DigiShares

Europe is more Democratic than the US for Security Token Offerings

The STO market is undergoing rapid worldwide development. For certain STOs, the EU is making it easier to engage a broader group of investors than the US

Claus Skaaning (DigiShares) and Scott McKenzie

This material is intended for general information purposes only and does not constitute legal advice.
STO platforms, such as DigiShares, can manage 1,000 small investors as easily as 10 large investors and automate many processes. This improvement in logistics allows companies to expand their group of potential investors and engage a far broader group – some might call this a more democratic approach to investment. This draws from ideas of engagement as a key part of society. As Louis L’Amour described the concept of democracy “we must be…participants, not simply observers.” In comparing the different legislations concerning private placements and public offerings in the EU and the US, we can see that often Europe may be a better choice for launching an STO.

The DigiShares platform is not enough to facilitate this expansion in participation, technology and law need to work hand-in-hand. One of the most important choices that a company must make is where the legal entity that will conduct the STO is located. Having a good roadmap is critical for a raise, so that needs between engaging the most investors, speed, and cost can be balanced.

DigiShares is based in Europe and works with projects world-wide. Most clients need a jurisdiction that is receptive to business, provides a clear framework for token offerings, and where all needed pieces can be assembled quickly and without undue expense. For example, many clients need jurisdictions that have low levels of corruption, a good financial industry, and are based in a jurisdiction that is acceptable to their potential target investors. They need the STO to happen with legal clarity so that if required, securities such as stocks and bonds can actually be tokenized in a legal manner – and treated fully digitally on the blockchain. Finally, the cost and ease of notification and registration of the STO in the local jurisdiction and the degree of difficulty in producing investor materials for the STO in this jurisdiction should not be excessive.

Europe does not require a prospectus to be approved by a national competent authority (such as BaFin in Germany or Financial Conduct Authority in the UK) if the raise is less than EUR 1M (across all member states). Between 1-8M, Europe provides flexibility to let states make their own regulations with many (such as Denmark) not requiring a prospectus to be filed. Any type of investor may be targeted, bringing the real sense of participation and not just observation to a broader group of people. It is truly a democratic capital raise enabling smaller investors to invest at a very low minimum subscription price. Such a raise can be conducted by the issuer on their own and no special license is required. And the raise can be repeated in each 12 month period. A full listing of the EU prospectus thresholds can be seen here.

To conduct a similar raise in the US, a project has a more difficult path. Going by Regulation CF (Crowdfunding) they can raise up to $1.07M from retail investors. However, this must be conducted by special service providers who have a FINRA licensed crowdfunding platform (or via a broker-dealer) which adds an extra layer of cost. The well known Regulation D exemptions are also compelling for many looking to raise funds, however their restrictions limiting investment largely to accredited investors may not work for the strategies for all companies. It is imperative that companies follow the law, so they do not end up with extreme problems such as Kik or Telegram have recently had. A Reg A+ approach can go up to 20M, but the information about the offering must be filed and approved by the SEC. To date, very few companies have gone this route and the longer time-frame and higher costs may be prohibitive to many projects.

In an effort to find the most democratic and engaged group of potential investors, certain solutions present themselves as having some merit. A European EUR 5M prospectus-exempted raise (retail) and filing a US Regulation D (accredited only) would be one option that strikes a balance. Of course no blueprint is perfect and there are no one-size fits all approach so it is important that every project consult with competent legal professionals. The above suggestions are only a broad outline of what may work for some projects, the details of course are more complex and often require additional reporting and filing requirements and may require certain other restrictions on the liquidity of the offer.

As a STO platform provider and as a legal services provider, DigiShares and Scott McKenzie, are constantly reviewing and recommending legal structure for STOs. This material is intended for general information purposes only and does not constitute legal advice. For legal issues that arise, the reader should consult competent legal counsel in their jurisdiction.

About DigiShares
DigiShares provides a platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges.
DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.

About Scott McKenzie ([email protected])
Scott is an American lawyer who has worked with a range of blockchain startups and companies looking to raise funds.

UPRETS and DigiShares Partner on US Real Estate Tokenization offered in Europe

UPRETS and DigiShares have come into an agreement to carry out a European focused security token offering of the New York-based Oosten property

UPRETS and DigiShares have come into an agreement to carry out a European focused security token offering of the New York-based Oosten property. UPRETS is among the first companies to focus on providing a compliant, convenient, and advanced real estate tokenization technology to investors and property owners across the globe. This PropTech company also provides a real estate protocol that has been tested and proven in the past. DigiShares is a European company that provides its clients and partners with white-label blockchain digital asset tokenization solutions.

DigiShares and UPRETS thus seek to combine their technologies and get the best out of both worlds.

