Table of Contents
1. Overview
2. STO, the Birth of a New Security?
3. What Changes Will STOs Bring?
4. Why Choose Real Estate Over Securities and Bonds?
5. How is Real Estate Tokenization Progressing in South Korea?
6. How Can Token Securities be Utilized in Real Estate Development Investment?
7. How Can Token Securities Be Utilized in Physical Real Estate Investment?
8. Conclusion
1. Overview
(Source: Yahoo Finance)
Larry Fink, CEO of BlackRock, the world's largest asset manager, emphasized that the future of financial markets lies in asset tokenization. This observation suggests that the trajectory Wall Street has quietly pursued in blockchain and ditigal assets revolves around asset tokenization. Likewise, JP Morgan, the largest investment bank in the United States, is actively developing a tokenization platform through its blockchain entity, Onyx. Citibank, one of the top three banks in the US, projects in its report "Money, Tokens, and Games" that the global asset token market will reach approximately $5 trillion by 2030. Just as derivatives have expanded the financial market, asset tokenization is expected to unlock new avenues in financial investments by leveraging traditional financial assets. Notably, the real estate market in South Korea exhibits promising potential in security token offerings (STOs). This article seeks to explore the opportunities and applications of STOs in the South Korean commercial real estate market.
2. STO, the Birth of a New Security
The financial landscape in Korea has evolved significantly, driven by legal and institutional advancements, with the Capital Market Act serving as the bedrock for regulating the entire capital market. Under the current Capital Market Act, financial investment products are classified into “securities” and “derivatives.” Securities are defined as financial instruments where investors provide funds and receive profits or rights in return. They are further divided into six categories based on the type of rights they represent:
- Debt Securities: Examples include government bonds, municipal bonds, and special bonds, representing the right of claim.
- Equity Securities: These encompass shares and preemptive rights, indicating ownership interests.
- Profit-making Securities: These signify the right to income from trusts.
- Investment Contract Securities: These denote rights associated with investments in joint ventures.
- Derivative-linked Securities: These indicate rights tied to the price of underlying assets.
- Depository Receipts: These reflect rights related to depositing securities and the deposited securities.
As outlined, the Capital Market Act clearly defines 'securities' within the six mentioned categories. However, what exactly constitutes an electronic security, a term often referenced but not explicitly defined above? Unlike the categories specified by the Capital Market Act, electronic security isn't a distinct type of security; rather, it signifies the format in which securities can be issued and traded. This concept parallels the historical shift from physical securities (paper certificates) to electronic form.
The management of physical securities posed numerous challenges, including storage and complexity in exercising rights. To address these issues, the Electronic Securities Act was enacted in 2019, facilitating the conversion of physical securities into electronic form. This transition resembles the evolution from paper currency to credit cards for payment transactions.
Similarly, security tokens represent an alternative format for issuing and trading securities, akin to electronic securities. They don't introduce a new category of security under the Capital Market Act's classification but rather signify a novel method of distribution, comparable to the shift from physical to electronic securities. To revisit the analogy, the progression from electronic securities to security tokens resembles the addition of mobile payment methods alongside credit cards, following the transition from physical to electronic securities. This discussion aims to explore the potential implications of STOs in the Korean real estate market.