Favorable Laws Fuel the Tokenized Real Estate Boom

BlackRock’s embrace of tokenized Money Market Funds (MMFs) and US President Donald Trump’s promise to bring more pro-crypto legislation on a federal level sparked renewed interest in tokenization, the process of putting real-world assets on the blockchain as a representation of their ownership. With inbuilt smart contracts, tokenization automates trust in transactions by making it possible to hold money and assets in digital escrow on the blockchain. The assets can only be accessed after payment is made and the seller delivers the product.

Tokenizing real-world assets (RWAs) is widely seen as a crucial step toward financial transformation. It offers several benefits, including faster and seamless payment processing, mobile payment solutions, and simplified integrations with digital wallets, all supported by secure, high-tech platforms. According to analysts, this long-awaited shift is about to materialize.

Real estate tokenization: the most buoyant market segment

The tokenization of real estate properties significantly contributes to overall market growth. The segment was worth $2.7 billion in 2022, with a recent report predicting it will reach $16 trillion by 2030. Real estate is divided into fractions in a process automated by smart contracts. One or multiple investors can then buy the property bit by bit through these tokens.

One of the leading players in the segment is Blocksquare, a platform that utilizes blockchain technology to tokenize real estate properties. Blocksquare provides the infrastructure for real estate tokenization, converting property rights into digital tokens that clients can trade on the platform. Its tokenization protocol allows entrepreneurs to digitize real estate assets at a very low cost. Any single real estate property can be converted into 100,000 tokens, either in whole or partially, giving investors a standardized and transparent digitalization process. If the property is worth $1 million, each token is valued at $10. A client can sell their property without having to wait for one large client. The process applies to any common legal ownership form. Blocksquare’s products rely on blockchains like Ethereum and IPFS. They are developed using best-in-class frameworks and designed with scalability in mind. 

Blocksquare is globally active, with tokenized assets in 24 countries worth over $140 million. The company is headquartered in Slovenia and has a branch office in Switzerland, making it particularly vested in the European market. It is not a token issuer and can advise clients in legal and regulatory compliance. This is an important point as critics of RWA tokenization draw attention to a highly complex legal landscape, including the fact that tokenizing assets can make them securities, which are subject to high costs and regulations of varying complexity.

Navigating the new MiCA regulation 

Europe is a highly lucrative market for tokenization, and the most prominent and relevant regional regulation is MiCA or Markets in Crypto Assets. MiCA addresses assets that existing financial services legislation in the EU does not cover, including NFTs, payment tokens, utility tokens, etc. It is aimed at supporting crypto asset innovation with a high level of investor and consumer protection. Blocksquare intends to prepare guidelines for its clients to help issue tokens in compliance with MiCA. The second part of the regulation took effect on December 30, 2024. 2025 is greeting the industry with requirements around market abuse prevention and crypto asset service provider (CASP) licensing. 

In June 2024, the EU implemented the first part of MiCA, initially focusing on Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs) as the main types of crypto assets. This laid the groundwork for the single market to determine which types of services and assets to offer and regulate.

In the context of MiCA, tokenization creates digital representations of money, commodities, titles, precious metals, IP rights, economic rights attached to real estate, etc. For example, ARTs derive their value from a combination of assets, such as commodities, fiat currencies, or other crypto. MiCA classifies the tokenization of precious metals as an ART. EMTs focus exclusively on digitalizing fiat currencies and are pegged to a single one.

MiCA serves as a strong entry point for encouraging innovation in the EU. Other jurisdictions accept it as a reliable reference point. Likewise, existing crypto communities tend to view it favorably. That said, it is not all-encompassing. Suppose a tokenized real estate offering qualifies as a financial instrument under an EU directive like the MiFID II. In that case, it falls outside MiCA’s scope and is regulated under existing securities laws. On the other hand, tokens granting access to real estate services could qualify as utility tokens, but MiCA’s requirements would still apply unless explicitly exempted.

Switzerland vs. the EU: The race to dominate tokenization 

In November 2024, the Association for Financial Markets in Europe (AFME) proposed policy recommendations to advance distributed ledger technology (DLT) and tokenization in the EU, addressing challenges like those posed by the Central Securities Depositories Regulation (CSDR). While DLT can handle key functions such as record-keeping, interest payments, and delivery versus payment without central intermediaries, CSDR mandates that publicly traded securities be registered with a central securities depository (CSD), limiting tokenization adoption. Countries like Germany, Luxembourg, and Italy have passed DLT-friendly laws, allowing issuances via decentralized registries without requiring a CSD. However, these securities can only trade over the counter due to CSDR restrictions, driving innovation to jurisdictions like Switzerland with less restrictive frameworks. AFME warns that without adapting CSDR to accommodate DLT, the EU risks losing its lead in tokenization to regions like Switzerland. Companies with a presence in the EU and Switzerland are uniquely positioned to avail of both jurisdictions’ advantages, remaining at the forefront of the tokenization market.