The empty promise of real estate tokenization

Kelvin Low co-authored this article.

There’s a new subject for debate in the blockchain world: asset tokenization.

More specifically, the conversation is around whether asset tokenization – the process of turning the ownership rights in physical things into tradable digital tokens – actually does what it promises.

One camp believes it does. A joint report co-authored by Liquefy, Sidley, KPMG, and Colliers claims the usual benefits: lowering barriers to entry, efficiency, transparency, and so on.

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They say tokenization is “quickly gaining traction in the real estate sector.” A Singapore-based company called Fraxtor Group, for instance, has been offering fractional investments in real estate – or, as they put it, seeking to “democratize real estate” – since 2019.

Perhaps most tellingly, a recent feature in the Financial Times on real estate tokenization in the US seems cautiously optimistic about its prospects.

At least, it takes tokenization seriously. “Can it find its feet beyond the crypto crowd?” the publication asks.

The implication is that tokenization works. It is legally effective.

That is, you can actually buy a “slice” of a ranch in California or a cabin in Vermont over the blockchain, facilitated by a platform. This picture of real estate tokenization, unfortunately, jumps the gun.

Brass tacks

Whatever else you can do with blockchain technology, you cannot use it to transfer legal ownership in real estate.

An extensive survey by Cornell law professor Yun-Chien Chang shows that the vast majority of countries in the world require some kind of registration for transfers of real property ownership.

In other words, registration exists in the real world, not on the blockchain. Just as blockchain transactions “will not move trucks or build houses,” they won’t affect registration either.

See also: Crypto payments get real, but how mainstream can it go?

Reinventing the wheel