Glossary

An individual or entity that meets specific SEC criteria allowing them to participate in certain private securities offerings. For individuals: $200K+ annual income ($300K+ joint with spouse) for 2+ years, OR $1M+ net worth excluding primary residence, OR holding Series 7, 65, or 82 professional licenses.

Laws and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. Tokenization platforms must implement AML compliance measures.

A distributed digital ledger that records transactions across many computers. In real estate tokenization, blockchain provides the underlying technology for creating and tracking ownership tokens.

A real estate valuation metric calculated by dividing a property's Net Operating Income (NOI) by its current market value or purchase price. Formula: Cap Rate = NOI / Property Value. Higher cap rates generally indicate higher risk and potentially higher returns.

A capitalization table showing the ownership stakes in a company or property. Tokenization creates a digital, automatically-updated cap table on the blockchain.

A metric measuring the annual pre-tax cash flow relative to the total cash invested. Formula: Annual Cash Flow / Total Cash Invested. Unlike IRR, it does not account for appreciation or the time value of money.

A financial institution that holds and safeguards assets on behalf of investors. Digital asset custodians specialize in securing tokenized securities.

An organization governed by smart contracts and token holder voting rather than traditional management. Some tokenized properties use DAOs for governance.

A token representing a loan or debt obligation secured by real estate. Unlike equity tokens, debt token holders do not own the property—they are creditors entitled to interest payments and principal repayment. Risk profile differs: debt holders have priority in repayment but limited upside compared to equity holders.

Securities that are issued and traded using blockchain technology. Real estate tokens are a type of digital security representing ownership in property.

A token representing ownership stake in an asset. In real estate, equity tokens give holders proportional ownership of the property and rights to rental income and appreciation. Unlike debt tokens (which represent loans), equity holders bear more risk but have unlimited upside potential. Most tokenized real estate offerings are equity-based.

A security token standard on Ethereum that includes features for regulatory compliance, such as transfer restrictions and forced transfers.

A technical standard for fungible tokens on the Ethereum blockchain. Many simple real estate tokens use this standard.

A security token standard on Ethereum (also known as T-REX) that provides built-in compliance features including on-chain identity management, permissioned transfers, and regulatory controls. Officially accepted as an ERC standard in 2023 with $28B+ in tokenized assets using this standard.

Dividing property ownership into smaller portions that can be purchased by multiple investors. Tokenization enables highly granular fractional ownership.

Transaction fees paid to blockchain network validators. When buying, selling, or transferring tokens, users typically pay gas fees.

The legal test used by US courts to determine whether a transaction qualifies as a security. Most real estate tokens pass this test and are classified as securities.

A metric used to estimate the profitability of an investment over time, accounting for the time value of money. It represents the annualized rate of return at which the net present value of all cash flows equals zero. Higher IRR indicates a more profitable investment.

A technology platform that helps property owners create and distribute real estate tokens, handling legal, technical, and compliance requirements.

Identity verification procedures required by financial regulations. Investors must complete KYC before purchasing tokenized securities.

The ease with which an asset can be bought or sold without significantly affecting its price. Tokenization aims to improve real estate liquidity through fractional trading.

A time during which investors cannot sell their tokens. Many tokenized offerings have mandatory holding periods (e.g., 12 months for Reg D offerings).

The total value of an asset minus liabilities. For tokenized real estate, NAV per token represents each token's underlying value.

A property's total income minus operating expenses, excluding debt service, capital expenditures, depreciation, and income taxes. Formula: NOI = Gross Rental Income - Operating Expenses. NOI is a key metric for evaluating property profitability and calculating cap rates.

A legal document provided to prospective investors describing the investment opportunity, risks, terms, and conditions of a securities offering.

A minimum return threshold that limited partners (investors) must receive before general partners (sponsors) can take their share of profits. Common in real estate syndications and tokenized offerings, typical preferred returns range from 6-10% annually.

The market where securities are first issued and sold directly by the issuer to investors. Initial token offerings occur in the primary market.

A securities offering sold to a select group of investors rather than the general public. Reg D offerings are private placements.

A SEC exemption allowing companies to raise up to $75 million from both accredited and non-accredited investors with lighter disclosure requirements than a full IPO.

A SEC exemption allowing companies to raise up to $5 million from the general public through registered crowdfunding platforms.

A SEC exemption for private securities offerings. Rule 506(b) and 506(c) are commonly used for tokenized real estate offerings to accredited investors.

A SEC exemption for offerings made outside the United States to non-US persons, often used in combination with Reg D.

A company that owns income-producing real estate and distributes dividends to shareholders. Tokenization offers an alternative structure to traditional REITs.

REITs are publicly traded or non-traded investment vehicles that pool capital to invest in multiple properties, offer daily liquidity (for public REITs), and are regulated as investment companies. Tokenized real estate typically represents direct fractional ownership in specific properties through SPVs, may have limited secondary markets, and is regulated as securities offerings. Key differences: REITs provide diversification across properties; tokenization allows property-specific investment. REITs have established tax treatment (90% income distribution requirement); tokenized offerings vary by structure.

An SEC rule providing a safe harbor for the resale of restricted and control securities. For Reg D offerings, investors typically must hold tokens for 6-12 months before resale. Non-reporting issuers require a 12-month holding period; reporting issuers require 6 months.

A market where investors buy and sell securities from each other (not from the issuer). ATS platforms provide secondary markets for security tokens.

A digital token that represents ownership in a real-world asset and is subject to securities regulations. Real estate tokens are security tokens.

Self-executing code on a blockchain that automatically enforces the terms of an agreement. Real estate tokens use smart contracts for ownership, transfers, and distributions.

A legal entity (typically an LLC) created to hold a specific property. Investors own tokens representing shares in the SPV, which owns the real estate.

The process of issuing and selling security tokens to investors. Similar to an IPO but for tokenized securities.

A digital unit recorded on a blockchain representing ownership, rights, or value. Real estate tokens represent fractional property ownership.

The process of converting rights to an asset into a digital token on a blockchain. Real estate tokenization creates tradeable digital representations of property ownership.

A Special Purpose Vehicle (typically an LLC or similar entity) whose ownership interests have been converted into digital tokens on a blockchain. In tokenized real estate, the SPV holds the property, and investors purchase tokens representing membership units or shares in the SPV rather than direct property ownership. This structure provides legal clarity, liability protection, and enables fractional ownership while maintaining compliance with securities regulations.

An entity responsible for maintaining records of security ownership and processing transfers. Digital transfer agents specialize in tokenized securities.

Software or hardware that stores private keys used to access and manage blockchain tokens. Investors need compatible wallets to hold real estate tokens.

A profit-sharing structure that defines the order and percentages in which returns are distributed among investors and sponsors. Typically includes: return of capital, preferred return to investors, catch-up to sponsors, and profit splits. Common in real estate syndications and tokenized offerings.

A list of approved wallet addresses that can hold or receive tokens. Security tokens use whitelists to ensure only verified investors can participate.