Tokenization is the process of converting a tangible or intangible asset into a digital token on a blockchain. A token is a digital representation of an asset or value, which can be fungible or non-fungible.

As part of the Internet Day 2023, we were part of the organizing committee and participated in the conference titled: Practical Case of Blockchain: Real Estate Tokenization, a practical case from the real estate industry in El Salvador.

Héctor Torres, managing partner of the firm, stated that Tokenization allows for the fractional representation of ownership, rights, or participation of an asset in a digital form, facilitating its transfer, exchange, and secure and transparent registration.

"In the context of cryptocurrencies and Blockchain, Tokenization is used to represent a wide range of assets, such as currencies, financial securities, real estate, artwork, intellectual property rights, and even non-fungible assets like digital collectibles," said Torres.

Regarding real estate, Torres affirmed that it involves converting the ownership of a real property into digital tokens on a blockchain.

"The process of real estate tokenization may vary depending on the jurisdiction and specific legal requirements. It is advisable to seek advice from professionals specialized in Tokenization and regulatory compliance to ensure the success and legality of the process," our expert pointed out.

During the conference, our lawyer outlined the basic steps to tokenize a real estate asset:

  1. Define the objective: Determine why you want to tokenize the real estate asset. It could be to facilitate investment, enable property division, increase liquidity, or any other purpose. This will help you make more informed decisions throughout the process.
  2. Evaluate legal and regulatory feasibility: Research the applicable laws and regulations in your jurisdiction. Tokenization of real estate assets may be subject to specific regulations, such as disclosure requirements, compliance with securities laws, and investor protection.
  3. Establish a legal structure: Work with legal and financial professionals specializing in asset tokenization to design an appropriate legal structure. This may include creating a legal entity, drafting contracts and agreements, and defining rights and responsibilities of token holders.
  4. Conduct a property valuation: Obtain a professional valuation of the real estate asset to determine its price and establish the basis for token distribution.
  5. Digitize the property into tokens: Once the legal structure is established, the real estate asset is divided into fractions represented by digital tokens. Each token can represent a proportional share of the value and rights associated with the property.
  6. Create a smart contract: Develop a smart contract on the blockchain that establishes the rules and conditions for token ownership and transfer. This contract automates the process and ensures transparency and security of transactions.
  7. Issue and distribute the tokens: Once the tokens are created, they can be issued and distributed to interested investors or participants. This may involve an initial token offering (ICO) or a private sale, depending on applicable regulations.

If you have further inquiries about this or other topics, you can contact us through our social media channels or by visiting our offices located at Calle Cuscatlán, #4312, Colonia Escalón, San Salvador, El Salvador.


-Written by the Torres Legal Team.