What have the Queen of England, the Catholic Church, and Bill Gates all have in common? Landownership, and lots of it! Earlier this year, the Melinda and Bill Gates Foundation became the largest owners of farmland in the US, owning over 240,000 acres of land (approximately 97,000 hectares). The Catholic Church owns over 71 million hectares, which is a land mass the size of France, but the largest owner of land that is not a government is Queen Elizabeth II. According to the publication Love Money: “By far the world’s largest non-governmental landowner, Queen Elizabeth II is the head of the British Commonwealth and therefore legal owner of around 2.7 billion hectares of land, as estimated by The New Statesman. That’s as much as a sixth of the planet’s land surface. The Crown Estate includes prime chunks of London, massive tracts of agricultural land in rural Britain and more than half of the UK’s foreshore”.
The real estate sector is estimated by Savills to be worth over $200 trillion globally, with approximately $185 trillion as residential property and $15trillion as commercial real estate. More up-to-date figures from Associated Press last year claimed that the value of real estate worldwide was almost $270 trillion and expected to grow to over $330 trillion by 2023. In the UK alone, the residential property sector is valued at $8.7 trillion. Therefore, it ought to come of little surprise that many organisations are looking at how technology, including Blockchain, could improve the efficiency of how real estate is bought and sold and managed on an ongoing basis. Much has been written about the tokenisation of real estate yet, to date, there have been relatively few examples — possibly because tokenised real estate creates digital security, which is subject to the same regulatory restrictions of any publicly offered equity or debt instrument. This means that issuing digital security in multiple jurisdictions is not a straightforward process, given one would need to comply with a range of different regulatory listing requirements.
It was therefore interesting to see that Binance, the world’s largest digital exchange, recently began offering tokenised equities i.e., asset-backed security, but sold as a token. The offer from Binance gives investors the ability to buy a digital version of Tesla and Coinbase, yet it didn’t issue a prospectus (the normal requirement) but issued a one-page document instead. This has stirred the German Federal Financial Supervisory Authority (BaFin) into action, cautioning Binance by stating that a prospectus would have to be published if the equities that Binance wish to offer are to be “transferable, can be traded at a crypto exchange and are equipped with economic entitlements like dividends or cash settlements.” However, in Binance’s defense, the German-based digital platform, CM-Equity (where Binance has listed its Tesla and Coinbase tokenised versions), has already listed other equities and is trading similar tokenised assets issued by FTX and Bitterex. Although it appears that BaFin maybe is having second thoughts and are now suggesting that Binance tokenised stocks are contravening regulations.
Bitterex itself, is offering access to the following equities for investors in various countries where it is usually not possible to trade such stock. Hence, it is easy to understand the attraction of creating tokenised stocks if the process is, indeed, legal:
- SPDR S&P 500 ETF
- Beyond Meat Inc
As an aside, the demand for more digital fiat-backed stablecoins will no doubt increase if tokenised stock trading demand grows, since how will investors be paid the dividends they are entitled to? Surely not in fiat? As has been mentioned in previous editions of Digital Bytes, expect to see more organisations creating stablecoins in all the major currencies across the world. The creation of a host digital €, Yen, £, CHF, and $ (of which there is a number already) will then enable the real estate to start paying rental income in a digital format. The ability to pay dividends on equities and rental income from property in a digital format also offers the opportunity for companies and landlords to begin making distributions to investors more frequently. Most payment platforms, such as Apple, GooglePay, Mastercard, and Visa, all accept various cryptocurrencies so, therefore, ought to have no issues accepting these new digital currencies/stablecoins — yet another example of how traditional banks are likely to be by-passed since payments can be processed more efficiently.
For real estate to be tokenised, the infrastructure that has always been needed is slowly being assembled. Services such as digital custody, banking, regulated digital exchanges and digital methods of receiving and paying rent are now available, and if tokenised stock trading is allowed, it creates a precedent for tokenised real estate too.