AbacasXchange Inc., a leader in tokenized asset exchanges, and DigiShares, a leading provider of white-label issuance solutions for digital assets, have signed a partnership agreement to further develop their collaboration in order to provide end-to-end solutions for asset managers looking to digitize their assets and achieve better liquidity.
We are currently witnessing a global megatrend where the entire financial industry is digitizing their processes and their assets, and increasingly using blockchain technology for this purpose. The process of digitizing assets on the blockchain is called “tokenization”. The ownership of assets such as shares, bonds, debt instruments, etc. are being represented as tokens on the blockchain, enabling processes related to issuance, transfer and trading of securities to be rendered much more efficient, more transparent and more secure. In addition, the consensus-based trust paradigm of blockchain will be extended to also cover securities, eliminating doubts about ownership and settlement, and enabling the elimination of middlemen such as banks, custodians, notaries, and other types of trustees that are used to a role as a third-party guarantor. This will lead to reduced fees and costs, reduced scope for errors and inconsistencies, and highly reduced settlement times.
Claus Skaaning, CEO, DigiShares, says, “The tokenization industry is still not able to deliver on its promises of reduced fees and increased liquidity, mainly due to the lack of operational security token exchanges on the market. We have partnered with Abacas as we see them as a potential leader in the space and a potential provider of liquidity to the many issuances we expect to facilitate through our platform. Abacas has a strong vision for how liquidity can be provided to assets in the real estate, renewables, and private equity markets that is shared by DigiShares.”
Mr. Skaaning adds, “We will work together with Abacas on developing end-to-end solutions where asset managers can be provided a transparent and secure process of token issuance and subsequent listing on a highly efficient, liquid and transparent exchange such as Abacas, prepared for digital assets from the start.”
Mark VanRoon, co-CEO, AbacasXchange states, “Regulation and compliance remain challenges in the blockchain world as tokenization is rapidly outpacing compliance. As the new order seeks DEFI, our goal is to create a trading venue and partnerships that mitigate many of the current issues facing investors, issuers and regulators in this new paradigm. We are pleased to work with DigiShares as they seek to place a compliance “wrapper” on the companies they tokenize.”
Mark VanRoon, co-CEO, AbacasXchange, added, “Both AX and DigiShares share a common objective – introduction of protocol to instill the tenets of the Customer Protection Rules as asset portability evolves. Without trust and oversight, the mainstream market will not realize the benefits of this new opportunity. We are excited to bring DigiShares tokenized assets into our marketplace and trading venue!”
Asset managers that are interested in digitizing their assets and entering the new world of tokenization are welcome to contact either Mr. Skaaning or Mr. VanRoon for further consultation.
DigiShares provides a white-label platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges.
DigiShares is your trusted partner to ensure that your digital assets will be compliant and liquid.
Tokenization is defined as the act of technically and legally representing the ownership of an asset or security as a token on blockchain. DigiShares is one of the leaders in this space, based in the Nordics but with a global out view and a focus on delivering high quality white label solutions for the issuance and corporate management of tokenized securities.
The tokenization space is under swift development. Many technology providers have received big investments and the market has recently been predicted to reach $1.5 trillion in 2024 (and this is just for Europe!) (https://dailyhodl.com/2020/03/05/tokenization-in-europe-market-size-to-reach-1-5-trillion-in-2024/). Also, the security token market size has been predicted to grow with 59% CAGR until 2030 (https://www.finyear.com/attachment/1338789/) so there will be enough business for all of us. What’s driving the market currently? We see a global trend to apply tokenization to the real estate industry as the initial driver. Global real estate is a more valuable asset class than all stocks, shares and securitized debt combined – with a 2017 estimate of $228 trillion. Furthermore, it is a homogenous market that is highly illiquid and plagued by inefficient, cumbersome, paper-based processes for issuance, transfer and trading.
So it is ripe for digitization, securitization and now, tokenization. For this reason, DigiShares has focused its marketing, technology and business development efforts on real estate. See our white paper on real estate tokenization best practices here: https://digishares.wodwes.com/real-estate-tokenization
DigiShares is actively seeking partnerships with real estate developers interested in white labeling our platform in their respective countries.
Can tokenization provide value with no operational security token exchanges? Indeed, many of the necessary pieces of the puzzle are not yet in place to fully deliver on the value proposition promised by the tokenization industry. We claim that there are still value to be gained from tokenization, such as:
increased ability to digitize and automate processes related to issuance, transfer and trading,
increased ability to fractionalize securities to smaller sizes and extend the group of potential target investors,
increased liquidity through DigiShares internal marketplace for trading within a single project or fund,
the marketing and business advantage as a first-mover in a new market,
the increased ease of approaching and attracting international investors (US, Asia, Europe, Latin America),
and finally being future-proof and prepared to benefit from future security token exchanges and liquidity providers.
How are STOs actually carried out today? Across Europe we have seen most STOs occur in either Germany, Switzerland and the UK. Other much published destinations as Liechtenstein, Estonia, Malta and Gibraltar have actually yet to see their first successful projects. How can STOs occur in Germany where the legal status of tokenized shares is not yet clarified? Easy, legislation is sidetracked by issuing bonds instead of shares. The regulation concerning bonds is less strict than shares and it is easier to define a method for tokenization of bonds that can be approved by regulators. Furthermore, the bonds can be designed to have similar properties as shares such that interest or rent income can be distributed to bond holders on a quarterly basis and such that any value increase in the property can also be distributed to bond holders.
The DigiShares technology supports both bonds and shares, and indeed any other type of security (debt instruments, revenue sharing rights, profit sharing rights, voting rights, etc.).
Due to the corona virus outbreak, we are working from home and will have extra time to prepare future STO projects and consult on the opportunities in the tokenization industry. Feel free to contact our business development department for an initial consultation.
This document will describe in detail how and why you should tokenize real estate, and the DigiShares approach for this.
