A digital transformation is ahead of us...
The last few decades have seen the emergence of a wide range of innovative digital services, which are now used in all parts of society on a daily basis. As part of the current digitization of the players in the financial industry, which is still in its infancy, not only the services will be changing fundamentally, but the technological developments will also give rise to digital investment products, which are tailored to the individual needs of investors.
The conservative real estate industry will undergo a fundamental and digital transformation in the upcoming years, driven by new regulations and technological innovations. Although the digitization of many players in the real estate industry is still at an early stage, most market experts agree that the digital transformation of the global financial markets will also change even the last dinosaur, the real estate market, completely in the next 5 years.
While investment vehicles and the distribution of investment products for real estate investments have hardly evolved for decades, new technological opportunities will lead to a digital transformation of the way investors invest in real estate markets. The introduction of a blockchain-based capital market is considered to be one of the most promising and disruptive technological innovations. The potential of blockchain technology has been recognized by leading institutions who expanded their business in recent years to apply the new technology in a variety of use cases (such as cryptocurrencies, NFTs or blockchain-based securities).
Tokenization as a game-changer
Cryptocurrencies such as Bitcoin pioneered a new digital financial industry and triggered the blockchain hype in the 2010s. In the shadow of cryptocurrencies, the first use cases for regulated digital investment products developed. Especially the tokenization of formerly illiquid tangible assets is regarded as a use case of blockchain technology with immense potentials for financial markets in the next years.
While many areas of blockchain technology are still developing their use cases and business models, there is little doubt about the golden future for the technology. Most market participants expect the development of a huge new market for "digital assets" and see even greater potential than in the invention of the internet.
Asset tokenization is a technological, financial and legal process in which the value of a real asset is digitized and converted into tokens. Tokenization of existing assets refers to the process of assigning digital value to a physical object, an intellectual work or a financial asset. In simple terms, a token has to be imagined as a container, which can be either filled with a certain right or asset. Thereby a token holds a right, for example, the right of a real tradable asset or object. In order to represent regulated financial asset on the blockchain, so-called security tokens are issued. These represent a certain proportion of the underlying asset. In this way, regulated financial instruments such as shares, bonds or funds, but also tangible assets such as real estate can be represented by digital tokens. Subsequently, these tokens can be programmed with the help of "smart contracts" to automate compliance processes and distributions, for example.
