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Funding city infrastructure projects is always a challenge. And there will always be disagreements about how to spend limited public budgets.
But what if residents could get involved directly, raising equity to finance municipal / state / local projects? Whether it’s a library, stadium, coworking space, park, or some other desperately needed investment or upgrade, tokenization opens up new funding sources while letting residents make small, secure investments to support local improvements.
What is Tokenization?
The process of tokenization “fractionalizes” an asset into many smaller parts, creating a more affordable investment. These parts, or “security tokens,” are a digital way of representing shares in this asset. In theory, the asset could be almost anything: from real estate to company equity. But security tokens’ greatest potential lies in real estate / property investment.
The technology that allows the purchase, sale, and trade of security tokens is called blockchain. Blockchain stores multiple copies of records – locked with cryptographic security so nobody can read them but the owners. The redundancy of this “distributed ledger” guarantees that records cannot be deleted or tampered with.
Just like shares in a public company, which are initially purchased for a set price (during the initial public offering, or IPO), security tokens may later increase in value thanks to secondary market trading. However, while IPOs are slow and expensive, a security token offering (STO) can accomplish the same thing more easily, at a fraction of the cost.
Blockchain-based security tokens are already being piloted or rolled out in England, Berkeley, CA, and elsewhere. Yet few municipalities / States / communities have taken advantage of their potential to give ordinary residents a voice in their own future.
What Benefits Does Tokenization Offer?
Benefits to the municipality / State / community:
- Rapid access to liquid funding from a broad local investment pool
- Innovative funding model generates PR & organic excitement
- Excited and dynamic grassroots community support helping raise equity
Benefits to residents:
- Confidence investing in a concrete, real-world asset
- Returns from ongoing dividends and future increase in value with secondary trading
- Satisfaction from funding worthwhile community-based projects and building local pride
Who is SolidBlock?
SolidBlock is best known for launching the world’s first tokenization of a commercial hospitality property, the Aspen St. Regis Resort, in 2018. Based in Israel and New York, SolidBlock specializes in creating asset-backed security tokens to help raise capital and offer investors true liquidity – driving the next generation of venture funding, powered by the blockchain.
Our team includes entrepreneurs, software developers, and finance experts with over 20 years’ experience. We work with a range of finance, technology, and legal consultants and partner with international organizations to create standards for tokenization and blockchain. We believe in using financial technology to create social change.We are expanding our portfolio of tokenization projects. To find out how tokenization can provide funding for infrastructure projects while boosting local pride, fostering civic involvement, and shaping the skyline of your community’s future, just get in touch.
Municipal Tokenization FAQ
| What kinds of municipal projects is this kind of fundraising suitable for? | Almost any project city residents demand can be built with tokenization. So far, around the world, tokenization has been used or is being piloted to jumpstart projects connected with commercial and residential real estate. Tokenization could be used to finance stadiums and sports centers, libraries, hospitals and health centers, spas based around natural resources, beach structures, national parks, ports and much more. |
| What do investors receive in return for their contribution? | Investors receive the value of your investment (stock / share value) in the form of Security Tokens, a digital asset, which represents their equity ownership stake in the project. They also receive dividends paid out at rates and intervals determined in the original agreement. It is possible that as with other types of securities, that the value of the token held by investors may increase with secondary market trading. A yielding asset, with revenues from use such as entrance fees, rent or otherwise business operation, will provide dividends to the token holders. |
| Who determines the terms of the STO, such as dividends? | Some terms will be determined by local regulations. SolidBlock will work with your local regulatory body to ensure that your STO is fully compliant. In terms of the portion and amount of the project raised via the STO, and the dividends paid to investors, those terms are defined by the asset owner, prior to the STO period. Obviously, this must be done with a clear understanding of market conditions in order to make the STO attractive to local residents. In the case of a municipality, we recommend creating a board which includes a range of local stakeholders to specify fair and realistic rates and amounts. |
| What is the risk to residents investing in a tokenized municipal project? | Almost none. The municipality, working hand in hand with local community stakeholders, creates all the parameters for the project to make it attractive to local investors. Development begins only after the STO period, after the needed equity has been raised. The building or development project is backed by the city, while the funding is provided by investors, both residents and non-residents.Security tokens are backed by tangible assets, and in the event that the project will not prove to be profitable in dividend terms, it can be repurposed or sold with proceeds going to token holders to recoup their investment. |
| What is the benefit to residents investing in a tokenized municipal project? | Residents’ motivations may be a desire to see a particular project (sports stadium, recreation center, or any other project) built in their neighborhood. Or they may be seeking an affordable, low-stakes investment in the global real estate market, particularly one which is safe and which offers regular dividends. Either type of investor will benefit from the STO investment model. |
| ContactYael Tamar, CMO & Partner, +972 (54) 458-4618, [email protected] |
