In recent months, a growing number of countries have started to put in place functional and legal frameworks to regulate tokens registered on the blockchain. This movement has led to increased exploration of these technologies in many investment sectors.
In addition, the use of distributed ledger (DLT) technology is a powerful transaction disruptor, where significant disintermediation occurs – especially with one of the most popular alternative investments: real estate.
Much of the recent regulation deals with the volatility and risks associated with both initial token issues (ICOs) and security token issues (STO).
For example, recent regulatory movements include:
-In July 2018, Malta adopted the world’s first legislative framework for blockchain and DLT in order to regulate ICOs and STOs.
-In December 2018, the Council of the European Union published the G-20 declaration entitled “Building a consensus for equitable and sustainable development”, which summarizes the discussions at the 13th G-20 meeting in Buenos Aires, in Argentina.
-Following the G-20 declaration, seven countries of the European Union – the “Seven of the Mediterranean” – have signed a declaration in which they agree to cooperate on blockchain and DLT technologies. Malta has taken the initiative to launch the declaration, the other signatories being Italy, Spain, France, Portugal, Cyprus and Greece. The agreement commits the signatory countries to promote technology and to work together in this sphere.
-Switzerland also provided a specific framework for cryptos, as did the Isle of Man.
-The US Securities and Exchange Commission (SEC) continued to treat ICOs as securities until September 2018. From that date, clarifications were sought from the chair of the commission in an official letter, after a meeting in Washington attended by representatives from Wall Street, venture capital firms, crypto-brokerage and the American Chamber of Commerce. A letter was prepared by the group and signed by more than a dozen members of Congress for the chairman of the SEC, ultimately inspiring four crypto-friendly bills in early 2019.
-South Korea and Brazil banned investment in ICOs in 2018.
As many groups seek to refine and standardize the definitions of the different types of tokens, much of this regulation recognizes that STOs could be the solution to the security and fraud issues surrounding ICOs.
In addition, the STOs completion rate was 95% last year. Ultimately, this success and validation led to widespread acceptance of this method in several sectors, including real estate.
Fractional real estate
The biggest change is likely to be the release of liquidity from small investors with fractional real estate that democratizes access (Fractional Real Estate – FRE).
Since this investment category was previously only available to wealthy investors, real estate investment groups (REITs), opportunity funds, investment vehicles managed by large banks or institutional investors, the tokenization of quality FRE assets significantly reduces barriers to entry.
The real estate investment and transaction landscape is also changing with the use of DLT to create public, state and federal blockchains for all types of real estate databases. As a result, accessibility is improved, touch-ups are reduced, as are transactional procedures and processing times.
Universal regulatory acceptance
While there is still a long way to go in terms of universal regulatory acceptance – for example, China, India and several other countries have categorically banned STOs in recent years – cryptos and DLT are changing the processes of investment in the main real estate markets in the world.
Expanding the use of DLT in title verification, valuation, insurance payment and settlement, construction monitoring, material verification, as well as increasing the possibilities of FRE STO are expected to experience strong growth in 2019.