Recently, Luxembourg's first single real estate STO case was born. Property Token SA, co-founded by two major Luxembourg real estate developers, Creahaus SA and Espace Invest SA, has secured the ownership of the luxury property in Belval, completing the issuance and trading of Luxembourg's first single real estate chain.
The token is based on the ERC20 protocol, which was released and traded by Tokeny and hosted in the Zeroelectronic Solo card provided by Coinplus.
Luxembourg gives ST and securities the same status
In Luxembourg, the Financial Supervisory Commission (CSSF) is the main financial regulator that provides fairly clear regulations that attract many hedge funds to the region. And in terms of the number of hedge funds, Luxembourg is second only to the United States.
Why can Luxembourg property developers do this? Because in February of this year, Luxembourg passed a bill to provide a legal framework for securities issued in the blockchain. The bill is called Bill 7363. The amendment adds section 18a to the law, which states:
“The account manager may hold a securities account and register securities in a securities account or through secure electronic registration devices (including distributed electronic registrations or databases). Continuous transfers recorded in such secure electronic registration devices are considered securities Transfer between accounts. Holding a securities account in such a device, secure electronic registration of securities accounts or registration of securities through such secure electronic recording devices does not affect the alternative nature of the securities."
The bill states that securities issued through blockchain have the same legal status as traditional securities. Deng Jianpeng, a professor at the School of Law of the Central University of Finance and Economics, told Babbitt: "Tokens issued on the blockchain are securities-type and require the application of securities laws. This has laws in Switzerland and Singapore."
1000 euros to invest in real estate
According to statistics from Observatoire de l'Habitat, Luxembourg's national real estate prices have risen by 9% in the past 12 months. The price of the Luxembourg city rose by 14%. The minimum threshold for investing in real estate locally is hundreds of thousands of euros.
In the way of Property Token SA, the initial investment of the token holder can be a minimum of 1,000 euros. The income generated from the resale of the property and the final capital gain will be automatically allocated to the investor according to the proportion of its contribution. Moreover, it minimizes operating and management costs, has higher transparency and lower barriers than traditional markets, and is automated through smart contracts. Let real estate have the same liquidity as stocks and securities.
Luc Falempin, CEO of Tokeny Solutions, told Babbitt: “The real estate STO project is strong, because such assets are tangible and can be benchmarked very easily. Digital assets reduce the involvement of middlemen, which helps to solve the market low The issue of efficiency, bringing opportunities to a wider group of investors. The real-time trading share of the digital infrastructure built through the blockchain has brought asset liquidity to an unprecedented stage."
Double the number of STO real estate projects
STO (Security Token Offering), the issuance of securities passes. It is to pass the traditional assets (real estate, equity, creditor's rights, art, etc.) as collateral to the chain, and to carry out circulation and trading. There are trends that the real estate industry seems to be a good asset class for STO.
According to the new trend of the STO real estate industry released by the standard consensus, the number of such projects has nearly doubled in the first 1-2 months since the beginning of 2019. The report pointed out that for real estate ST, there are four major advantages: improve liquidity, lower investment thresholds, expand investment scope, and reduce project transaction costs.
The report counts 29 real estate STO projects from March 2018 to May 2019. It receives such data: First, these projects are generally distributed in the United States (13), in addition to Switzerland (4), the United Kingdom (3) ), Estonia (2), Singapore, Brazil, Cayman, Puerto Rico, Israel, Venezuela, Bahamas. Second, the planned funds raised for these projects range from $1 million to $100 million, and the funds raised include US dollars, British pounds, Euros, and Swiss francs. Finally, for publishers, they generally choose Ethereum ERC20, in addition to Securitize, polymath, harbor, swarm, strasis, brickblock.
Unlock new trends in European STO
Babbitt interviewed Tokeny Solutions CEO Luc Falempin and asked him to highlight STO's practices in European financial markets and the applicability of local regulatory policies.
Tokeny Solutions is an STO distribution platform that helps mid-sized companies, investment banks, funds, asset management companies and distributors transform physical assets into intangible assets based on blockchain, enabling them to reach a global audience, enforce compliance obligations and automate And improve operational efficiency. It is reported that Tokeny Solutions has just acquired the strategic investment of Euronext, the world's fourth-largest exchange, earlier this month. The first single-issue real estate issue and transaction in Luxembourg was also completed by the company.
Babbitt: What bills are required for compliance with STO in Europe?
Luc Falempin: STO (securities-based token issuance) tokens are securities. Therefore, all STOs applicable to the issuance of traditional securities are also applicable. Jurisdiction in the area where the issuer is located is important, but more important is the jurisdiction of the place where the token is issued.
In the European Union, the European regulator ESMA (European Securities Market Regulatory Authority) and the European Parliament require the issuance of a prospectus before the public offering of securities. However, for publishers, this is a long process, so they may seek other options. If you want to avoid issuing a prospectus, the issuer can consider some exemptions:
(a) Qualified Investors; (similar to qualified US investors); (b) No more than 150 non-qualified investors in each EU Member State; (c) Securities offerings of at least 100,000 Euros per unit denomination; d) securities with a security value of at least €100,000; (e) require a maximum of €8 million for a period of 12 months;
However, EU member states can freely set a threshold of 1 million to 8 million euros in accordance with their national laws. The threshold for the establishment of Luxembourg is 5 million euros, which means that for retail investors under the jurisdiction of the European Union EMSA, issuers can use the simplified prospectus.
These exemptions reduce legal fees, while digital tools simplify distribution and increase the speed at which investors can enter. Babbitt: Is the European policy environment friendly to STO?
Luc Falempin: Europe is particularly advancing with the times in this field. Most eurozone countries have clearly defined different types of tokens, and they agree that traditional securities laws apply to securities tokens. In February of this year, Luxembourg passed a bill allowing securities to be traded on the blockchain, giving companies in the region confidence to take advantage of distributed ledger technology and all the advantages it brings.
The European financial market is very coordinated, thanks to the close cooperation between the EU ESMA and national regulatory agencies. In the European Union, some financial instruments are “passportable”, just like passports, which means that issuers can issue financial instruments in other European member states only if they are approved in one member state. This is the case with the prospectus rules, which allow European companies to raise funds from retail investors by creating a unified information document. Babbitt: Which asset classes are best suited for distribution and trading through STO?
Luc Falempin: As mentioned earlier, we see real estate as one of the key asset classes that drive securities tokenization . According to data from Morgan Stanley Capital International (MSCI), the real estate investment market reached $8.9 trillion in 2018, up from $8.5 trillion in 2017. Obviously, there are huge opportunities.
The lack of liquidity is a big problem for investors, and for issuers, raising funds is a big problem. By splitting ownership, it can be brought to a broader investor base and democratize this form of investment.
In the future, as the secondary market begins to issue digital securities issuance, liquidity will be released, and these products will be as liquid as stocks and bonds. This situation is similar to other non-liquid assets such as closed-end funds, so digital securities will also protect investors from a long lock-up period. Disclaimer: For the bond laws and laws mentioned in this article, please consult a professional lawyer and do not constitute a guidance.