Security token offerings (STOs) are becoming quite popular in the world of cryptocurrencies. While they are similar to initial coin offerings (ICOs) in that they involve the sale of tokens that are recorded on a blockchain, they offer a significant advantage over them: they are backed by tangible physical assets. This makes them particularly advantageous for fractional real estate investment.
Because STOs are backed by physical assets, they do not have the same issues with fraud and security law compliance that ICOs have. Also unlike ICOs, they tend to be far more successful. Last year, 95% of STOs completed successfully, which is a far higher rate of success than ICOs.
Some see STOs as the perfect conduit for fractional real estate investment, in which individuals buy just a piece of a physical property instead of the whole thing. Up until now, real estate investment has been limited to the following:
Real estate investment trusts (REITs) Opportunity funds Investment opportunities for high net worth individuals Investment opportunities managed by banks or institutional investors
But the blockchain can change all this, by allowing investors of all sizes to buy into real estate, with no minimums or what are known as lock-in periods. Such investments would also be easier and more secure that current opportunities. The blockchain, by virtual of its distributed layer technology, is an excellent platform for creating fractional real estate investments, as all its data is both public and immutable. The data can also be trusted.
Right now, the only major obstacle standing in the way of fractional real estate STOs is universal regulatory acceptance of them. Some countries, such as China and India, have completely banned them. But in many other countries, especially in Europe and the United States, the regulatory approval process is slowly moving in favor of STOs. For this reason, some analysts see that real estate STOs have great potential for growth in the coming year and beyond.