Originally posted to Crypto Deep Dive on 01-December-2019
The real estate industry is on the brink of evolving into a more liquid, global and transparent sector. As mentioned in our article about Real Estate, blockchain technology will be able to enhance multiple facets, ranging from faster transactions, easier ways of documenting and of course, tokenization of real estate assets.
But while plenty of articles describing how blockchain can transform the real estate industry can be found online, there are surprisingly few companies actually trying to implement the technology. Digishares is one of the companies that is spearheading the transition.
Digishares is trying to become the bridge between finance and blockchain, enabling both investors and issuers to connect using their, already live, platform. Digishares focuses mostly on the Real Estate market but is also looking to later expand into renewables, mining, and startup financing. They have developed a software solution that allows whitelisted investors to buy security tokens while helping the issuer with the entire process of tokenizing their assets.
We had the pleasure of interviewing Claus Skaaning, CEO of Digishares. Claus explained his future vision of how blockchain technology can enhance the real estate industry, and we discussed security tokens, and the plans of Digishares in the coming years.
Please tell me a little bit about yourself, how you entered into the blockchain industry, and how and when you founded Digishares.
“I’ve got a PhD in computer science (artificial intelligence) and worked in that field for many years and launched my first company, a company called Dezide which deals with AI solutions for technical diagnostics and troubleshooting. I left this company a few years ago and have been working in a university incubator since then, guiding student and researcher startups on developing their ideas into business. I first got into blockchain around 3 years ago where together with my co-founder Yuriy Zubarovskiy, we launched a company called VentureFusion. This company was essentially a decentralized incubator on the blockchain, a collaboration platform enabling founders to bootstrap their startups by paying contributors with tokenized equity. So we had our first experiences with tokenized securities around 3 years ago when the industry was very young but came into it sideways.
Around 2 years ago we realized that STOs and security tokens would become big and decided to launch DigiShares with a focus on developing software infrastructure for tokenization. We spent around 1,5 years on developing the platform and have now been operational for around 6 months.”
Can you tell me a little bit more about your co-founder and how you met each other?
“My co-founder Yuriy is a very experienced project manager/executive/software developer from St. Petersburg in Russia. We actually met in a project that started around 4 years ago where I engaged Yuriy to develop the solution, but soon after we realized that we shared a vision for a decentralized incubator and bootstrapping platform and embarked on this project as equal partners. We work remotely but have met up several times over the years.”
What is your goal and vision with Digishares?
“The vision with DigiShares is to become a leader in technology for tokenized securities. At this stage, it is not so difficult to be a leader since there are relatively few players so perhaps the real vision should be to _remain_ a leader in the space. We are very much focused on the primary issuance of tokenized securities as well as the ongoing management of a large group of tokenized shareholders/investors in a single project. So we develop solutions for managing all the processes relating to the issuance and as well the ongoing management, including investor registration, communication, voting, e-signing of contracts, paying out of dividends, internal trading among the investors in a single project, etc. The focus is on automating processes so you can just as easily have 10,000 smaller investors in a project rather than 10 big ones – enabling asset managers to democratize access to their funds. We are focused on white-label and primarily work with partners who want to offer this capability to their clients.”
Aren’t you worried that by taking all these different aspects of the business you may become too diversified in a field that already is pretty difficult to master?
“Actually we have a more narrow focus than many of our competitors who (in our view) stretch themselves too thinly over a wide variety of functions and interfaces. We believe we have a balanced focus on primary issuance, ongoing management of a tokenized group of shareholders, as well as being offered as a white-label solution. It is very hard to separate the issuance from the life-cycle management of the tokens. Some companies sell solutions just for the issuance but it leaves the issuer in a lot of trouble without a solution for the on-going management of the tokens and investors.”
How do you think your company fits in both the blockchain and the real estate market?
“We believe in the blockchain fundamentals of democratization, decentralization, transparency, and automation. We strive to fulfill these principles in our solutions. Due to securities regulation, we cannot 100% fulfill them but we do our best. For instance, transactions with tokenized securities cannot be immutable by law, since you may have corporate actions requiring you to forcefully transfer tokens from one investor to another, or to freeze and renew tokens if an investor loses access to his wallet. Governance can be built into the smart contracts such that tokens become self-sufficient and can determine on their own whether they can be transferred to an investor from a specific jurisdiction and of a specific type so a very large percentage of the issuance, transfer and trading processes can be automated and decentralized with blockchain.
In the security token space, there are a few players that try to create ecosystems where they are central players. In my mind, this goes against the vision of the blockchain. When we issue tokens, we use protocols that are as open and flexible as possible and don’t tie us and the issuer into a certain ecosystem. The token needs to be globally compatible and interoperable so it can function outside our platform, be traded on exchanges, etc.”
You have been operational for 6 months now, what are the first findings you have encountered?
“The STO market was initially developing slower than expected but we think it is starting to pick up speed now, at least we are seeing a significant amount of solid leads, and new projects every month. we see a lot of interest from the real estate space, but also in renewables, startup financing, and film production.
In relation to the real estate market, we see this as the biggest driver of the security token market right now. More than 50% of new leads we get in are within real estate.”
