Question) You are ahead of many tokenized real estate projects, as you have been granted a permit by the Financial Regulators of Switzerland and Liechtenstein to operate.. what exactly? What is your next big step?
Answer) For us it was clear from the beginning (January 2018) that we had to focus on 2 particular areas; 1) building a working consumer product powered by Blockchain technology and 2) a product that complies with existing rules and regulations. We are very proud that the competent authorities in Switzerland and in Liechtenstein have recently provided us with non-action letters.
Especially within the Blockchain ecosystem, it seems that people thought they aren’t required to stick to laws and regulations, maybe this “worked” partly with all projects who introduced (in most cases a useless) utility token, but definitely with security tokens there is no room for error as, in the end, you are dealing with an asset (i.e. real estate) which in most jurisdictions is highly regulated. It doesn’t matter that we wrap such an asset into a token form, you still have to keep the regulation in mind in order to be successful. However, adherence to financial market regulation does not come for free: In order to comply with all rules and regulations quite some (financial) effort is required. So, better choose your law firm wisely as they become an important partner when realizing a security token project.
There are still (a large group of) people who think that everything should be decentralized and non-regulated, but they tend to forget that there is a huge down-side for the actual users itself – that being that there is (almost) no protection if something is not regulated. We think the downfall of most of the utility token projects underlines this.
When setting up blockimmo we decided to prioritize investor protection, we chose a method which ensures the highest form of investor protection (fund set up in Liechtenstein) and on top of that we ruled the business model (meaning tokenization of real estate, enabling anyone to invest) with the financial regulators in both Liechtenstein and Switzerland, resulting in a positive answer (non-action letters) from both respectively.
In 2018 we laid the groundwork for a real estate investment platform powered by blockchain technology, enabling anyone to invest in real estate. The next big step will be to tokenize a property and prove that the business model works. We are already working on this and aim to announce this important achievement early 2019.
Q) How did you tie the blockchain based proof of ownership issued by your platform and the legal ownership in these two countries? Can you explain it to non-technicals?
Simply put, each property listed on our platform gets tokenized, meaning we “divide” it into 1 million pieces (technically we issue 1 million tokens per property). Anyone can acquire such a piece for a rather low price (i.e. if the property value is $5 Million, each “piece” (token) costs $5.00).
Technically, this means that each property is represented by its own smart contract on the Ethereum Blockchain. The smart contract has a unique number (i.e. our “Mazu Property” whose smart contract ID is
0x2BeC82472a1f3ad941a94FB9D5512c9E51EC979d). Within the smart contract, all the token holders (investors) are visible at all times, and this list is updated automatically with each token transfer taken place.
Now, in an ideal Blockchain world the land register would already be “on-chain” (meaning on the Blockchain) and the owner of the property would be the smart contract. As this is not (yet) the case, we introduce a fund in Liechtenstein, which holds the property in name of all the investors, effectively mapping / bridging the old world with the blockchain.
We explain the legal framework in detail for real estate in our blog post here and for our company share (equity tokenization) in this blog post.
Q) What kind of traditional real estate operations will you undertake?
A) blockimmo will undertake the whole due diligence process (explained here) and management of our partners. A partner is for example the building management company (which we outsource to a specialist in the region). In addition we will prepare and frequently publish reports of the successfully funded properties, support our investors, and work closely with existing entities like cadasters (land registries) who want to explore and adopt this technology.
Q) Where do you see your company in 2,4,10 years?
A) We are currently focusing on funding our company successfully, if that goes well, we want to rapidly scale our business within Western-Europe. In addition we are already in talks with several potential partners in the middle east, Asia and the US.
In a decade, we think you will be able to invest in any kind of asset which has been tokenized. In simple words, from your mobile you will be able to manage your portfolio of real estate, start-ups, companies (shares), art, gold and other commodities – without the need of any middlemen and against very low (transaction) costs. We think that blockimmo will play a crucial role in this regard.
We are building blockimmo in that manner — while continuously improving / iterating the technology. Having a long-term outlook means that we can focus on improving the entire industry and not just our business.
Q) How do you see the industry in 2,4,10 years, the industry of traditional real estate vs sales/rent/lease blockchain based proofs of ownership
A) 2019 is going to be the most important year for Blockchain technology. The technology itself is already over 10 years old and it needs to prove itself urgently (meaning showing real value / products for consumers / being an enabler of usefulness). This has to happen in 2019 and if it does, we are convinced that it will change many markets, not just the real estate industry.
For example, if the land register will move to an on-chain register, it will have a huge impact on how the assets can be traded. We can get rid of the fund set up and thus further lower the costs of transaction.
Another example would be “rent to own”, enabling people who rent their apartment to slowly but steadily become an owner of their apartment, resulting in a more liquid investment for property owners and a more happy and engaged tenant.
Q) How important are industry standards? Will you join a professional association like Melbrook Accord? A couple of words on interoperability?
A) Industry standards will be important at some point in time. In our opinion first you have to prove the technology works before you can think of theoretical standards. There are (too) many associations talking about what may and should be possible – we decided to focus on building a product and thus proving the technology works.
Interoperability is something that will gain more interest once there are working products on the market. For example our solution is built on Ethereum, but there might be a good supplemental platform (i.e. property data) built on Tezos. Should we decide to work together interoperability is going to be key. We think that Polkadot is a good example of how different blockchain might work together in the future.
Q) What is included in your vision of a digital asset? And what is excluded?
A) There is an urgent need for regulated exchanges, in order to trade digital asset (security tokens) in a solid environment. One of the major benefits of moving real estate on chain is greatly improved liquidity, and regulated exchanges are necessary to fully realize this value. Luckily there are several serious projects working on this in triple-A jurisdictions. Once such an exchange is live, the transformation of illiquid assets (like real estate) into liquid is going to take place and it’s going to be very exciting to see what will happen.
An important key element within the digital asset / security token ecosystem will be a solid stablecoin. DAI has been performing outstanding and is a good example, however there might be a need for a more regulated stablecoin (i.e. in my view SwissCryptoToken is an example of a solid stablecoin).
Another key element is that the user-friendliness of onboarding potential users (investors) has to improve tremendously. Right now the wallet set up is not so easy. On the other hand the form of decentralization (the users and only the users owns their private keys) should not be forgotten, it’s a tricky situation and we predict a killer-product to solve this will be announced in 2019.
Excluded for us is anything that is pretending to be “blockchain” however has a strong element of centralization (i.e. “permissioned blockchain” which in our opinion should not use the term blockchain at all, it’s like saying you can extinguish a fire with fuel).
Q) What is your corporate vision/strategy?
A) Here, have a look