Table of contents:

• Why Real Estate Tokenization now?
• What is a token? What is a tokenization?
• How to set up the initial price for your token?
• What Blockchain really is?
• What is the blockchain?
• Which blockchain is best for asset tokenization?
• What is Token and Smart Contract?
• What is the token?
• How to ship your own token?
• What the heck is a smart contract? Do we need it?
• How to make Token IPO?
• How to make profits distribution to stakeholders? Right to share in profits.

Why Real Estate Tokenization now?

Real estate tokenization is an emerging trend representing the convergence of real estate investing and blockchain technology. Tokenization helps asset or fund owners raise capital more efficiently, and gives investors unprecedented access to private real estate investments, transparency, and liquidity.

What is a token? What is a tokenization?

You can think about tokens as shares of your investment (real estate property). Let's say you want to build a nice condo in Miami and need US$100,000,000 to make it happen. Let’s assume that you will create 100mln tokens, and in the IPO every token will be worth 1 USD.  1 token is equal to 1 USD. It means that I can invest $10,000 buying 10,000 tokens from you and collecting them in my crypto wallet. Simple? Yes, this is very simple and easy to do from a technology point of view. Blockchain technology allows us to do it.

How to set up the initial price for your token?

We hear this question very often. What should be the price of my token. To answer this question we have to divide it into two phases:

Phase1: IPO - Initial Public Offer.

Initial token price will be written in Smart Contract (literally Blockchain Engineer will set it up in the piece of code). And during the IPO phase every investor could buy your token for this price. Let’s make an example calculation:

Phase2: Token listed on the crypto exchange.

At some point you would want to list your token on a public crypto exchange to make it available to a wider space of investors (you can find more details about listing tokens on crypto exchanges later in this article). On crypto exchange the price of your token will follow the market desire. If people start to buy your token, the price will rise (from the initial price). If the people start to sell your token then the price will be going down.

What is the initial coin offering?

How to enter the exchange?

Do you have to do KYC (Know your customers)?

Couple of things you have to get familiarized about tokenization:

To tokenize your property we will need to create a token and make some operation on the tokens.

Let’s start from the beginning.

What Blockchain really is?

What is the blockchain?

There are many definitions of the blockchain however we like this one. The blockchain = Think of it as a cloud provider, kinda like AWS, Google, Microsoft but it's owned by no one. It's run by compute power from mining machines all over the world (community). Usually these people are called miners and we pay (gas) them to run our code! Simple? Yes! We love to simplify things :-)

Which blockchain is best for asset tokenization?

There are a couple of blockchain we can use for tokenization: Ethereum, Tezos, Cardano, Solana, Hyperledger etc. All of these blockchains are featured with smart contracts (f.e. Bitcoin blockchain doesn’t have smart contracts - we can’t use it). Smart contracts give the ability to create own tokens. We pick Ethereum as the most advanced and developed blockchain and also very popular.

Glossary:

Gas and fees - Gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. F.e. Creating a token, transferring a token between two users (seller and buyer) etc.

Miner - person who uses their time and computation power to process transactions and produce blocks. We have to pay (gas) them to run our code on the blockchain.

What is Token and Smart Contract?

What is the token?

A token is a blockchain-based asset with similar functionality to bitcoin or ether. It can hold value and be sent and received. It can represent a tradable asset or utility and allows the holder to use it for investment or economic purposes. Tokens can represent virtually anything:

• reputation points in an online platform
• skills of a character in a game
• lottery tickets
• financial assets like a share in a company
• a fiat currency like USD
• an ounce of gold
• assets like a share in real estate
• equity interest in a legal entity
• ownership of the collateralized debt
• and more...

You can also find the name for our token as security token.

To summarise once more: Tokens are essentially digital, liquid contracts for fractions of any asset that already has value, like real estate, a car, or corporate stock. Using security tokens means investors can expect that their ownership stake is preserved on the blockchain ledger.

