Tag: digital securties

Real Estate Revolution: Democratization Through Tokens

Posted on by Oscar Jofre

The real estate market has seen a substantial uptick in value, with more and more people looking to invest in this asset class. However, the high barrier to entry – requiring significant capital – has traditionally limited participation to only those with deep pockets. But with tokenization and the blockchain technology that supports it, anyone can get in on the action.

 

What is Tokenization?

In simple terms, tokenization is the process of converting something of value – in this case, real estate – into digital tokens that can be bought and sold on a blockchain platform. This allows for fractional ownership of assets, which opens up investment opportunities to a much wider pool of people. Tokenization is a process that can facilitate investment in fractional portions of real property, thus lowering the barrier to entry for retail investors. By digitizing real estate ownership and using blockchain technology to track transactions, tokenization makes it easier and faster to buy and sell property and reduces the costs associated with traditional real estate transactions.

 

Why Tokenize Real Estate?

There are a number of benefits to real estate tokenization. For investors, lower minimums and smaller investment amounts can lead to higher returns as they benefit from the potential appreciation of the underlying real estate asset. For issuers, access to a wider pool of investors is facilitated by the ease of transferability and liquidity of tokens. In addition, through automated processes and a permanent, unchangeable digital ledger, blockchain technology has the potential to streamline investment transactions and reduce transaction costs.

 

For real estate agents, the benefits of tokenization are twofold. First, it presents an opportunity to increase business by working with clients interested in tokenizing their property. In addition, real estate agents who are early adopters of this technology will have a competitive advantage as the industry moves towards greater adoption of blockchain-based solutions. With tokenization, an asset can be transferred and sold much more easily and quickly than through traditional methods, so real estate agents who can help their clients navigate this new landscape will be in high demand.

 

How Does Tokenization Work?

 

The tokenization process begins with the asset owner working with a platform provider to create a digital token representing property ownership. The asset is then appraised, and a value is assigned to the token. Once the token is created, it can be bought and sold on a blockchain platform, similar to how cryptocurrency is traded. When the asset is sold, the tokens are transferred to the new owner, and the transaction is recorded on the blockchain.

 

The entire process is facilitated by smart contracts, self-executing contracts that can be programmed to execute certain actions when certain conditions are met. For example, a smart contract could be programmed to automatically transfer ownership of the tokens when the asset is sold. This would eliminate the need for a third party to facilitate the transaction and ensure that the transaction is completed promptly and efficiently.

 

While there are many advantages to real estate tokenization, issuers should know the securities law implications of issuing tokens. Tokenizing real estate is a complex process, but the benefits are significant for both investors and issuers. By lowering the barrier to entry and increasing liquidity, tokenization has the potential to revolutionize the real estate industry.

 

What is the Role of a Transfer Agent for a Private Company?

Posted on by Oscar Jofre

For companies issuing securities to investors, a transfer agent plays an important role in the process. If your company has yet to issue securities but will be doing so soon, a clear understanding of the purpose of a transfer agent is necessary when choosing the best one to fit your company’s needs.

 

Throughout a company’s rounds of funding, investors will purchase their share of the company to fund the company’s growth. These purchases come in the form of securities and a careful record of them must be kept. Knowing the number of shares each investor owns will be essential in future business deals. In the past, investors were issued paper certificates by a transfer agent, denoting their share of ownership. Now, it is more common for them to issue certificates electronically, which saves the issuer both time and money. 

 

Not only does the transfer agent issue certificates, but they keep a record of who owns what, pays distributions to shareholders, and serves as an intermediary for the company for all transactions related to securities. In this capacity, they provides support to both the issuer and the investor. They are tasked with the responsibility of maintaining accurate records regarding all securities issued by the company. 

 

For a private company, a transfer agent is incredibly important when dealing with investors. When utilized alongside a capitalization table (usually called a cap table), a transfer agent can help the company provide a precise record of who their investors are and how much equity they have remaining, which becomes essential in future rounds of investments. When both current and potential investors can view accurate and complete information on the companies they are investing in, the transparency and availability of information increases the investors’ confidence. 

 

When choosing a transfer agent for your company, the one that eliminates unnecessary costs and time is the most logical option. Through its all-in-one platform, KoreConX offers just that. Completely integrated with the rest of the platform, the KoreConX Transfer Agent is SEC-registered and can be used with other features, such as cap table management and access to a secondary market. Since the KoreConX Transfer Agent manages paperwork and issues certificates electronically, the lengthy process of manual filing is eliminated, creating an experience that is both streamlined and faster. Through the KoreConX Transfer Agent, any change made is reflected in the cap table in real-time, reducing any errors that could be caused by the manual transfer of the data. 

 

Private companies can benefit immensely by employing the use of a transfer agent. Allowing them to manage their securities more efficiently, companies can keep a more detailed record of transactions. As it is the transfer agent’s responsibility to maintain the records of securities, it is essential that companies carefully consider when they’re making their choice. 