Understanding real estate tokenization
Real estate tokenization refers to the process whereby you represent an ownership interest in a property with a token (Oosten Condominium in this case). The token can represent a loan secured by the property, equity in the asset or a stream of income.

tokenize real estate

Why tokenize real estate
Real estate is the most important asset class in the world, worth over $200 trillion. However, because of the many inherent problems, real estate has never becomes a mainstream investment. For example, many people are prevented from investing because the entry point is high. Also, because of cross-border restrictions, delays and excessive paperwork, liquidity is low.

Tokenizating the asset ownership streamlines fractional investing and investment management. Additional steps, such as smart contracts and trade on exchanges will bring about the efficiency needed to address these traditional market shortfalls.

The Pilot project
UPRETS’ parent company, Xinyuan Real Estate, owns condos at the Oosten Condominium (421 Kent Avenue) in Brooklyn, New York. They will analyze and select unsold units for the pilot project. The size of the initial security token offering can be anything between 1-4 million euros. The two companies will agree on the size of the security token offering, price per share, and minimum/maximum investment size. European investors will be the main focus.

The Role of DigiShares in creating digital shares

DigiShares digitizes ownership of assets and represents it as tokens on the blockchain. They are the lead partner on this security token offering and will provide the security token offering platform and customize it to fit this particular project. DigiShares will also help devising the strategy for the STO across the European markets and involve other partners from its network for investor relations, marketing, legal services, etc.

Each token on the blockchain will store a digital ownership certificate and will represent a single share in the property. The DigiShares platform will be used to whitelist, approve and verify investors to purchase the tokens that have been created. Investors will benefit from the immediate settlement, enhanced liquidity, and wide access to the international market.

UPRETS and DigiShares have come into an agreement to carry out a European focused security token offering of the New York-based Oosten property

UPRETS role in the security token offering
The company will be the business lead for this security token offering. UPRETS will provide the property, the Osteen Condominium, which will be used for the security token offering. It will also provide important documentation such as the title, deed, audits, contracts, and permits. In addition, UPRETS will take care of investor relations, coordination, and all hiring.

UPRETS uses the X-bolt blockchain and the company is among the top 5 in China based on patent count. The technology is patented by RChain Technology. Xinyuan Real Estate, the parent company to UPRETS, has properties valued above $1.5 billion globally.

“We see real estate as one of the most promising markets for blockchain tokenization technology to be implemented. As the global infrastructure for banking, tech and capital markets rebuilds itself on blockchain over the next decade, the real estate industry will also be impacted. Real estate industry investors and developers are actively seeking ways to reduce delays, costs, and obscurity in transferring ownership of real estate-related securities. We hope that together with UPRETS we can help resolve some of those issues”, said Claus Skaaning, CEO of DigiShares.
Skaaning added: “We see UPRETS as one of the significant global players in the real estate industry and is very excited about the partnership. DigiShares will be the preferred tokenization partner of UPRETS in Europe and together we hope to work with developers and investors in order to develop more efficient, less costly and less error-prone processes and work-flows for the real estate industry”.“Real estate remains to be the most valuable asset in class in the world. The barriers to entry such as liquidity and many intermediaries in this market can be solved through the blockchain. This partnership with DigiShares will bring sanity to the real estate market and make the digital security market more liquid. We intend to work as a team and become global leaders in real estate tokenization” said Dan Chase, CEO of UPRETS.

About DigiShares
DigiShares provides a platform for issuance and post-issuance management of tokenized securities. It helps with the initial design of the security token such that it fulfills the requirements of the issuer jurisdiction, using the most popular security token protocols and helping ensure that the token may later be traded on forthcoming security token exchanges.
DigiShares is your trusted partner to ensure that your digital shares will be compliant and liquid.

About UPRETS
UPRETS is a one-stop solution platform for security token offering founded in November 2018. As a subsidiary of a publicly listed real estate conglomerate (NYSE: XIN), we currently focus on providing a cost-efficient, compliant and advanced tokenized real estate investment platform for property developers and investors globally by our patented blockchain technology.

Using this platform from UPRETS, the developers can provide liquidity for their property investors and the investors can benefit from the rent dividends and returns of properties in world-class major cities, such as New York, London and Dubai.

Consortium Chain by UPRETS: UPRETS.io started to develop its own consortium chain technology X-BOLT dated back in 2015. As one of the most mature blockchain firms in China, our consortium chain solution has already established 22 successful cases in multiple fields including insurance, real estate, logistics, and social networks.

For more information, visit www.uprets.com

LinkedIn: https://www.linkedin.com/company/uprets2019/
Medium: https://medium.com/uprets
Twitter: https://twitter.com/uprets_io
Facebook: https://www.facebook.com/uprets2019/
YouTube: https://www.youtube.com/channel/UC5Te7mLRV5mK64tAfqhj_Pw