Can you tell a bit more about the leads you are receiving? Are those investors, property owners, inquiries, etc.?
It is primarily real estate asset managers and developers. It is a mix between asset managers looking for innovative ways to sell their assets – and developers looking for innovative ways to raise funding for new projects. Most of these already have quite advanced plans developed and are relatively close to launching an STO, including selecting optimal jurisdiction, legal partner, etc.
What are the main areas where you think blockchain can enhance and improve the real estate market?
“Real estate is the biggest homogeneous global market where tokenization can be of value – $228 trillion in total assets. The real estate market shares the value proposition of the overall securities market. We view some of the biggest benefits to real estate tokenization to be the ability to reduce ticket sizes by several factors of magnitude (from EUR 100,000 to EUR 1,000). This is possible through the extreme automation of issuance and post-issuance processes, and it will dramatically increase the group of investors able to invest in a given fund. Another huge benefit is the very significant increase in the liquidity of real estate by making real estate assets tradeable on security token exchanges. This will also increase the amount of money available to invest in real estate, and on the other hand, will make the asset class more interesting for investors.”
I absolutely, and totally agree. It will be an entirely new market, enabling your everyday people to be investors with money they saved up, without the need of banks or lenders. The liquidity will explode and the markets will become even more global. However, before we get to this point there are a lot of issues to solve. How are you trying to persuade people to invest using blockchain?
“We see the main issue as being the same one hindering the overall crypto market – the on-ramp issue. To most people (>95%) having to buy and store crypto tokens in a personal wallet (or with a custodian) is an insurmountable challenge. This really is the main issue for all of us to focus on. It’s not so bad for us as with regular crypto companies, as we permit investors to buy using EUR and USD. And our solution actually allows investors to be “non-tokenized”, i.e., being regular traditional investors without holding a token. But we acknowledge we’re a blockchain company and we are focused on furthering STOs, so we need to develop solutions to the on-ramp issue. It helps to work with custodians who can easily hold investors’ tokens. And the long term”
Aren’t there tons of legal issues?
“On the legal side, it is actually not that complicated. We partner with various legal firms in different jurisdictions and they are responsible for that side, but in reality, structuring a raise in trend will help us out as well with more and more consumer devices integrating crypto wallets and more and more people becoming familiar with these. Europe or the US is relatively straightforward. There are not that many realistic configurations.”
Are you already developing some kind of platform for investors to find a property to invest in?
“We are not currently developing a real estate investment platform as we are focused on being a provider of white-label infrastructure technology for STOs.”
Let’s say 100 people are the owner of a house that generates rent/income. Who decides when the property requires maintenance, what will happen when people move out? This is a subject that I’m personally really interested in!
“The normal solution to the above would be to have a property management company responsible for the day-to-day operations of the property, including all those tasks that you mention, as well as the overall budgeting and financial reporting to investors. The cost of such an operator is factored into the initial STO. With a tokenized solution processes can be automated to such a high degree that it becomes viable to have a high number of investors.”
There are a couple of projects that you have currently launched, more precise the property in New York. How is this project going?
We are still working on preparations for the NY property STO, including the set up of the legal unit for the STO.
How do you see both the blockchain and real estate industry working together in the next 5 years?
“I think a lot of new business models will be tried and tested over the next 5 years combining blockchain and real estate. The real estate industry is characteristic by being made up of a large number of independent but closely interacting players that need to coordinate a lot of transactions both in relation to legal, construction and finance. The blockchain is eminent at this, of course.
We see many potential blockchain use cases within real estate, including logistics optimization, chain of custody paper trail, tracking of building materials over lifetime of buildings, issues management and tracking, micro-transactions for work tasks, IOT tracking of connected devices, documenting and structuring changes and revisions, etc., etc., etc.
We will be focused on using blockchain to optimize the issuance, transfer, and trading of real estate assets and securities, however, and we believe that the industry will see massive changes in this area over the next 5 years. It is our expectation that that majority of listed and unlisted real estate assets will in the future be handled over blockchain technology, and that a much higher percentage of global real estate assets will be listed and tradeable, in a form that is accessible to retail investors.”
How do you see your company evolve in those years? Are there any other markets you want to grow towards?
“We have several exciting initiatives ongoing in the real estate tokenization field, within both issuance and trading, as well as new protocols focused on real estate. Over the next couple of years, DigiShares will have a focus on real estate in particular, but will also be open to projects from other fields, such as renewables, mining and later stage startup financing. We see renewables as a potentially large asset class that will benefit from tokenization. DigiShares has headquarters in Denmark which is a world-leading country in wind production and the location of many wind energy developers. Wind parks are good assets to tokenize to increase liquidity and make them available for retail investors.”
That’s very good to hear Claus, and I believe that there are definitely opportunities in those directions. There is a lot of potential, and it’s awesome to see where you already stand with Digishares and what your future plans are. I want to thank you for this thorough interview, and for the time you have taken out of your busy schedule to answer my questions. We’ll continue to follow your steps and wish you the best of luck!
Want to learn more about Digishares? Read more about their plans on their website. They are also launching a STO. If you are confident in Claus and his company then you might want to read more about this opportunity here.
To get in touch with Claus be sure to find him via the digishares website or via his Linkedin