Contents: (1) Real Estate Tokenization – Why? (2) The DigiShares Platform (3) Real Estate Tokenization Processes
1.Real Estate Tokenization – Why?
At the time of writing, the financial industry is seeing a very significant trend in the growth of tokenization projects and tokenization solution and services providers. DigiShares provides a primary issuance platform that supports ongoing corporate management of the real estate fund, as well as trading via the built-in OTC marketplace.
Other companies provide secondary trading exchanges for security tokens, custody solutions, legal services, etc. Many different pieces of the security token puzzle are now falling into place to form a more efficient, transparent, and secure blockchain-based infrastructure for securities transfer, settlement and trading.
Real estate is the biggest single asset class where tokenization can provide value – $228 trillion in total assets. The real estate market shares the value proposition of the overall securities market. We view some of the biggest benefits to real estate tokenization to be the ability to reduce ticket sizes by several orders of magnitude (from USD 100,000 to USD 1,000). This is made possible by the extreme automation of issuance and post-issuance processes, and it will dramatically increase the group of investors able to invest in a given fund. Another significant benefit is the new liquidity of real estate by making real estate assets tradeable. This will increase the amount of money available to invest in real estate, and on the other hand, will make the asset class more interesting for investors.
Real estate assets have some properties that lend themselves nicely to STOs – such as being relatively secure investments, requiring significant investment sums, being relatively easily comparable and quantifiable, as well as being notoriously illiquid investments. The real estate market will as such benefit from the “standard” blockchain value properties such as: (1) the ability to automate and reduce the cost of issuance, transfer, settlement and trading processes, (2) the ability to automate and reduce the cost of governance processes such as cross-border transfers, cross-investor-type trading, lock-up periods, caps on investor counts, etc., (3) the subsequent increased ability to engage foreign investors and larger numbers of (smaller) investors thereby increasing the pool of investors for any given project, (4) the ability to reduce or remove different types of intermediaries such as CSDs, transfer agencies, broker-dealers, etc. due to the blockchain trust layer thereby increasing efficiency and reducing cost further, (5) the increased ability to attract investors due to the previously mentioned benefits (additional liquidity), and (6) the ability to significantly reduce ticket size of investors by an order of magnitude to cater for retail investors due to the automation of processes.
We will therefore see that good projects can raise capital easier, faster and at a reduced cost, investors will enjoy increased liquidity on their investments, good projects will get a liquidity premium, and investors will globally get access to previously inaccessible types of investments.
For some years now crowd-funding platforms have offered access to invest and trade “digitized” real estate assets. Why is tokenization better? For two main reasons. The “old” crowd-funding platforms are siloed and not interoperable globally. The global tokenization industry will use the same standards such that tokenization platforms on different continents will be inter-operable. This means that real estate tokens issued by DigiShares will be tradeable on exchanges in the US, Europe and Asia. It also means that tokens issued by DigiShares can be kept in safe custody by most security token custodians globally. Finally, it means that no investors or issuers will be locked into a single vendor’s ecosystem but will be able to transfer their tokens for trading or custody to any other vendor globally (only limited by regulatory restrictions). The other reason is that blockchain technology is a much more modern, secure and efficient method for implementing securities transfer, settlement and trading compared to proprietary digitization of securities.
DigiShares provides a white-label platform for digitizing securities (shares, bonds, etc.), issuing these in order to raise funds for a project, longer-term management of a group of tokenized investors, and an OTC marketplace for trading of these. The DigiShares platform is “white-label” meaning that it is exclusively sold to partners who offer the platform under their own brand-name.
The DigiShares platform can be used in connection with fund-raising but it can also be used in connection with the tokenization of existing real estate funds, in order to create more liquidity among existing investors and make it easier to on-board new investors.
The DigiShares platform provides a lot of functionality, however, the most important to mention is that it supports three main processes: (1) the issuance process where tokenized securities are issued in order to fund-raise for the project, (2) the longer term management of a group of investors who are holding tokens to document their ownership of securities within the project, and (3) the trading of tokens via the built-in OTC marketplace.
For the issuance process we support a customized on-boarding process where KYC and AML options can be adjusted to the specific jurisdiction of issuer and investors. The investor has his own dashboard where he can view his token holdings, communicate with the issuer, vote on relevant issues such as how to renovate a building, purchase more tokens, etc. The issuer has a dashboard where he can verify investor provided KYC documentation and approve investors to participate in the STO. Once the investor is approved, he can buy tokens with various payment options. The solution has an e-signature module such that the contract workflow can be automated and digitized as much as possible. The KYC verification process can be handled internally or outsourced to a third party.
For the management of token holders over the longer term, many functions are provided to ensure communication with investors, to conduct token holder (shareholder) meetings, to conduct votes, pay out dividends (possibly with stablecoins), maintain the share cap table (shareholder register), etc. In addition, the solution supports various corporate actions giving the administrator (normally a top executive of the issuer) the right to forcefully transfer tokens from one investor to another, or back to the company – and to reissue tokens in case an investor lost access to them.
The platform also provides an internal OTC-like (Over The Counter) trading exchange. This means that existing investors within a project can trade tokens with each other. They can issue buy and sell orders and can match these on their own in a manual manner. It is also possible for new investors to be white-listed and invited into the exchange such that they can buy tokens from the old investors. This function provides increased liquidity within a single project and will provide an extra value for investors.
The platform is “multi-STO” meaning that it can handle multiple STOs in parallel, at the same time. Each STO can have its own URL for investor on-boarding and will have its own graphical content, presentation and content. This makes it possible for the real estate developer to have several ongoing real estate projects being active simultaneously in the platform.
The platform is increasingly integrated with payment providers, custodians and third-party KYC / AML providers.
The DigiShares platform is highly suitable for real estate tokenization as it allows the issuer to manage and automate many of the processes related to fund-raising and ongoing fund management. The platform works with different security token protocols and we prefer to work with those that are open and do not enforce any kind of vendor lock-in.
