Tokenization is the process of converting a tangible or intangible asset into a digital token on a blockchain. A token is a digital representation of an asset or value, which can be fungible or non-fungible.

As part of Internet Day 2023, we were part of the organizing committee for the event and participated in the conference titled: “Practical Case of Blockchain: Real Estate Tokenization, a practical case in the real estate industry in El Salvador.”

Héctor Torres, Managing Partner of the firm, stated that Tokenization allows for the digital representation and fractionalization of ownership, rights, or participation in an asset, making its transfer, exchange, and registration secure and transparent.

“In the context of cryptocurrencies and blockchain, Tokenization is used to represent a wide range of assets, such as currencies, financial securities, real estate, artworks, intellectual property rights, and even non-fungible assets like digital collectibles,” said Torres.

In the case of real estate, Torres explained that it involves converting ownership of a real property into digital tokens on a blockchain.

“The process of real estate tokenization can vary depending on the jurisdiction and specific legal requirements. It is advisable to seek guidance from professionals specializing in Tokenization and regulatory compliance to ensure the success and legality of the process,” our expert pointed out.

During the conference, our lawyer outlined the basic steps to tokenize real estate:

1. Define the Objective: Determine why you want to tokenize the real estate. It could be to facilitate investment, enable property division, increase liquidity, or for any other purpose. This will help you make informed decisions throughout the process.

2. Assess Legal and Regulatory Feasibility: Research the applicable laws and regulations in your jurisdiction. Tokenizing real estate assets may be subject to specific regulations, such as disclosure requirements, compliance with securities laws, and investor protection.

3. Establish a Legal Structure: Work with legal and financial professionals specializing in asset tokenization to design an appropriate legal structure. This may involve creating a legal entity, drafting contracts and agreements, and defining the rights and responsibilities of token holders.

4. Conduct a Property Valuation: Obtain a professional appraisal of the real estate to determine its value and establish the basis for token distribution.

5. Digitize the Property as Tokens: Once the legal structure is in place, the real estate is divided into fractions represented by digital tokens. Each token can represent a proportional part of the property’s value and associated rights.

6. Create a Smart Contract: Develop a smart contract on the blockchain that establishes rules and conditions for token ownership and transfer. This contract automates the process and ensures transparency and security of transactions.

7. Issue and Distribute Tokens: Once the tokens are created, they can be issued and distributed to interested investors or participants. This may involve an Initial Token Offering (ITO) or a private sale, depending on applicable regulations.

If you have further questions about this or other topics, you can contact us through our social media channels or by visiting our offices located at Cuscatlán Street, #4312, Escalón District, San Salvador, El Salvador.