Asset management is changing for the better with the advent of blockchain technology and tokenization. The old days where moving assets in the real estate field would take so long are finally behind us, and we’re now starting to see a paradigm shift that could democratize and transform the industry entirely.
Thanks to tokens, asset management firms can easily move units – whether in part or in full – to optimize liquidity. However, like every other aspect of building and designing a token, unit economics are especially important if you truly hope to succeed with your asset.
Building The Right Real Estate Token
Tokenization has become a major hit for the real estate space. In the past, it used to be impossible to move assets easily in the real estate market – primarily because homes and buildings were just too difficult to sell, especially at a good price. However, with tokenization, a rush of liquidity can come into the market and provide sellers with a great way to get good value for the assets they hold.
With property tokenization, property values are converted into digital tokens thanks to blockchain technology. These tokens represent a share of the property, and owners can offer them for sale on the market. Investors can purchase as much as they like, getting fractional ownership of the asset.
So, investors get a new asset to own and the asset owners themselves get enough money that they need at any given point. The investors also reserve the right to sell as many shares as they would like, with the process being as simple as possible.
There are many benefits that tokenization brings to the real estate space. They include:
- Improved Liquidity: Tokenization brings flexibility to the space, allowing for fractional ownership and the potential to bolster revenues in the commercial real estate space.
- Lower Barriers To Entry: You don’t need to sell a property as an entire unit. Fractionalization allows more people to come into the market, with smaller investors also partaking in the real estate market.
- Transaction Standardization: Thanks to smart contracts, transactions don’t need to be individually negotiated. This makes things even more convenient for everyone.
- Better Transparency: The blockchain records every transaction that takes place on it. This makes it much easier for investors to do their due diligence and analysis.
- Guaranteed Security: Considering that the blockchain is a distributed ledger, no single person or entity controls it. At the same time, blockchain technology uses advanced cryptography to ensure optimal security for users.
Tokenization The Right Way
We already pointed out the fact that tokenization has the potential to change the way we view the real estate industry and how it works. However, this isn’t a clear-cut solution. Tokenization takes a great deal of effort and planning to work, and getting it right will be important to you if you hope to optimize your profitability and benefits.
One of the most important things to note with real estate tokens is economics. Essentially, this covers the multitude of things that make your token valuable to investors and real estate industry players. It includes everything from the token’s issuance to its supply, utility, and possible burning mechanism to control inflation.
Economics will be an important part of investors as they make token-based decisions. So, for you to create a token that everyone will want, you want to ensure that the token’s economics – or, better still, its tokenomics – are strong.
Some of the core concepts of token economics include:
- Staking and Mining:
Mining is the incentive for decentralized networks and base-layer stablecoins. However, new coins are also being staked now. You need to explain how your incentive will run and the process of issuing new tokens.
Staking is especially great for most tokens because it is less energy-intensive. With staking, users will be able to support the network and earn more tokens. This incentive promises to bring in more users and optimize network activity.
- Yields:
Token developers can also offer yields to people who stake their tokens. These tokens are staked in liquidity pools, with yields paid out in the form of new token units.
- Token Burning:
It is also possible for token developers to burn units of the tokens and remove them from circulation. This works like a share buyback, with the focus on reducing the number of units available in circulation.
The law of supply and demand states that a reduction in supply will boost demand. So, when you sense inflationary trends, you should have a system of burning token units.
- Supply Metrics:
Another important element of tokenomics is the token’s maximum supply. For instance, Bitcoin has a hard cap of 21 million coins, while Ethereum doesn’t have a maximum limit (even though its yearly availability is capped).
You could decide on whether to have a limited supply or an unlimited one. While most experts will recommend having a limited supply, you could have an unlimited supply and still find out how to control its supply.
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