While DigiShares is “bullish” on real estate tokenization, we do realize and acknowledge that not all investors understand and accept blockchain and indeed are prepared to hold a security token in a crypto wallet. For these investors we cater in two ways, one is by working with custodians who can hold the tokens for these investors (at a cost), the second is by enabling the platform to also support non-tokenized investors, that is, investors that do not receive tokens to represent their ownership but rather are registered within the platform as normal/traditional investors.
The DigiShares platform is constantly being updated in order to reflect changing and evolving market needs and the agile approach of DigiShares help our clients to stay up to date and relevant.
3.Real Estate Tokenization Processes So how does one go about tokenizing a property? Either to raise funds for a new development project, or to sell an existing property?
When a client engages DigiShares in this process, we also involve our legal partner in order to help with legal matters in relation to the issuance. As such, two processes start and run in parallel, the legal and the technical processes. (It is also possible to work with the client’s internal legal department or legal partner if they are sufficiently knowledgeable in STO regulations).
For any project one of the initial steps will be to create a project plan/roadmap for both the legal and technical work.
The legal process:
1) Deciding on jurisdiction for the projects. Tokenization projects fall under standard securities regulation and are as such indirectly supported in many countries. However, many countries do not support the full digitization of securities such as shares and bonds due to requirements for notarized transfers, paper-based ownership certificates, etc. Other countries are unclear on regulations so far. DigiShares and our legal partners keep track of regulatory developments and can at any time recommend best options, optimizing cost and regulatory complexity, while at the same time catering to investors in one of the three main regions (USA, Europe and Asia). We will be able to provide a recommendation for countries that support tokenized securities – or in case these are not supported, simplified types of securities such as profit-sharing rights or debentures that may more easily be tokenized.
2) Once a jurisdiction has been selected, the legal unit (the SPV = Special Purpose Vehicle) should be created and a bank account obtained.
3) Designing the fund-raise itself, based on amount to be raised and type of investors that are targeted. Together with our legal partners we can give recommendations on this. In the US, if the amount is above 1 M USD (as is almost always the case), it is relatively straightforward to conduct an STO under the reg D exemption where only accredited investors can be targeted. In Europe, there are more choices. If less than 5-8 M euro is raised, it is possible to make a public offering towards retail investors in many European countries. If the amount is above 5-8 M euro, it is normally necessary to get a prospectus approved which is a more costly and time-consuming process. For more insight, please see: https://digishares.wodwes.com/stomarketdevelopment
4) Design the security to be tokenized. For real estate this is typically a share in the company owning and administrating the property, but it can also be a tokenized loan, profit-sharing right, dividend-distribution right, etc.
5) Designing the KYC (Know Your Customer) process for on-boarding investors. Together with the legal advisor, it is necessary to determine what information must be provided by investors in order to document their ID and address, for retail and accredited investors, and for consumer and business entities. Verifying the ultimate beneficial owner for a company may be quite complicated and time-consuming, so it is best to require of the investor to provide all relevant information when registering.
6) Reviewing and determining what kind of reports and updates have to be made to public transfer agencies, CSDs, etc. These can be generated as custom reports from the platform.
7) Depending on the type of raise, different types of legal documents need to be produced, such as either a private placement memorandum, a public offering memorandum, a regulation D filing form, a US or EU prospectus, etc.
The technical process:
1) Customizing the KYC process based on the input from the legal process.
2) Customizing the contract workflow deciding which contracts need to be used for the signing up of investors and subsequent token purchase, such as subscription forms, purchase receipts, shareholder agreements, etc. The goal is to automate the contract workflow as much as possible.
3) Customizing the content and information available to attractively present the property, including photos, financials, etc.
4) Customizing payment options including credit card payment, bank transfer and crypto payment. Again, the goal is full automation but this may require banking integration which can be time-consuming and expensive.
5) Customizing custody options – either with integrated custody partners or just by setting up agreements to custody investor tokens, paid and managed by either the issuer or the investors on their own.
6) Installing and customizing server software and training the issuer administrators in using the software platform.
7) Testing that everything is ready for the STO launch.
8) Pushing the “start” button and launching the STO.
9) A normal STO will typically last for 2-3 months.
In addition to the above workflows, there are also workflows relating to marketing and investor relations that DigiShares can also support. DigiShares is connected to both marketing agencies and investor relations services providers world-wide that are experienced in assisting with fund-raising for real estate projects.
Many of our current projects are real estate tokenization projects, and for those of you who are specifically interested in real estate tokenization we have created a special page where you can learn about real estate tokenization and how to tokenize your project.
DigiShares provides a white-label platform for digitizing securities (shares, bonds, etc.), issuing these in order to raise funds for a project, and the longer term management of a group of tokenized investors. DigiShares’ platform can be used for any type of fund-raise (STO = Security Token Offering) including real estate development projects. The DigiShares platform is “white-label” meaning that it is often sold to partners who offer the platform under their own brand-name.
The DigiShares platform can be used in connection with fund-raising but it can also be used in connection with the tokenizationof existing funds or companies, in order to create more liquidity among existing investors and make it easier to on-board new investors.
The can be used by investment banks, asset managers, real estate fund managers, etc. to manage and raise capital for multiple projects simultaneously. Each project will have its own URL and its own database of investors. The investor databases can be pooled and shared between projects, if required.
An STO (Security Token Offering) is a capital raise where the ownership of securities (shares, bonds, loans, etc.) are represented as tokens on the blockchain. This results in many benefits in the form of increased efficiency, transparency and security, increased access to investors and liquidity, internationally, as well as a significantly decreased cost of raising capital and subsequent management of the group of tokenized investors. DigiShares’ platform can be used to raise funds for an investment fund, real estate fund, renewables fund, later stage startup, etc. as well as much easier management of a large group of investors.
