Blockchain tokenization of real estate investment: a security token offering procedure and legal design proposal

Abstract

ABSTRACT The article addresses the legal design challenges of real estate crowdfunding, proposing potential solutions that combine blockchain technology, tokenisation, finance, and law. We propose a blockchain tokenised security design, based on a sertificate similar to Sukuk, an Islamic finance asset, that draws inspiration from Equipment Trust Certificates and is managed by a Special Purpose Vehicle (SPV), that may issue blockchain tokenised certificates. These certificates grant rights related to an investment property. Each series of certificates represents specific property and will be a liability of the SPV that owns the property. In general, the tokens used resemble but remain categorically distinct from asset-backed securities. Their performance still depends on the underlying asset’s performance. Most important, token owners do not become partners in the SPV but are granted fractional ownership and rights on the underlying property. The proposed token mechanism could prevent delays in the transaction process related to transferring ownership of a property. It could split at some point to allow for the creation of ownership and income rights. The proposed security design potentially protects investors’ legal rights better without standard application of investors becoming partners in the SPV while shortening the transaction times, and increasing transparency and asset liquidity.