How Do I Own Real Estate in the Real World via Property Tokens? The Legal Framework
Explore the legal framework of real estate tokenization.
Today’s laws allow you to own real estate worldwide by buying property tokens on the blockchain. Yes – to officially own houses, not their NFT pictures or anything. You can become a real estate co-owner by the documents and earn rental income from it.
This type of ownership is based on recently issued laws not known to many yet, that’s why it may seem unclear or suspicious. Let’s fill this gap with a step-by-step explanation.
But before we begin…
It wasn’t Binaryx Platform that started transferring property ownership into tokens. The trend for real estate tokenization has been around for a few years so far, although legislation that allows for making it mainstream has just emerged.
Overall, this is a trend for tokenizing real-world assets (RWAs), assets that are familiar to us and have renowned value – tangible (from real estate to gold) and intangible (from stocks to carbon credits). The practicality of tokenized RWAs has been emphasized by such crypto industry leaders as Vitalik Buterin.
Why would anyone transfer ownership of assets on the blockchain?
Real estate is a huge market that offers good passive income, but it’s hard to buy it in a traditional way. You usually need to buy the whole thing worth hundreds of thousands of dollars and spend months on finding the seller and striking the deal. This market offers great returns but is accessible to very few people.
Tokenization democratizes the trade of RWAs including real estate, it makes it simple and accessible to all. On marketplaces of tokenized real estate, you can invest in a fraction of a property for as little as $50, become its co-owner, and start earning income from rent.
So how do I own real estate in the real world with tokens?
Here’s how it works on Binaryx Platform. First, let’s cover three essential concepts.
Technically speaking, you don’t own a tokenized property directly. Rather, you co-own a company that owns the property. This is an officially registered company that officially owns the property, but that’s not an ordinary company. Its specific characteristics allow it to be a bridge between the real world and the blockchain. But what kind of company is that?
In the crypto world, there are so-called DAOs – decentralized autonomous organizations. These organizations don’t have a single leader or a narrow circle of people who lead them. The governance in a DAO is executed collectively by voting. Voting rights belong to those who hold tokens issued by this DAO. There can be dozens, hundreds, or even thousands of voters.
In short, DAO is an organization that is run in a decentralized way by hundreds of people via tokens. Until recently, DAOs only existed within the crypto realm, but today, you can establish a company in the real world that will be owned and governed by token holders as a DAO.
In 2021, the State of Wyoming, USA, adopted the LLC Act. It allowed for the creation of companies that are owned and managed as a DAO on the blockchain. A company of this type is called a DAO LLC. This means that the company will be owned and controlled by a group of people who hold its governance tokens.
When you buy a property token on Binaryx Marketplace, you become a co-owner of a company that is going to buy this property. This company is registered as a DAO LLC – it can have hundreds of co-owners who also decided to unlock the power of tokenized real estate.
Ownership of tokenized real estate in the real world – Explained step-by-step
Now, let’s review the chain of events that makes you an owner of a tokenized property in the real world.
- When a real estate developer wants to sell a home, they list it on Binaryx Marketplace.
- For this property, a new DAO LLC (company) is established.
- The company raises capital by selling its tokens. If you buy this token, you become a co-owner of the company.
- When enough capital has been raised, the company buys the property. Company co-owners become co-owners of the property.
The newly established company can own only one property, and the property can be owned only by one company. 1 company = 1 property.
As you can see in this scheme, the ownership of the property is transferred directly from the previous owner to the newly created DAO LLC. Binaryx Platform never owns the property anywhere in between. To learn more about our legal framework, feel free to see our Docs.
What about passive income from my property?
Now, as a proud owner of a property in Bali or another gorgeous location, you are entitled to all the benefits it brings. Namely, you earn rental income because the property is rented out (we take care of finding the tenants) and profit from its value appreciation. To explore how property token holders earn income from it, visit How to Earn Passive Income with Binaryx Platform.