There is a dashboard for each investor and for the administrator of each STO project. In addition, there is a top-level administrator dashboard managing all the STOs that are issued by the same corporation. Within the STO dashboard, the administrator may define the security to be tokenized. It can for instance be a share and it is possible to have multiple share classes. Once the STOhas been completed, it is necessary to keep using the platform in order to manage investor communications and corporate actions, such as shareholder meetings and associated votes. In this version, the meeting and voting module has been much improved with the ability to create votes where shares are counted in different manners based on shareholder rights. It is even possible to invite external non-shareholders to participate in votes. Meetings can be created with agendas where individual agenda items may require a vote to be conducted. It is now possible for investors to send messages to the STO administrator within the platform – directly to the administrator’s inbox, as well as to easily send mass emails to a large number of investors at once.
The document and contract management module has also been extended with the ability to create customized contracts within the system, set variable fields for investor name, number of shares to purchase, date, etc. and specify precisely the subset of investors the contract should be distributed to. This makes it easier to fully automate and optimize the investor onboarding workflow. It is also possible to specify that a document is available for investor review such that the investor can make suggestions and changes in the document. The internal exchange is now also functional. It allows investors within a single project to trade with each other and hence can provide extra liquidity to investors. This can be highly beneficial in particular in cases where there are many investors in a single project or where investors may be interested in exiting their positions earlier than what is normally possible. It is also possible to invite and white-list new investors into the exchange to trade with existing investors. Other new functions worth mentioning are: 2 factor authentication and “tell a friend”.
If you are interested in more information or getting a demonstration, please contact DigiShares.
Issufy, a leading platform to help organizations manage investor engagement in capital markets transactions, is pleased to confirm that it will be joining forces with DigiShares, a white-label platform for tokenized securities. With this new cooperation, Issufy and DigiShares will both extend their product offerings with more capabilities and will together focus on STOs both in the UK market and internationally.
Digital shares for the world
Through DigiShares, any type of security such as company shares or bonds can be digitized and issued as tokens on the blockchain. The DigiShares platform handles both the issuance process as well as the ongoing corporate management of a group of tokenized investors, such as investor communication, share cap table, investor voting, etc. Any asset manager (real estate, investment fund, renewables, mining, etc.) may white-label the platform and use it under their own brand name for multiple STOs (Security Token Offerings).
Through DigiShares, whitelisted, verified and approved investors are able to purchase tokens – benefiting from immediate settlement, wider access to international investors, enhanced liquidity, and because of programmable governance and compliance, transactions will have fewer vulnerabilities to errors.
“The global financial infrastructure is shifting to blockchain infrastructure in order to reduce cost, delays, and amount of errors in the clearing, settlement, transfer and trading of securities. Investment funds, real estate funds, banks, etc. are actively implementingblockchain tokenization technology in order to achieve these advantages and not be left out of the game. The entire market is increasingly professionalizing in order to provide investor security and compliance that is sufficient to be acceptable for institutional investors and regulators. We see Issufy’s investor engagement platform as a major step forward in order to significantly increase the quality and breadth of functionality as part of the end-to-end securitization and tokenization process,” said Claus Skaaning, CEO of DigiShares.
Skaaning added, “The Issufy platform fits perfectly with DigiShares for the pre-issuance management of a group of sophisticated and demanding investors in an STO context. DigiShares and Issufy will more easily together be able to provide an end-to-end investor management and STO platform that can appease institutional investors”.
“The new market of digital securities has high potential globally and is very relevant for Issufy. Together with DigiShares, we will offer a better end-to-end solution to allow issuers and their advisors to achieve the highest standards of information control, information structuring, analysis and management and user experience when collaborating with their investor communities and each other to create these types of transactions. The ecosystem’s expectations around flexibility and ease of use are only getting stronger all the time, as are requirements for effective compliance around how decisions are being made in all capital markets transactions, including STOs,”, said Nawaz Imam, CEO of Issufy.
“We are delighted to formalize our partnership with DigiShares. We see them as a leader in this segment – they are among the first in Europe to provide an operational platform for investment funds, real estate funds, even later state startups to issue shares as tokens and offer them for sale, fully regulated in their jurisdictions. Together with our investor management platform we can offer asset managers a highly sophisticated and compliant fund raising process”.
About Issufy
Issufy is a next-generation, cloud-native transaction management platform for corporates, their advisors and intermediaries that creates a digital bridge between those firms and their own investor community for complex capital raising transactions. All elements of engagement, from documentation, through to feedback, demand and allocations can be structured and captured with complete flexibility. From private through to public market transactions, it allows firms to leverage their relationships and distribution resources better, and where appropriate, engage directly with their own investor community in a flexible, yet structured format to quickly capture and analyze better quality data about investor intentions over time. This allows for far better decision making to take place, improved information flows and improved regulatory compliance as every interaction in the journey through to transaction execution is mapped out and recorded effectively. Spreadsheets, emails, and CRMs are not enough!
About DigiShares DigiShares provides a white-label platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges. DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.
The real estate industry is on the brink of evolving into a more liquid, global and transparent sector. As mentioned in our article about Real Estate, blockchain technology will be able to enhance multiple facets, ranging from faster transactions, easier ways of documenting and of course, tokenization of real estate assets.
But while plenty of articles describing how blockchain can transform the real estate industry can be found online, there are surprisingly few companies actually trying to implement the technology. Digishares is one of the companies that is spearheading the transition.
Digishares is trying to become the bridge between finance and blockchain, enabling both investors and issuers to connect using their, already live, platform. Digishares focuses mostly on the Real Estate market but is also looking to later expand into renewables, mining, and startup financing. They have developed a software solution that allows whitelisted investors to buy security tokens while helping the issuer with the entire process of tokenizing their assets.
We had the pleasure of interviewing Claus Skaaning, CEO of Digishares. Claus explained his future vision of how blockchain technology can enhance the real estate industry, and we discussed security tokens, and the plans of Digishares in the coming years.
