Real Estate Crowdfunding on Blockchain
5 min read

Real Estate Crowdfunding on Blockchain

In this article, we will explore the potential of building blockchain crowdfunding platforms and tokenising real estate.
Real Estate Crowdfunding on Blockchain

Crowdfunding on blockchain is another way to use this almost versatile technology. Due to its decentralisation, transparency, irreversibility, and high level of security, blockchain is a promising technology for building a crowdfunding platform.

Real Estate Tokenisation

Asset tokenization in crowdfunding is a new trend in financial technology. Tokenisation stands for the process of creating a property, an object, or an equity-related token that confirms ownership.

In simple terms, tokenisation means the process of transferring rights and/or property through the exchange of fungible or non-fungible tokens.

This approach enabled the creation of new business models in crowdfunding. So let us find out what asset tokenisation means for investors and fundraisers.

How it Works

Let us say there is a blockchain-based crowdfunding platform that raises money for the development of real estate properties. Through this platform, investors can buy real estate related tokens, so called "property related tokens" (PRT).

Once the targeted amount is raised, the property owners transfer the property to a Special Purpose Vehicle (SPV). This is a separate legal entity of a company with its own legal status, assets and liabilities. Next, the SPV issues property related tokens (PRT) and transfers them to investors according to their contribution.

Registration of Management Companies & Funds | AlphaLAW
Over the time, any asset manager who does more than plan to manage own assets faces the problem of a transparent and convenient management infrastructure.

Benefits of Using Blockchain

Used for crowdfunding, blockchain networks enable the creation of a stable, secure and transparent ecosystem. These are three features that retail and professional investors are looking for. Below you can find other benefits of using blockchain technologies for crowdfunding projects.

Transparency

Decentralisation and transparency are the main advantages of blockchain-powered networks. Investing in real estate with tokens allows for ultimate transparency as any participant in the deal can see the previous transactions with that token and get a clear picture of the ownership and rights of the person/company they are looking to do a deal with.

Blockchain-based crowdfunding platforms can turn increased transparency into their competitive advantage.

Accessibility

Tokenising real estate and using this approach to crowdfunding makes investing in real estate more accessible to everyone. Since tokens are highly shareable, investors can get in with an affordable amount. For crowdfunding platforms, this means they have more opportunities to attract investors and fundraisers.

Compliance

The use of smart contracts - a type of pre-developed agreement with immutable terms - allows for automated regulatory compliance for every transaction within the platform. This is also a way to streamline the transaction, eliminate intermediaries, and reduce the administrative burden of buying and selling.

Alternative Investment Fund in Estonia (AIF) | Registration
Small Alternative Investment Fund (AIF). The legal environment of the Republic of Estonia provides with the possibility of organising the collection and attraction of investments and further management of collective assets under the simplified regulation of small alternative investment funds.

The Risks of Using Blockchain

Blockchain crowdfunding is a promising business idea, because the nature of blockchain perfectly fits the specifics of crowdfunding business and the expectations of investment partners. Nevertheless, there are some risks that you need to take into account if you decide to develop a crowdfunding platform based on blockchain.

Divergent Legislation

Equity-based blockchain crowdfunding is regulated differently in each country. The processes of buying and selling shares (units) using blockchain, and operating a crowdfunding company are regulated separately, so to date there is no clear legal framework applicable for all countries. We recommend to consider the Republic of Estonia as a jurisdiction for opening a crowdfunding business since it has really transparent laws and terms for blockchain businesses establishment as well as reliable Government support on every stage of work.

Security

Blockchain networks are highly secure, yet they are not 100% immune. Most concerns about blockchain cybersecurity focus on private key generation and management.

Choice of Technology Provider

The choice of platform for building a blockchain-based crowdfunding website is also important. We recommend to consider two leading solutions mentioned below if you need a quick start and can rely on existing services available on the market.

  • TokenD is a digital asset processing center that acts as a custodian, wallet management, and exchange system.
  • Polymath is another platform for tokenization, management and transfer of assets.
Tokens Offered Under the ICO and Estonian Regulations Applicable to Them
This article contains the information that can be very useful for entities engaging with virtual currencies and ICOs.

Conclusion

So far, there are not that many companies using Blockchain for crowdfunding. So developing an even more unique value proposition is an opportunity to enter this market while competition is still relatively low, but the popularity of combining blockchain and crowdfunding is growing.

Using blockchain for crowdfunding is a prime way to provide investors and startup initiators with a safe place to meet and make secure and transparent deals.

Contact Us For Any Help with Crowdfunding Platform in Estonia

Specialists from AlphaLAW will be happy to support you in obtaining a license of Fund Management Company in Estonia and to register custom, classic or crypto fund. Our assistance includes the preparation of the list of required documents, help in developing of prospectus, translation of documents into Estonian/English and support throughout the whole licensing and application process.

In case you  interested in establishsing of Alternative Investment Fund in Estonia or want to build a blockchain-based crowdfunding platform, get in touch with us to discuss your project requirements and we will support you on the way of the new successfull blockchain business establishment.



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AlphaLAW - Fintech Services Advisory Group in EstoniaAlphaLAW - Fintech Services Advisory Group in Estonia