 

A good transfer agent must be able to handle many forms of securities instruments, such as equity, debt (bonds, debentures), convertibles, options, warrants, promissory notes, crowdfunding, etc. All of this should be done as efficiently as possible in a fully compliant way in multiple jurisdictions. Ideally, they should provide both the company and its shareholders information in real-time without additional expenses. Most importantly, transfer agent services that are easily integrated with other capabilities, such as portfolio management, shareholder management, minute book, investor relations, and so on, provide companies with a more inclusive and efficient way of maintaining their financials. 

Much Ado About Nothing: the SEC’s No-Action Letter

Posted on by Oscar Jofre

On April 3, the SEC issued its first no-action letter saying that the tokens proposed to be issued by the applicant, TurnKey Jet (or TKJ, a Florida-based charter airline operator), are not deemed securities. The actual letter is here. The media widely reported this using, in their headlines, the words “crypto”, “ICO”, and one reference to Turnkey Jet as a “cryptocurrency business” (which it is not).

None of these phrases are referenced in the SEC’s no-action letter itself. In fact, the Forbes article is blatantly misleading, beginning with calling Turnkey Jet a “cryptocurrency business”. The very first paragraph of the Forbes article sounds very encouraging to the ICO community:

The U.S. Securities and Exchange Commission has issued its first ever letter assuring investors in a startup using crypto-tokens similar to bitcoin to raise capital that it will not take an enforcement action against the company, and in a separate document explained the rationale behind the decision for future companies.

If anything, the no-action letter implies exactly the opposite!

Firstly, TKJ is not a “cryptocurrency business”.

Secondly, TKJ  is not proposing to raise capital through the issue of tokens, which are purely utility tokens and have no investment value. The company’s tokens are neither cryptocurrency nor securities.

Thirdly, the SEC letter does not provide investors an absolute guarantee that no action will be taken against them or the company, since this is not legally binding precedent and the SEC staff reserves the right to change positions reflected in prior no-action letters. Even the current no-action letter is valid only as long as the representations made by the applicant (TKJ ) are correct and fully followed subsequently.

Unfortunately, the misleading headlines give false relief to those who do not read beyond the headlines. It is important to read the actual submission by TKJ and the SEC response in the form of a no-action letter. In the murky world of ICOs that for the most part turned out to be fraudulent, and of the rest, only a tiny fraction had even a semblance of a credible business plan, TKJ stands out as an example of a legitimate business that took great pains to ensure that its utility tokens have absolutely no resemblance to ICOs or bitcoin. Here are the key factors that led the SEC to issue its no-action letter:

  1. No investment or capital raise. The proceeds of TKJ’s token sale are not to be used for developing the product or solution; instead, the funds are kept in escrow to be used for payments to service providers upon redemption of the tokens by its customers (travelers on their charter jets), or for repurchase or liquidation (but only at a discount). The only “capital raise” aspect of this is that the interest amount from the interest-bearing accounts is kept by the company and the interest amount is not distributed to the token holders. However, to prevent this becoming a potential loophole by mimicking an ICO-type of sale, the tokens are to be used only for purchasing air charter services and not for development.
  2. No trading. The tokens can be traded, but only among members of TKJ, and not in a wide secondary market; the motivation to trade is not speculation or investment. TKJ makes unlimited tokens available at a face value of USD 1 per token and repurchases them only at a discount, so speculative trading is meaningless.
  3. No gain in value. The tokens obviously cannot gain in value from their face value of USD 1 per token, since the company issues them at that price in unlimited quantities as necessary.

In summary, the SEC granted this no-action letter to TKJ as long as the following conditions are met: no capital raise for funding development, the existence of viable products and services before the tokens are sold, no trading on secondary markets for speculation or investment, no storage in third-party wallets, no repurchase at premium, no expectations are set for increase in the value of the tokens, and that the tokens are not marketed as investments.

This is as different from an ICO as a camel is from a camel-dropping.

What is astonishing about this whole issue is that there is already a well-established model that doesn’t even come under the aegis of the SEC: rewards points in various flavors, from Uber Rewards, AMEX Membership Rewards, Starwoods’ Starpoints, Delta SkyMiles, etc.

All of these membership and loyalty reward programs have been chugging along merrily for decades without any controversy. Utility tokens are no different, except that they are implemented on a blockchain or DLT—and therein lies the rub. The fraudulent ICOs have so tarnished the use of blockchain that any company with a legitimate business such as TKJ feels they have to go through the time and expense to seek a no-action letter for what is no more than a sophisticated implementation of a membership program.

The real value of enterprise blockchain or DLT, in general, is in its ability to bind a fragmented ecosystem of participants into a trusted network and provide operational efficiencies for their business processes, not to flout regulation at the expense of investor protection.

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