Please tell me a little bit about yourself, how you entered into the blockchain industry, and how and when you founded Digishares.
“I’ve got a PhD in computer science (artificial intelligence) and worked in that field for many years and launched my first company, a company called Dezide which deals with AI solutions for technical diagnostics and troubleshooting. I left this company a few years ago and have been working in a university incubator since then, guiding student and researcher startups on developing their ideas into business. I first got into blockchain around 3 years ago where together with my co-founder Yuriy Zubarovskiy, we launched a company called VentureFusion. This company was essentially a decentralized incubator on the blockchain, a collaboration platform enabling founders to bootstrap their startups by paying contributors with tokenized equity. So we had our first experiences with tokenized securities around 3 years ago when the industry was very young but came into it sideways.
Around 2 years ago we realized that STOs and security tokens would become big and decided to launch DigiShares with a focus on developing software infrastructure for tokenization. We spent around 1,5 years on developing the platform and have now been operational for around 6 months.”
Can you tell me a little bit more about your co-founder and how you met each other?
“My co-founder Yuriy is a very experienced project manager/executive/software developer from St. Petersburg in Russia. We actually met in a project that started around 4 years ago where I engaged Yuriy to develop the solution, but soon after we realized that we shared a vision for a decentralized incubator and bootstrapping platform and embarked on this project as equal partners. We work remotely but have met up several times over the years.”
What is your goal and vision with Digishares?
“The vision with DigiShares is to become a leader in technology for tokenized securities. At this stage, it is not so difficult to be a leader since there are relatively few players so perhaps the real vision should be to _remain_ a leader in the space. We are very much focused on the primary issuance of tokenized securities as well as the ongoing management of a large group of tokenized shareholders/investors in a single project. So we develop solutions for managing all the processes relating to the issuance and as well the ongoing management, including investor registration, communication, voting, e-signing of contracts, paying out of dividends, internal trading among the investors in a single project, etc. The focus is on automating processes so you can just as easily have 10,000 smaller investors in a project rather than 10 big ones – enabling asset managers to democratize access to their funds. We are focused on white-label and primarily work with partners who want to offer this capability to their clients.”
Aren’t you worried that by taking all these different aspects of the business you may become too diversified in a field that already is pretty difficult to master?
“Actually we have a more narrow focus than many of our competitors who (in our view) stretch themselves too thinly over a wide variety of functions and interfaces. We believe we have a balanced focus on primary issuance, ongoing management of a tokenized group of shareholders, as well as being offered as a white-label solution. It is very hard to separate the issuance from the life-cycle management of the tokens. Some companies sell solutions just for the issuance but it leaves the issuer in a lot of trouble without a solution for the on-going management of the tokens and investors.”
How do you think your company fits in both the blockchain and the real estate market?
“We believe in the blockchain fundamentals of democratization, decentralization, transparency, and automation. We strive to fulfill these principles in our solutions. Due to securities regulation, we cannot 100% fulfill them but we do our best. For instance, transactions with tokenized securities cannot be immutable by law, since you may have corporate actions requiring you to forcefully transfer tokens from one investor to another, or to freeze and renew tokens if an investor loses access to his wallet. Governance can be built into the smart contracts such that tokens become self-sufficient and can determine on their own whether they can be transferred to an investor from a specific jurisdiction and of a specific type so a very large percentage of the issuance, transfer and trading processes can be automated and decentralized with blockchain.
In the security token space, there are a few players that try to create ecosystems where they are central players. In my mind, this goes against the vision of the blockchain. When we issue tokens, we use protocols that are as open and flexible as possible and don’t tie us and the issuer into a certain ecosystem. The token needs to be globally compatible and interoperable so it can function outside our platform, be traded on exchanges, etc.”
You have been operational for 6 months now, what are the first findings you have encountered?
“The STO market was initially developing slower than expected but we think it is starting to pick up speed now, at least we are seeing a significant amount of solid leads, and new projects every month. we see a lot of interest from the real estate space, but also in renewables, startup financing, and film production.
In relation to the real estate market, we see this as the biggest driver of the security token market right now. More than 50% of new leads we get in are within real estate.”
Can you tell a bit more about the leads you are receiving? Are those investors, property owners, inquiries, etc.?
It is primarily real estate asset managers and developers. It is a mix between asset managers looking for innovative ways to sell their assets – and developers looking for innovative ways to raise funding for new projects. Most of these already have quite advanced plans developed and are relatively close to launching an STO, including selecting optimal jurisdiction, legal partner, etc.
What are the main areas where you think blockchain can enhance and improve the real estate market?
“Real estate is the biggest homogeneous global market where tokenization can be of value – $228 trillion in total assets. The real estate market shares the value proposition of the overall securities market. We view some of the biggest benefits to real estate tokenization to be the ability to reduce ticket sizes by several factors of magnitude (from EUR 100,000 to EUR 1,000). This is possible through the extreme automation of issuance and post-issuance processes, and it will dramatically increase the group of investors able to invest in a given fund. Another huge benefit is the very significant increase in the liquidity of real estate by making real estate assets tradeable on security token exchanges. This will also increase the amount of money available to invest in real estate, and on the other hand, will make the asset class more interesting for investors.”
I absolutely, and totally agree. It will be an entirely new market, enabling your everyday people to be investors with money they saved up, without the need of banks or lenders. The liquidity will explode and the markets will become even more global. However, before we get to this point there are a lot of issues to solve. How are you trying to persuade people to invest using blockchain?
“We see the main issue as being the same one hindering the overall crypto market – the on-ramp issue. To most people (>95%) having to buy and store crypto tokens in a personal wallet (or with a custodian) is an insurmountable challenge. This really is the main issue for all of us to focus on. It’s not so bad for us as with regular crypto companies, as we permit investors to buy using EUR and USD. And our solution actually allows investors to be “non-tokenized”, i.e., being regular traditional investors without holding a token. But we acknowledge we’re a blockchain company and we are focused on furthering STOs, so we need to develop solutions to the on-ramp issue. It helps to work with custodians who can easily hold investors’ tokens. And the long term”
Aren’t there tons of legal issues?
