by Bilal EL ALAMY, EquiSafe Co-Founder & CEO
On June 25th 2019, the investment platform Equisafe carried out the first sales of a real estate property through blockchain in Europe. The 6.5M€ transaction happened in 30 minutes while it could have taken months through a traditional process. The operation was a success which demonstrated Equisafe ability to handle complex transactions, yet Rome was not built in one day and the road to tokenize a building was hardly as easy as it looked. Let’s take a tour with you behind the scenes to share what we learnt about asset tokenization during the operation.
A legal framework taking into account the nature of the asset
In the making of a tokenization process, defining the legal framework is key to make sure the operation will be compliant with legislation and that transactions will be as smooth as possible for buyers and sellers.
In the case of Equisafe, here are the 2 critical questions that needed to be addressed:
- how to include property rights of an asset (the mansion) in a token?
- how to make sure so-called tokens would be liquid (i.e. easily exchangeable)
Both questions were solved with the help of our fellow legal advisors, Coblence & Associés and CMS Francis Lefebvre Avocats.
Keeping in mind that Equisafe’s motto has always been to make financial and intangible assets accessible to the greatest number, we started exploring the mechanisms at our disposal to fulfill our mission.
We wanted to tokenize a building: to say it differently, we wanted multiple individuals with potentially no connection whatsoever (personally or professionally) to be able to collectively own an indivisible asset and decide its fate.
This implied the dispersion of responsibility and an absence of leadership on decisions that was not legally advised. This called for the creation of a moral entity to take control of the building and answer to the authorities.
The Security Tokens Offering mechanism allowed us to create a company to own the building, and to offer shares of this company to the public so that they could virtually own a piece of real estate and vote about what it would become.
But what status give to owner entity? Limited liability companies were to avoid as they put too many conditions on shares transfer: the greater liquidity we aimed for would not be happening. The simplified joint-stock company structure was chosen in order to allow as many associates as wanted to buy in.
In other words, when in doubt about the legal framework to adopt for a tokenization, always refer yourself to your baseline: in our case, making financial transactions simpler and the market more liquid. Indeed, each AnnA token is coded to contain the conditions of purchase, sale and exchange of securities as well as the rights to which it gives access (dividends, voting, etc).
Scenarization: a live transaction to educate the audience
The live transaction making AnnA tokens property of their new owner Sapeb Immobilier was carried out live, in 2 parts: on June 24th, the Sapeb AnnA company, legal owner of the building, was tokenized on blockchain. On June 25th, all Sapeb AnnA tokens were transferred to the promoter Sapeb Imobilier, the buyer.
The 2 operations combined happened in less than 30 minutes, in front of a live audience gathering a member of French Parliament, blockchain consultants, journalists, crypto-enthusiasts, bankers, lawyers, notaries and of course real estate professionals.
In order for them to get a better grasp on the technology on display, we scripted the event to guide them through the whole transaction. Before the transaction happened on June 25th, we got back to basics with a speech reminding people what blockchain was and what it meant for the future of transactions : the CypherInvestment Manifesto.
To make things more visual, we also created a virtual reality experience with Nova XR just for the event. The 3 minutes experience was fragmented in 3 moments: an explanation of tokenization, the fractionalization of AnnA and how tomorrow we could visit and invest in real estate.
At Equisafe, we believe in pedagogy, and these short segments allowed the non-tech members of the audience to understand what was at stake with tokenization of real estate. While blockchain is still widely underrated and misunderstood, storytelling tools can help startups demonstrate the true value of this technology.
To conclude: “AnnA” was a first of its kind operation in Europe. We made it happen through the focus, determination and technical excellence of our advisors, partners and team.
We now plan to take things further with the next development of Equisafe platform. We indeed just announced at Tezos Global Summit in New York that we are working on the most sophisticated set of smart contracts ever developed with Nomadic Labs and OCTO Technology.
This new standard should lead to a better scalability for our transactions model and support Equisafe growth towards the multiplication of use cases.