Blockchain technology and smart contracts are game changing, especially when it comes to real estate.
Watch as Gabriel Sadoun with Digishares talks about the benefits that smart contracts will bring to real estate.
Watch the full episode of How Will Blockchain Technology Impact the Future of Real Estate: https://youtu.be/srBWp3vyhK0
Transcript:
Chris Bounds 00:02
We had a really deep conversation a few weeks ago about, say, maybe 102 or 201 level conversation of securities and real estate. So, blockchain, how’s it gonna impact real estate? What do you see?
Gabriel Sadoun 00:19
Absolutely. So, when people think of crypto and blockchain, I think the first thing that comes to mind is Bitcoin, which is aspiring to be a new type of currency, and a new store of value, like digital gold. But what we really gets me excited about blockchain is smart contracts.
So, a smart contract is a self executing contract, in which the terms of the agreement are written into lines of code. So, instead of having a word document with sentences and an E-signature, you actually have lines of code that are automated. And this creates an extremely trustworthy system because the code is present on a decentralized blockchain network, where the transactions are trackable, and an immutable, so you cannot hack a blockchain.
What this does is, is basically enable a system of trust without the need for a human being verifying a transaction or a stamp of approval from a centralized entity. And this automates a whole bunch of processes. And that creates a new- a new investment ecosystem, where many more people can participate.
So it’s basically, democratizing access to real estate to a whole new class of investors, retail investors, because basically, real estate tokenization is just the creating smart contracts which represent ownership in real estate. And, and so, you’re lowering the barrier to entry, you have lower minimum investment requirements.
Today, it’s usually you have to invest 25, $50,000. And you have to commit for five to 10 years. Well, this is creating liquidity and lowering barriers to entry, enabling more people to participate.
Chris Bounds 02:22
Alright, so you kinda went into the STO, Securitized, Token, Offering area, and this is what excites me, especially how it relates to commercial real estate. What exactly- so folks that are offering a token, the sponsors, they’re offering a security.
What are the benefits to the sponsor that want to go that route? Or whether it’s now or in the future? What are the benefits to going that versus the traditional type of security offering?
Gabriel Sadoun 02:54
Absolutely. That’s a great question. So, because you have a system, which is now liquid, so real estate investments are now liquid. You basically, you’re- there’s no more illiquidity premium. So, today, because you’re investing, you know, over a five to 10 year period, where you’re going to be locked up in the investment.
As an investor, you’re requiring a lower valuation or higher returns. And that gap is called the illiquidity premium. So by create, by making real estate investments liquid, real estate developers will capture more value and see higher- higher valuations for their assets.
And it’s win-win because on the other hand, average Joe investors like me, can participate in deals that we wouldn’t have had access to. So, it’s really a win-win situation.
Chris Bounds 03:54
So, is that valuation because you have a greater pool of investors that can now participate? So, like a private equity versus a public equity, like something on the stock market? So, are you suggesting that because of its more liquid, it acts very similar, but not equal to a public security, that you’re effectively able to get better returns on the sponsor side, because you have a greater pool of investors.
Anytime you have a greater pool of investors, the returns for the end, end investor may end up pushing, pushing down and therefore increasing the overall project profitability?
Gabriel Sadoun 04:35
That’s absolutely correct. And so there are two ways in which you can go forward to continue that analogy with public markets. So you can choose to have your own internal OTC marketplace with your investors that have participated in the primary offering.
Well, they can- they can trade amongst themselves with something like the DigiShares of bulletinboard of module that we provide. Or you can decide to plug into a digital NASDAQ, let’s call them which are the new exchanges or alternative trading systems that are being set up.
Chris Bounds 05:13
Would this be like a Coinbase?
Gabriel Sadoun 05:15
So, Coinbase, currently, they only have a cryptocurrency exchange.
Chris Bounds 05:21
Or say like an open sea?
Gabriel Sadoun 05:22
I’m not familiar with open sea, but the current examples are tZERO and INX, for example. So, it is just like a Coinbase, but for security tokens, and actually Coinbase is probably going to join the party soon. So, that is correct.
Chris Bounds 05:42
Yeah. So, you’re just opening- it’s a platform to where you can now trade these tokens, which really are just a representation of the actual asset, or at least your interest in the asset, where you can trade them freely, easily, as opposed to now, you gonna read, it’s illiquid, you got to find someone that’s willing to buy it. And there’s not really a market for that, at least it’s very inefficient. That sum it up?
Gabriel Sadoun 06:08
Yeah, absolutely. And so, you know, these platforms, they have hundreds of deals in their pipeline. So this, these marketplaces are really gonna, you know, grow very quickly. And if you want to participate, either in those marketplaces, or create your own OTC marketplace, you would need a, a token issuance platform like, like us, which will create the smart contracts and which will enable people to invest, you know, do the KYC on ramp US dollars, get paid, distributions and stable coins in US dollars.
Chris Bounds 06:48
Where are we going to see that from a platform standpoint, then this something is the- is the previous guest, but we’re what are we gonna see over the next 18, 24 months from a platform standpoint, that’s gonna help make these types of transactions as easy as it is buying a public stock where you can do it in seconds from a user experience?
Because right now, it’s very clunky. There’s a lot of mechanics, and they’re usually different entities or businesses and you know, that they connect, but it is a- it’s a clunky process.
Gabriel Sadoun 07:21
Absolutely. So, these, I mean, these new exchanges in alternative trading systems, they, they have instant, instant settlement. You know, so that’s, so tZERO, it’s actually a play on word with the T plus two system today.
So you- it’s the transactions in public markets today or so two days later. And so, it basically means that your, your with the blockchain, you’re, you’re settling-
Chris Bounds 07:50
Instantly. Selling Microsoft.
Gabriel Sadoun 07:51
Exactly. So, you know, were these marketplaces will, they’re- they some of them already exist, more will come in, they will grow, you’ll be able to set up brokerage accounts on them, just like on Coinbase or on Robin Hood.
And their liquidity in the market will grow substantially and we look forward to being a token issuance platform and cap table management tool, you know, to enable real estate developers and funds to plug into all of that.
Chris Bounds 08:23
Yeah. It’s, it’s gonna be fun. It definitely has me very excited.