“On the legal side, it is actually not that complicated. We partner with various legal firms in different jurisdictions and they are responsible for that side, but in reality, structuring a raise in trend will help us out as well with more and more consumer devices integrating crypto wallets and more and more people becoming familiar with these. Europe or the US is relatively straightforward. There are not that many realistic configurations.”
Are you already developing some kind of platform for investors to find a property to invest in?
“We are not currently developing a real estate investment platform as we are focused on being a provider of white-label infrastructure technology for STOs.”
Let’s say 100 people are the owner of a house that generates rent/income. Who decides when the property requires maintenance, what will happen when people move out? This is a subject that I’m personally really interested in!
“The normal solution to the above would be to have a property management company responsible for the day-to-day operations of the property, including all those tasks that you mention, as well as the overall budgeting and financial reporting to investors. The cost of such an operator is factored into the initial STO. With a tokenized solution processes can be automated to such a high degree that it becomes viable to have a high number of investors.”
There are a couple of projects that you have currently launched, more precise the property in New York. How is this project going?
We are still working on preparations for the NY property STO, including the set up of the legal unit for the STO.
How do you see both the blockchain and real estate industry working together in the next 5 years?
“I think a lot of new business models will be tried and tested over the next 5 years combining blockchain and real estate. The real estate industry is characteristic by being made up of a large number of independent but closely interacting players that need to coordinate a lot of transactions both in relation to legal, construction and finance. The blockchain is eminent at this, of course.
We see many potential blockchain use cases within real estate, including logistics optimization, chain of custody paper trail, tracking of building materials over lifetime of buildings, issues management and tracking, micro-transactions for work tasks, IOT tracking of connected devices, documenting and structuring changes and revisions, etc., etc., etc.
We will be focused on using blockchain to optimize the issuance, transfer, and trading of real estate assets and securities, however, and we believe that the industry will see massive changes in this area over the next 5 years. It is our expectation that that majority of listed and unlisted real estate assets will in the future be handled over blockchain technology, and that a much higher percentage of global real estate assets will be listed and tradeable, in a form that is accessible to retail investors.”
How do you see your company evolve in those years? Are there any other markets you want to grow towards?
“We have several exciting initiatives ongoing in the real estate tokenization field, within both issuance and trading, as well as new protocols focused on real estate. Over the next couple of years, DigiShares will have a focus on real estate in particular, but will also be open to projects from other fields, such as renewables, mining and later stage startup financing. We see renewables as a potentially large asset class that will benefit from tokenization. DigiShares has headquarters in Denmark which is a world-leading country in wind production and the location of many wind energy developers. Wind parks are good assets to tokenize to increase liquidity and make them available for retail investors.”
That’s very good to hear Claus, and I believe that there are definitely opportunities in those directions. There is a lot of potential, and it’s awesome to see where you already stand with Digishares and what your future plans are. I want to thank you for this thorough interview, and for the time you have taken out of your busy schedule to answer my questions. We’ll continue to follow your steps and wish you the best of luck!
Want to learn more about Digishares? Read more about their plans on their website. They are also launching a STO. If you are confident in Claus and his company then you might want to read more about this opportunity here.
To get in touch with Claus be sure to find him via the digishares website or via his Linkedin
The STO market is undergoing rapid worldwide development. For certain STOs, the EU is making it easier to engage a broader group of investors than the US
Claus Skaaning (DigiShares) and Scott McKenzie
This material is intended for general information purposes only and does not constitute legal advice.
STO platforms, such as DigiShares, can manage 1,000 small investors as easily as 10 large investors and automate many processes. This improvement in logistics allows companies to expand their group of potential investors and engage a far broader group – some might call this a more democratic approach to investment. This draws from ideas of engagement as a key part of society. As Louis L’Amour described the concept of democracy “we must be…participants, not simply observers.” In comparing the different legislations concerning private placements and public offerings in the EU and the US, we can see that often Europe may be a better choice for launching an STO.
The DigiShares platform is not enough to facilitate this expansion in participation, technology and law need to work hand-in-hand. One of the most important choices that a company must make is where the legal entity that will conduct the STO is located. Having a good roadmap is critical for a raise, so that needs between engaging the most investors, speed, and cost can be balanced.
DigiShares is based in Europe and works with projects world-wide. Most clients need a jurisdiction that is receptive to business, provides a clear framework for token offerings, and where all needed pieces can be assembled quickly and without undue expense. For example, many clients need jurisdictions that have low levels of corruption, a good financial industry, and are based in a jurisdiction that is acceptable to their potential target investors. They need the STO to happen with legal clarity so that if required, securities such as stocks and bonds can actually be tokenized in a legal manner – and treated fully digitally on the blockchain. Finally, the cost and ease of notification and registration of the STO in the local jurisdiction and the degree of difficulty in producing investor materials for the STO in this jurisdiction should not be excessive.
Europe does not require a prospectus to be approved by a national competent authority (such as BaFin in Germany or Financial Conduct Authority in the UK) if the raise is less than EUR 1M (across all member states). Between 1-8M, Europe provides flexibility to let states make their own regulations with many (such as Denmark) not requiring a prospectus to be filed. Any type of investor may be targeted, bringing the real sense of participation and not just observation to a broader group of people. It is truly a democratic capital raise enabling smaller investors to invest at a very low minimum subscription price. Such a raise can be conducted by the issuer on their own and no special license is required. And the raise can be repeated in each 12 month period. A full listing of the EU prospectus thresholds can be seen here.
