White Paper

VALUE PROPOSITION
FOR REAL ESTATE
TOKENIZATION
 DigiShares recognizes that fees can be a function of the complexity in running your
investments, especially in real estate. Loosening of regulatory limits on private placements
worldwide allows companies to take fund raising, management and liquidity provision for their
stakeholders into their own hands. Our mission is to help you minimize the administrative
costs associated with this, particularly automation of the back-end processes with added
benefits being customization and infinite scale. By combining cutting-edge fintech
infrastructure and blockchain enabled software, you can now fundraise easier, cheaper within
the confines of single or multiple legal jurisdictions. Competitor low-touch technology
solutions only provide piece-meal solutions for this. Here is a compact overview of real estate
use cases for security tokens and how using the DigiShares platform in particular can save you
money.

MAY 2021 LIQUIDITY VS COST MATRIX FOR REAL-ESTATE BACKED SECURITY TOKENS

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LIQUIDITY
INFRASTRUCTURE
How can security tokens improve liquidity for
long duration private investments like real estate,
private equity and venture portfolios? Blockchain is
international, stock exchanges are national.
Substantial capital is being deployed worldwide to
establish digital exchanges of security tokens to
bridge the two. Real life use-cases from low-touch
crowdfunding platforms have already validated
how fractionalization enhances liquidity within a
closed system. Real estate will be the single largest
use case for liquidity pools and help close the
illiquidity premium gap through better valuation for
the best projects. Our platform makes sure all our
client tokens are “inter-operable”, allows to comply
with different regulatory frameworks and can be
offered at these exchange venues or more
decentralizes market venues in the future,
accounting for all KYC/AML ownership (incl.
automatic rejection of certain countries) and
payment details. A less expensive alternative
solution is also provided, in a bulletin-board for
buyers and sellers to self-clear transactions using
an atomic swap within single projects investments.
Instantaneous settlement, zero counter-party risk
and immediate verification of on-chain ownership
are unique features that traditional platform
venues cannot offer. For private securities in
general, there is often no way for custodians to
settle transactions between their institutional
customers, limiting institutional ownership of
private assets. The bridge that we provide to a
digital custodian should accelerate this demand for
those that require an extra layer of third-party
verification.
CORPORATE FINANCE
One of the unique features as a protocol agnostic
security token platform is the flexibility to represent
various parts of the capital stack like preferred
equity and mezzanine loans that can appeal to
accredited investors and family offices looking for
“equity-like returns” within real estate financings.
Flexibility on protocols allows for different classes of
shares and other representations of the capital
stack in the corporate management system. Cost
effective structured-finance solutions can be
tailored on a project-by-project basis for property
owners – together with other stakeholders such as
their real estate, mortgage bank and broker
counterparts. Private loans that exist as pdf files can
be replaced by digital records containing structured
data. Debt token representations of real assets that
represent the collateral in the commercial retail
property can be easily transferred between
commercial buyers and sellers, avoiding expensive
title transfer fees. Mortgage banks can make better
decisions on their commercial loan books by
extracting real time loan repayment delays, rental,
vacancy data by integrating with property
management software vendors. In the same way
tokens can be re-issued for loss, they can be a
burden to dissolve a transaction and can also serve
a more transitory purpose for intermediaries
focused on transactions.
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PAYMENTS
Working with leading payment infrastructure
companies, our platform allows for interoperability
between major currencies and stablecoins for our
users, arbitrating away bank transactional fees.
Your end clients will not notice the blockchain layer,
as median of exchange can remain regular
currency, meanwhile near 0 bank deposit fees will
allow for more frequent smaller dividend payments
and distributions. This takes away the transactional
fee impediment to fractionalization, allowing you to
focus on marketing effort instead. Without diving
into too much explanation, using our omnibus
wallet (virtual wallet within one large custodied
wallet) to pool all token holders into one
aggregated transaction fee, saves substantial costs.
Established stock transfer companies charge $25
per single dividend payment. 1,000 investors
receiving quarterly dividends equates to $100,000
USD slippage.
AUTOMATED
COMPLIANCE
Private placement offerings that fall under
certain regulatory exemptions, allow for exclusion
of long-form prospectus, legal filing and audit fees.
The largest administrative cost saving is custodial
from self-administration of ownership transfers.
Transfer agent fees will cost your business far more
than a software subscription. Traditional roles of a
transfer agent - recording transactions, canceling
and issuing of certificates, processing investor mails
and dealing with lost or stolen certificates can all be
automated within the platform. This ability to self-
administer is a game changer, although one may
choose to use a third-party provider in a plug-and-
play fashion, if a regulator or institutional investor
requires it. Ongoing regulatory compliance costs
associated with annual token holder meetings and
tax compliance that comes from automated record
keeping and audit standards can be substantial.
Post-issuance corporate action management
processes are included and dividend distribution
and shareholder voting can be done at near zero
cost. With blockchain, shareholder conflicts are
avoided as all records are indisputable, limiting
related legal fees. Personnel costs for legal counsel,
investor communications and compliance
processes alone that get allocated as part of
management fees can easily reach $100,000 a
year. Even on-line trading platforms charge
outgoing stock transfer fees of $25-50/ISIN.
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INTANGIBLE BENEFITS FUTURE USECASES

On-chain verification of your ownership can be
done with full privacy in mind. A platform
administrator can maintain the individual token
holders in an omnibus wallet with their digital
custodian of choice. The omnibus address is
verifiable on the public ledger and together with a
separate 2 factor authentification log in to the
platform client portal is the closest one can come
to on demand certainty of ownership. In the event
the client wants to self-custody, that can easily be
done. It has no influence on the ability to cancel
and re-issue tokens in the event they are lost or
stolen. Smart contract automation also means
option for error, loss of data on things that require
“attention to detail” minimized and certainty of
transactions are enhanced. Clients can be notified
instantaneously of pertinent changes that may
require their attention.
Crypto itself is a property management system. But
it has its best use cases on the back-end rather
than the front-end. We hope our white-label can be
gatewayed to help streamline the multiple
categories of back-office functions by applying our
customizable blockchain solutions to the best of
fintech infrastructure that comes available. Areas of
interests are ~ Registrar and transfer agency, fund
accounting, middle office services, investor
reporting, compliance services, front-office
technology solution, financial statement
preparation, management reporting, performance
and attribution and risk reporting.
Contact DigiShares at info@digishares.io

There is no concrete published data on this, but

security tokenization has been estimated to
provide upwards of 200bps of synergies for private
placements of secondary home mortgage loans in
the US:

- 100bps reduction in administrative, origination costs

- 100bps in liquidity premium benefits.

For private investment entities where dividends,

revenue-streams, back-office reporting needs to be
done at least a few times a year, we can apply the
same value proposition rationale.