Emerging as a product of FinTech applied to the real estate industry, real estate crowdfunding has emerged as a fast-growing segment of the global crowdfunding market.
Whenever technology meets an industry, it has the potential to disrupt the established ecosystem of traditional roles, ICOs are now crowdfunding models that allows startups to bypass traditional early seed investment.
There is an exceptionally large property market worldwide and according to analysts, Initial Coin Offerings (ICOs) will have raised a combined $3.25BN this year, creating the first visible ripples of what analysts believe could eventually become a multi-trillion dollar industry.
Innovative startup companies have been trying to adapt cryptocurrency tokens based on blockchain technology through an ICO to raise capital — and distributing them to token buyers in exchange for making a financial contribution to the project.
There are two types of tokens, with each either granting a user access to a service and entitling them to company dividends, or tokens that can be used for investing and can be transferred across the network and also potentially traded on cryptocurrency exchanges.
These two distinctive classes of tokens are classified as Utility Tokens and Security Tokens.
Security tokens create a standard trade between persons through the use of robust smart contracts and technology. If a crypto token derives its value from an external, tradable asset, it is classified as a security token and becomes subject to securities regulations.
The security token classification creates the potential for a wide variety of applications, including the ability to issue tokens that represent shares of company stock.
Structuring a token as a Security leads to legal clarity and protection for both the company and ICO contributors.
Any secondary trading of security tokens will be facilitated through the launch of licensed security token trading platforms. This will greatly improve liquidity for security token investors.
Utility tokens are also called User Tokens or App Coins, and represent future access to a company’s product or service.
The defining characteristic of a Utility Token is that they are not designed as investments, meaning they are not subject to securities regulation.
By creating a Utility Token, a business can sell ‘digital coupons’ for the service it is developing. For example, pre-sales for products released in several months are giving access to a future product, much like a Utility Token would.
An example of this is Filecoin raising $257M by selling tokens that would provide users access to its decentralised cloud storage platform.
The key difference between Security and Utility Tokens are that Security Token holders are entitled to ownership rights, whereas Utility Tokens function as coupons and give holders no rights or stake in a company’s platform or assets.
The Australian Securities and Investments Commission (ASIC) has provided an ICO guidance to explain how ‘ICOs’ will be regulated. These guidelines set out how to operate within Australia’s regulatory framework while encouraging innovation and the development of new financial business models.
Australia’s approach is an amalgamation of a suite of regulators, and can apply to both private and public companies when they launch an ICO, raise funds from existing shareholders or offer financial services.
Security Token Offerings will use blockchain technology to provide immutable ownership records and a marketplace to facilitate transfer.
Investing in security tokens is all about decentralised access, and increased transparency. Introducing real world asset classes opens the world of investment into commercial real estate to even more people.
The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.