Security Token

Key Takeaways

  • (Security) tokens get often confused with coins (like Bitcoin or Ethereum) or NFTs (non-fungible tokens)
  • While there are some similarities between tokens, coins & NFTs, there are major differences as well
  • Only GermanReal.Estate security tokens are considered financial securities (like traditional securities, just digital)

Difference Between A Coin Vs A Token

Some investors seem to mix our real estate security tokens with cryptocurrencies like Bitcoin or Ethereum every once in a while. Even though tokens & cryptos are blockchain-based, there are major differences between the two. Because of the word “token”, security tokens are also confused sometimes with NFTs (non-fungible tokens). What are the differences exactly? 🤔

A cryptocurrency or coin like Bitcoin or Ethereum use their one blockchain technology in order to store data (e.g. transaction data), validate transactions, or run smart contracts. Therefore, the bitcoin blockchain is completely separated from any other coin or blockchain out there. Tokens do not have their own blockchain and use an already existing blockchain as their infrastructure.

As of writing this Wiki article, we run our real estate security tokens on the Polygon blockchain. Therefore, we do not have to develop our own blockchain from the ground up, worry about the validation process, or run a virtual machine that is capable of processing our smart contracts. The Polygon blockchain that is existing already is giving us the entire infrastructure.

Thanks to the Polygon blockchain, we can focus on providing a great product for our investors by tokenizing German properties into real estate security tokens that you can trade on our marketplace (as well as producing content on YouTube, our blog & FAQ). Are we stuck with using the Polygon blockchain forever? Once the interest in our real estate security tokens from investors picks up, we could branch off from Polygon at any time (maybe even develop our own blockchain).

What Is A "Security Token"?

Now that we know what the difference between a coin vs a token is, what is a “security” token? As there are different types of tokens (utility tokens, commodity tokens, currency tokens, etc), it is even harder to understand exactly what security tokens are. According to §2 eWpG security tokens are financial securities as they are tradable between investors and have rights that are similar to traditional securities.

Security tokens are minted by us to represent ownership of the properties that can be found on our GermanReal.Estate marketplace. Historically speaking, ownership of any asset (e.g. real estate, gold, a company) was represented by a physical piece of paper. Security tokens function the same, they are a digital symbol of ownership (and therefore more secure than real estate crowdfunding).

Imagine that you would like to invest in real estate as it is a really good asset class to have in your portfolio. Unfortunately for you, investing in real estate is not as easy as it seems with the search for the right property for the right price, handling your tenant(s), filing extended tax declarations, taking care of renovations, etc. To make your life easier, you can invest in real estate security tokens that are issued by the SPV holding the property you would like to invest in (and receive e.g. passive income).

If you would buy 100% of all security tokens of any given property (e.g. Mönchengladbach: Welcome Home), you would be entitled to 100% of the net rental income as well as 100% of the resale value of the property (generally speaking). When buying 50% of all outstanding real estate security tokens, you would profit from 50% of the net rental income and resale value. And with any other percentage accordingly.

The example above also separates our real estate security tokens from NFTs (non-fungible tokens). NFTs are non-fungible, meaning they are unique identifiers that prove ownership (usually used in digital photos or videos). Security tokens are just like REIT shares or ETFs fungible, as no security token differs from another security token of the same product line (e.g. security token #69 from GRE2 can be replaced with security token #420 from GRE2).

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