeping an updated record of token holders through the KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements, we manage profit distributions.
  1. Liquidity provision: Any token that is launched and integrated must be accompanied by liquidity, to favor and promote the ecosystem around it. Without a doubt, one of the critical points on which Reental always places great emphasis and we are working to improve our secondary p2p market every day.

As already described, the tokenization of an asset is a process that involves the execution of some more or less constant steps in companies that are engaged in this activity.

Thanks to its open nature, which allows the general participation of markets through Security Token Offerings (STO) new markets can be opened to anyone in the world, allowing available capital to flow into non-liquid markets, opening up a world full of opportunities.

As already mentioned, the tokenization of assets using blockchain technology is a fairly recent activity, and therefore there are many aspects that need to be studied in depth. It must be kept in mind what guarantees of success the different parts that make up the system offer us. This will result in greater peace of mind and confidence when investing.

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