Tokenization Faces Significant Hurdles in Real Estate, Small Business, and Profit Distribution

The burgeoning field of asset tokenization, while promising enhanced liquidity and fractional ownership, confronts substantial challenges in practical implementation across various business sectors. A recent social media post by "vibhu" highlighted critical gaps in the tokenization ecosystem, questioning how commercial building owners and low-growth businesses can effectively tokenize assets, distribute profits, and attract investors.

"Gaps in tokenization: How does a commercial building owner tokenize their NOI or title? How does a low-growth $50m taxi company with cashflows tokenize? Where does a mom & pop coffee shop built on Square go to tokenize + build their tokens into their POS? How will any cashflow business distribute profits to holders? How will all of these opportunities be surfaced, evaluated, and discovered by investors (not traders)? Where and how will they publish financial data?" vibhu stated in the tweet.

Experts acknowledge that real estate tokenization, despite its potential to revolutionize property investment by turning buildings into digital shares, faces significant hurdles. These include the lack of a consistent regulatory framework, technological adoption issues, and the complex process of linking physical assets to digital tokens. For instance, reconciling the physical and digital link between tokens and underlying property, especially in cases of fraud or error, remains a key challenge.

For small and medium-sized enterprises (SMEs) like a taxi company or a coffee shop, tokenization presents unique complexities. While revenue share tokens (RSTs) are emerging as a potential funding solution, allowing token holders to receive a pre-determined share of a company's revenue, integrating such systems with existing point-of-sale (POS) infrastructure like Square requires specialized development. The cost and complexity of implementing blockchain solutions and ensuring regulatory compliance can be prohibitive for smaller entities.

A major concern raised is the mechanism for distributing profits to token holders. Security tokens, which represent ownership in real-world assets, can be programmed via smart contracts to automatically distribute dividends or revenue shares based on ownership percentages. However, the legal and accounting treatment of these distributions, particularly for diverse business models, needs clearer standardization.

Furthermore, the tweet points to the difficulty in surfacing and evaluating these tokenization opportunities for investors, distinguishing between long-term investors and short-term traders. Platforms like tZERO, Polymath, and Securitize are working to provide regulatory-compliant tokenized asset offerings and secondary trading, but a universal, easily discoverable marketplace for a wide range of tokenized assets, especially for small businesses, is still developing. Transparency in financial reporting for tokenized assets is also crucial, with blockchain's immutable ledger offering a potential solution for secure and verifiable data publication.