Tokenization protocol
Last updated
Last updated
The Protocol is the process of creating a ‘PropToken’ smart contract - a standard Ethereum ERC-20 smart contract with a defined maximum issuance of 100,000 digital tokens, extended with unique information identifying a specific real estate property, and additionally limiting transactional rules according to the issuer’s requirements (which users can transact with the tokens is defined within a separate smart contract).
To link a real estate property and its revenues to the ‘PropToken’ smart contract, a Public Corporate Resolution is generated and subsequently signed by the legal representative (e.g. GM, director, CEO) who is mandated by shareholders of the issuing legal entity which in terms also holds title to the property. The signed resolution is made public through IPFS - a distributed file system that ensures the legal document has a fixed online address, while the file itself can not be tampered with after it has been uploaded and becomes public.
The location of the file is defined as a unique IPFS hash and recorded within the PropToken smart contract, while the Corporate Resolution holds the information of the ‘PropToken’ contract address. The ‘PropToken’ now points towards the Corporate Resolution and vice-versa, so the legal effects of the corporate resolution work in conjunction with the tokens managed by the ‘PropToken’ smart contract.
Consequently, investors holding tokens can use this corporate resolution to appeal in court should the issuer stop their payments. As payments are conducted via smart contract, they are recorded on the ethereum Blockchain and shall be used as proof, should a legal dispute start.
Traditionally, corporate resolutions are used by boards of directors in private and public companies to sign on important corporate decisions, like change of leadership and then reported to the companies house or similar government institution. In the context of tokenization, however, the corporate resolution is used to make a public decision on a specific asset and its revenues.
The corporate resolution is used to transfer any and all revenues (NAT — Net After Taxes) that the issuing legal entity generates within the scope of its commercial and trading activity with the specified real estate property to the individual digital token holder of the PropToken smart contract, where 100,000 digital tokens represents a predefined ‘Royalties Percentage’ of any and all net revenues, including revenues generated by a sale of the property to a 3rd party.
The ‘Royalties Percentage’ is defined at issuance according to the real estate property’s business model and the cost structure that the issuer will use to generate revenues. For instance, renting out an apartment might append all costs to the tenant and thus the issuer could direct 90-100% of revenues towards token holders, while an office building could have a more complex cost structure with legal, maintenance, financing and other costs stacking up and thus only 60% of revenues would be directed to the token holders.
The above method of tokenizing a real estate property or multiple properties forms Blocksquare's tokenization protocol.
1 — Token
BSPT tokens
2 — Legal
Corporate resolution
Asset valuation
Transaction fees
Smart contracts
