Blockchain technology has infinite potential and various ways to be used in the market. The San Francisco blockchain startup, Harbor, is one step ahead as it aims to implement a “decentralized protocol to standardize the way crypto-securities are issued and traded on blockchains.”[1] The startup managed to raise $28 million in new investments, which can significantly impact the way investors utilize real estate assets.
How does Harbor plan on doing this? Their first project is called R-Token, an “open-source standard” that allows crypto-securities, such as private securities, to be transferred on blockchains while simultaneously checking whether the transfer complies with the jurisdiction’s securities laws.[2] However, Harbor’s goal is to use this system to also tokenize real estate assets and private equity with the idea of providing greater liquidity for investors. The founders of Harbor explain that the transfer “requires issuing a permissioned ERC-20 token on the Ethereum blockchain that checks an on-chain Regulator Service for trade approval.”[3] This Regulator Service can be tailored to monitor Anti-Money Laundering provisions, tax laws and other measures regulating securities.
The way R-Token is engineered allows for it to be used with “all existing wallets and exchanges that support the ERC-20 token standard”.[4] Harbor is creating a system that permits users to transfer crypto-securities on a blockchain while completing a compliance check. By tokenizing private securities, they can be traded on blockchain platforms, which will “reduce costs, increase speed of settlement, and improve security”[5] since blockchain technology takes out intermediaries, such as brokers and exchanges, while automatically recording the transactions.
How can this impact the real estate market? Harbor explains that “[r]eal estate assets have additional legal requirements (on top of the already complex securities regulations) that must be enforced, making it a great candidate for tokening on blockchains.”[6] This would work in relation to a private domestic Real Estate Investment Trust (REIT), which has a number of legal requirements such as restrictions on the percentage of shares foreigners can own, the number of individuals who can own half of the shares, and the minimum amount of shareholders. Tokenizing real estate assets would help streamline the process and ensure the transfers comply with the appropriate legal requirements.
Real estate investors are eager to use cryptocurrencies and various types of real estate tokens are available using Ethereum. These tokens are not just limited to buying and selling property, but can be used for bidding, renting space and investing.[7] Shahal Khan and other investors have even created the “Plaza Token” in an attempt to purchase a majority stake in the New York Plaza for $375 million using cryptocurrency. Although this is still in its early stages, it illustrates the potential impact blockchain technology and cryptocurrencies will have on the real estate market.
[1] Remeika, Bob; Amano, Arisa; and Sacks, David. (Feb. 6 2018) “The Regulated Token (R-Token) Standard.” Harbor: White Paper. Available at: https://harbor.com/rtokenwhitepaper.pdf. Accessed on April 18, 2018. P.1.
[2] Ib.
[3] Ib.
[4] Id. p.5.
[5] Id. p.3.
[6] Id. p.4.
[7] See Gourarie, Chave. (Dec. 28, 2017) “These are the Real Estate Cryptocurrencies You can Buy Right Now (or Soon).” The Real Deal. Available at: https://therealdeal.com/2017/12/28/these-are-the-real-estate-cryptocurrencies-you-can-buy-right-now-or-soon/. Accessed on April 18, 2018.