How to ship your own token?

Coin vs Token. What is the difference? Do we create a coin or a token?

Let’s explain.

A crypto coin is, so to speak, the main currency on a blockchain. For example, Ether (ETH) is the underlying currency on the most popular blockchain called Ethereum. Every blockchain needs a crypto coin acting as money to fund transactions and any other interactions with a blockchain.

In addition to having coins, advanced blockchains like Ethereum, Tezos, Cardano or Binance Chain, also support tokens (also called cryptotokens). These tokens can be issued by anybody according to a blockchain’s standards. Of course you need to have coding skills to create a smart contract which issues a token.

There are a couple of token standards (marked as ERC-20, ERC-721, ERC-777 and ERC 1155). The most useful and popular for asset tokenization is ERC-20. The ERC-20 introduces a standard for Fungible Tokens, in other words, they have a property that makes each Token be exactly the same (in type and value) of another Token. For example, an ERC-20 Token acts just like the ETH, meaning that 1 Token is and will always be equal to all the other Tokens.

Extra peace of knowledge: You probably heard of Non Fungible Tokens (NFT). Instead of Fungible Tokens, NFT is a way to represent anything unique as an Ethereum-based asset, like a piece of art. Imagine that you have digital certification (token NFT) that proves ownership of Mona Lisa art. There is only one original Mona Lisa and it can only have one official owner.

So, to tokenize your real estate we have to use Fungible Tokens (ERC20). What else do we need?

What the heck is a smart contract? Do we need it?

A smart contract is a program (piece of code written by a blockchain developer) that runs in the blockchain network (in our case - Ethereum). Smart contracts will help make tokenization happen. We have to create a couple of smart contracts. First smart contract will be responsible for token creation and initiation of a token IPO (Initial Public Offering).

Token represents share in your property. Our token will work with wallets and crypto exchanges. You want to have the possibility to transfer and trade your tokens.

How to make Token IPO?

An initial public offering (IPO) is a process in which your company sells crypto assets (tokens) of its real estate to the public in new issuance. The process allows your company to raise capital from public investors. This is a very important step because we have to work together to figure out a couple of things. We have to create a new smart contract and set the following parameters inside the contract:

• We have to create an established quantity of tokens (f.e. 1,000,000 tokens)
• We want to allow buying tokens for ETH (user sends us ETH and in return gets our real estate tokens)
• You can START/STOP selling tokens at any moment [only admin/owner can do this]
• You can BURN / WITHDRAW unsold tokens [only admin/owner can do this]
• You can change the price of the token at any moment [only admin/owner can do this]
• You have to establish token price (for example: 1 token = $10)

Multisig Wallet for IPO

Why do we need it? The purpose of multisig wallets is to increase security by requiring multiple parties to agree on transactions before execution. Transactions can be executed only when confirmed by a predefined number of owners.

Using a multisig wallet is essential to make an IPO. We can use an open source wallet like Gnosis. It will be your company crypto wallet and

How to make profits distribution to stakeholders? Right to share in profits.

This is optional but I guess you would like to incentivize your investors to buy your tokens. If your property business annual ROI is 5% you can share this with your crypto investors. How? We will create another smart contract responsible for this operation.

Assumption: We want to pay a dividend only for people who bought tokens and keep them for at least a year (it might be also 3 or 6 months - up to your specific business case). We use one of the blockchain mechanisms - staking. Simply put, staking is the act of locking a token (or cryptocurrency) to receive rewards. We create a service to offer staking to our users. How does it work?

As we mentioned - by creating a new smart contract (piece of code executing on the blockchain).

All stakeholders will have an option to stake tokens. It means that they have to transfer tokens to a smart contract address (like sending to the wallet). When they get the right to get a dividend then they will have the option to withdraw tokens plus dividend. There will also be another option for investors, which is to keep tokens in staking and withdraw only dividends.

User Interface - web application (tokenization platform)