To conduct a similar raise in the US, a project has a more difficult path. Going by Regulation CF (Crowdfunding) they can raise up to $1.07M from retail investors. However, this must be conducted by special service providers who have a FINRA licensed crowdfunding platform (or via a broker-dealer) which adds an extra layer of cost. The well known Regulation D exemptions are also compelling for many looking to raise funds, however their restrictions limiting investment largely to accredited investors may not work for the strategies for all companies. It is imperative that companies follow the law, so they do not end up with extreme problems such as Kik or Telegram have recently had. A Reg A+ approach can go up to 20M, but the information about the offering must be filed and approved by the SEC. To date, very few companies have gone this route and the longer time-frame and higher costs may be prohibitive to many projects.
In an effort to find the most democratic and engaged group of potential investors, certain solutions present themselves as having some merit. A European EUR 5M prospectus-exempted raise (retail) and filing a US Regulation D (accredited only) would be one option that strikes a balance. Of course no blueprint is perfect and there are no one-size fits all approach so it is important that every project consult with competent legal professionals. The above suggestions are only a broad outline of what may work for some projects, the details of course are more complex and often require additional reporting and filing requirements and may require certain other restrictions on the liquidity of the offer.
As a STO platform provider and as a legal services provider, DigiShares and Scott McKenzie, are constantly reviewing and recommending legal structure for STOs. This material is intended for general information purposes only and does not constitute legal advice. For legal issues that arise, the reader should consult competent legal counsel in their jurisdiction.
About DigiShares
DigiShares provides a platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges. DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.
About Scott McKenzie (scott@scottmckenz.ie)
Scott is an American lawyer who has worked with a range of blockchain startups and companies looking to raise funds.
UPRETS and DigiShares have come into an agreement to carry out a European focused security token offering of the New York-based Oosten property. UPRETS is among the first companies to focus on providing a compliant, convenient, and advanced real estate tokenization technology to investors and property owners across the globe. This PropTech company also provides a real estate protocol that has been tested and proven in the past. DigiShares is a European company that provides its clients and partners with white-label blockchain digital asset tokenization solutions.
DigiShares and UPRETS thus seek to combine their technologies and get the best out of both worlds.
Understanding real estate tokenization Real estate tokenization refers to the process whereby you represent an ownership interest in a property with a token (Oosten Condominium in this case). The token can represent a loan secured by the property, equity in the asset or a stream of income.
Why tokenize real estate Real estate is the most important asset class in the world, worth over $200 trillion. However, because of the many inherent problems, real estate has never becomes a mainstream investment. For example, many people are prevented from investing because the entry point is high. Also, because of cross-border restrictions, delays and excessive paperwork, liquidity is low.
Tokenizating the asset ownership streamlines fractional investing and investment management. Additional steps, such as smart contracts and trade on exchanges will bring about the efficiency needed to address these traditional market shortfalls.
The Pilot project UPRETS’ parent company, Xinyuan Real Estate, owns condos at the Oosten Condominium (421 Kent Avenue) in Brooklyn, New York. They will analyze and select unsold units for the pilot project. The size of the initial security token offering can be anything between 1-4 million euros. The two companies will agree on the size of the security token offering, price per share, and minimum/maximum investment size. European investors will be the main focus.
The Role of DigiShares in creating digital shares
DigiShares digitizes ownership of assets and represents it as tokens on the blockchain. They are the lead partner on this security token offering and will provide the security token offering platform and customize it to fit this particular project. DigiShares will also help devising the strategy for the STO across the European markets and involve other partners from its network for investor relations, marketing, legal services, etc.
Each token on the blockchain will store a digital ownership certificate and will represent a single share in the property. The DigiShares platform will be used to whitelist, approve and verify investors to purchase the tokens that have been created. Investors will benefit from the immediate settlement, enhanced liquidity, and wide access to the international market.
UPRETS role in the security token offering The company will be the business lead for this security token offering. UPRETS will provide the property, the Osteen Condominium, which will be used for the security token offering. It will also provide important documentation such as the title, deed, audits, contracts, and permits. In addition, UPRETS will take care of investor relations, coordination, and all hiring.
UPRETS uses the X-bolt blockchain and the company is among the top 5 in China based on patent count. The technology is patented by RChain Technology. Xinyuan Real Estate, the parent company to UPRETS, has properties valued above $1.5 billion globally.
“We see real estate as one of the most promising markets for blockchain tokenization technology to be implemented. As the global infrastructure for banking, tech and capital markets rebuilds itself on blockchain over the next decade, the real estate industry will also be impacted. Real estate industry investors and developers are actively seeking ways to reduce delays, costs, and obscurity in transferring ownership of real estate-related securities. We hope that together with UPRETS we can help resolve some of those issues”, said Claus Skaaning, CEO of DigiShares. Skaaning added: “We see UPRETS as one of the significant global players in the real estate industry and is very excited about the partnership. DigiShares will be the preferred tokenization partner of UPRETS in Europe and together we hope to work with developers and investors in order to develop more efficient, less costly and less error-prone processes and work-flows for the real estate industry”.“Real estate remains to be the most valuable asset in class in the world. The barriers to entry such as liquidity and many intermediaries in this market can be solved through the blockchain. This partnership with DigiShares will bring sanity to the real estate market and make the digital security market more liquid. We intend to work as a team and become global leaders in real estate tokenization” said Dan Chase, CEO of UPRETS.
About DigiShares DigiShares provides a platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges. DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.
About UPRETS UPRETS is a one-stop solution platform for security token offering founded in November 2018. As a subsidiary of a publicly listed real estate conglomerate (NYSE: XIN), we currently focus on providing a cost-efficient, compliant and advanced tokenized real estate investment platform for property developers and investors globally by our patented blockchain technology.
Using this platform from UPRETS, the developers can provide liquidity for their property investors and the investors can benefit from the rent dividends and returns of properties in world-class major cities, such as New York, London and Dubai.
Consortium Chain by UPRETS: UPRETS.io started to develop its own consortium chain technology X-BOLT dated back in 2015. As one of the most mature blockchain firms in China, our consortium chain solution has already established 22 successful cases in multiple fields including insurance, real estate, logistics, and social networks.
