An unusually rowdy (and informative) virtual panel at the Security Token Summit yesterday reveals the fractious difficulties of bringing regulated assets on-chain — as well as the promise and progress of the tokenized real estate use case despite those hurdles.
Michael Flight of the Liberty Fund, Jude Regev of Jointer.io, and Mohsin Masud of AKRU spoke for 30 minutes on the state of securitized real estate in a free-flowing and often-contentious discussion that highlighted the complexities that arise when decentralized finance and stringent governmental oversight meet. Host Kiran Arif of AKRU seldom spoke.
When asked why tokenized real estate is so exciting, Flight pointed to the size of the market and to how few investors can gain exposure to it.
“You’ve got 280 trillion dollars of real estate assets, and tokenized real estate is gonna let all investors into that asset class,” he said.
Mohsin concurred, noting that high prices and regulations have traditionally kept average investors out of the real estate market, aside from purchases like homes.
“We want to offer these securities, these asset-backed securities, to people who traditionally haven’t had access.”
While the promise of the use case is significant and has been pondered over for close to a decade, aside from a handful of experiments there has been little significant traction.
Part of the reason, according to Regev, is the friction from bringing a regulated asset to a decentralized system.
“It can’t work,” he said.
He compared current digital real estate to “digital paper,” saying that all of the legal requirements and barriers surrounding real estate remain functionally identical regardless of whether its a digital or physical format, and as a result unaccredited investors still can’t have access.
Likewise, he expressed doubt that such tokens would ever be listed on exchanges or achieve any significant liquidity, rendering the use case useless.
“You remember the days of timesharing, it sounds so good? And when you’re into it, you can’t get out? That’s pretty much what it is,” he said, comparing tokenization to a “magic word” with little substance.
Something is better than nothing
Mohsin rejected many of these points, pointing out that REITs and other real estate-backed products have managed to achieve significant liquidity. Moreover, he noted that there are 12.5 million accredited investor households in the US who could benefit (more recent data suggests there are 13.6 million), even if tokenized real estate doesn’t fully “democratize” the market.
Flight also pointed out the significant advanced in utility that can be made with tokenized real estate. He said that Liberty is working with centralized crypto lender Blockfi to allow real estate-backed security tokens to be used as collateral, and even to earn interest as a yield-bearing asset.
While he remained suspicious regardless of these points, Regev also made a stirring call for platforms and issuers taking responsibility for users if the use case is ever to gain significant traction.
“We need to protect the simple person who is busy, busy to survive, and wants their money to work for them.”