(Some of the presentations and videos are unfortunately in Danish)
Topics ranged from the basics of blockchain presented by Bo Hembæk Svensson, Blockchain Specialist at BlocNordic, who got the less-informed audience members up-to-date with the concept, to more in-depth topics such as the value proposition in a blockchain-based market and the associated opportunities and potential challenges.
One of the advantages leveraged by blockchain in the real estate industry is fractional investment and ownership, as, through the technology, shares in properties can be digitalized. Investors, thus, benefit from accessible and liquid assets and diversified portfolios. Moreover, transactions are faster, cheaper, and more transparent, as trades are executed electronically and become disintermediated.
During the event, DigiShares’ CEO, Claus Skaaning, presented their solution, a platform that enables the issuance of such digitalized (tokenized) assets, for instance shares, bonds, or real estate.
Mette F. Kibsgaard, CMO and co-founder of DigiShares, highlighted the technology’s contribution to UN’s sustainability goals. Blockchain enables the tracking of sustainable building materials and key features, such as air and water quality, sanitation reports, or renewable energy production and consumption.
Among the speakers was also Juliane Sloane, a former analyst from the US company Leaseum Partners, who introduced a case study on a $250M tokenized real estate fund. During the discussions she pointed out, that the technology can’t increase the value of the traded property, its underlying quality being the true determinant of it.
Other speakers included MakerDAO‘s Head of Integration, Lasse Birk Olesen, who explained how tokenized real estate can be used as a collateral for their stable coin, and Niels Falk, CEO at HD Lab, who talked about several exciting blockchain projects in the building industry.
However, the innovative technology doesn’t come without challenges. Claes Holm-Nielsen, commercial real estate legal advisor at Accura, and his colleague, Peter Brask Tind, a lawyer in IT and personal data, mentioned that there are legal issues that have to be taken into consideration. One of the main challenges is deciding on the laws that will underly the blockchain deals, so the promised transparency that comes with the adoption of the technology can be conferred. This is particularly relevant for international trades involving different types of investors. Hence, the two lawyers suggest that the deals should be supervised by an independent authority, that would ensure that transactions are conducted as planned.
About DigiShares DigiShares provides a platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges.
DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.
Many of our current projects are real estate tokenization projects, and for those of you who are specifically interested in real estate tokenization we have created a special page where you can learn about real estate tokenization and how to tokenize your project.
Blockchain technology can push the real estate industry far into the digital age. And the industry needs a push, says the network Proptech Denmark.
ØRESTAD – Imagine the real estate industry without brokers and where everything goes digital with the help of digital currencies and real estate deals where only the parties involved have access to data.
This may sound like something that is far off in the future, but in fact, it is not that distant when listening to some of the players currently trying to incorporate the technology into the Danish real estate industry.
Several of them are already experimenting with blockchain technologyand how to leverage it in various areas of the industry.
Blockchain
A technology built by cryptographs (block) that are linked together (chain). It makes it possible to gather large amounts of information that are endlessly copied and make them impossible to falsify. Only those who have access to the blockchain through their own computer are authorized to modify the chain of information. This means that real estate deals can be rendered more secure, as only the parties involved can access the prospectus or the owner’s register. Blockchain technology can be termed as an extra “layer” on the Internet as we know it today.
New Thinking Is a Must
The real estate organization Proptech Denmark, whose mission is to push for technological development in the real estate industry, believes, among others, that Denmark lags on technological development.
That’s why last week it brought together several companies and presenters who talked about how blockchain technology can help change the real estate industry and how development and trials are already underway – both in Denmark and abroad.
“The Danish real estate industry needs to step up if we are to join the international scene. And that’s why we also have to think new,” said Proptech Denmark director Nadim Stub.
Blockchain offers, among other things, opportunities in the sale of real estate. And it could mean that the many “middlemen” involved in trades, such as real estate agents or banks will no longer be needed.
The blockchain technology is based on trust between the parties involved and does not require an institution as an intermediary, because the blockchain acts as an intermediary instead.
Specifically, this means that the seller and buyer can transpose the entire deal into the blockchain: the owner’s register, the prospectus and even the e-dna for both sellers and buyers. This allows the entire transaction to take place online, and it can make it easier, faster, and cheaper, as it does not require paying fees to intermediaries or waiting for due diligence processes.
The Technology in Its Early Days
Pilot projects with such trades are already underway. For example, the Swiss Exchange has given it a go, and in spring launched an ecosystem that can handle digital assets.
In Denmark, the digital companies DigiShares and HD Lab are also trying to implement the blockchain technology, and soon DigiShares will start a trade for approx. 22 million DKK in New York.
However, Juliane Sloane, an analyst from the US company Leaseum Partners, pointed out during the conference that if one wishes to trade through blockchain technology, the technology is not enough. High-quality assets are also required.
Several of the presenters, including Niels Falk, CEO of HD Lab, who has also been working in the field, mentioned that, currently, this innovation is still in its early days, as the Internet was in the late ’90s when a modem was needed.
Legal Challenges
But the future of blockchain in the Danish real estate industry is not without challenges. Claes Holm-Nielsen, commercial real estate legal advisor at Accura, points out that there are legal issues that have yet to be resolved.
His colleague, Peter Brask Tind, a lawyer in IT and personal data, explained during his presentation that the biggest challenge is how to decide what laws blockchain deals should be based on. Especially when it comes to international trades, where there are several types of investors, or when there are conflicts between traders.
“When you choose to use the blockchain, some laws that you trust must work so that there is full transparency when deciding which rules to apply in solving conflicts”, said Peter Brask Tind.
Besides that, there are other challenges such as financial tracking, taxes, personal data and, not least, who is responsible if there are technical issues with the blockchain. Therefore, the two lawyers suggest that there should be a self-driving unit independent of the trade, which is self-owned and can, thus, ensure that the deals are conducted as intended.
