A physical asset cannot be tokenized, but the income it generates can be

The idea that “physical things cannot be tokenized” is one which is often brought up by people when they first hear about Leasehold (https://www.leasehold.io/) — Although this statement is essentially true, it does not account for the fact that income derived from a ‘physical thing’ is itself not a ‘physical thing’ — This is because modern currency is virtual; it exists primarily as numbers in the minds of people and as bits of information in computer systems. This is why Leasehold tokenizes real estate income and not real estate itself.

If the Leasehold property portfolio generates $x of income in any given month, it’s possible for us (via on-chain token buybacks) to prove to all our investors, with absolute certainty that:

• We received at least $x of income that month.
• We burned $x worth of LSH tokens via buybacks that month; thus increasing the ownership stake of all remaining token holders by some factor of x.

Together, these two guarantees ensure that the value of remaining (unburnt) LSH tokens appreciate in exactly the same way as company shares would under a share buyback program — The key advantage of a blockchain, however, is that investors do not need to trust us (Leasehold Holdings) about either the existence of the income or the fact that this income was used to perform buybacks (and thus contributed to the increase in value of remaining tokens). For a small company, this degree of radical transparency can make a big difference from the perspective of investors since the risk of fraud is a major reason why many investors stay away from penny stocks.

When we (Leasehold Holdings) do buybacks, we purchase LSH tokens on an open market using $x of fiat profits generated from our real estate rental business. The amount of LSH tokens which we can buy for $x is based on the price of LSH tokens on that market. It would not be possible for us to purchase LSH tokens on the market if we did not have at least x amount of fiat dollars to buy them with. Since LSH is deflationary, it can only be bought from existing token holders using real money. Once we have burned the newly purchased LSH tokens at the address 0L, they are cryptographically guaranteed to have been permanently taken out of circulation. Anyone in the Leasehold community can verify the amount of LSH burned and they can also verify the price of LSH tokens at the time of the buyback + burn event (since the burn time was also recorded on the blockchain in a tamper-proof way). We call this methodology ‘Proof of Profit’ (PoP).

Although, as described above, it is possible for investors to independently verify that LSH tokens were purchased using real money and then burned, the blockchain does not provide any guarantee that the income was actually derived from profits of our real estate portfolio as claimed. There is still a small risk that the money could have been obtained from a different business activity or from some elaborate financial scheme. Using a blockchain as an alternative to a centralized share system therefore cannot prevent all kinds of frauds but it does provide a tamper-proof historical record of income which makes it much easier to identify fraud — It provides all investors with a reliable starting point to conduct their own research. Since the ledger is public, anyone can do their own auditing and share their results with other community members by using on-chain data as a source of truth and working backwards, looking at financial reports to identify any inconsistencies or irregularities.

Another major advantage of using blockchain tokens instead of shares is that they provide the business with exposure to a global pool of investors without having to go through a middleman. There is no need to pay for a costly IPO or listing fees on centralized exchanges. Tokens can be listed on our own Decentralized Exchange (DEX) https://ldex.trading/— This allows investors to buy LSH tokens directly from those who are involved in the business with no third-party intermediaries.

Another key difference between a share and a token is that a share is a legal instrument which is only associated with an ownership stake in a single company and its subsidiaries. A token, on the other hand is a cryptographic instrument — There is no legal requirement that it must only be associated with a single company. Any group of people can form a company which uses LSH as its reserve currency or it can raise LSH to fund projects. They do not need any approval from Leasehold Holdings to participate and contribute to increasing the value of the LSH network; because of this, LSH also works a bit like a currency. Each company can have its own rules regarding how they want to implement buybacks — This rule can be declared in their memorandum of incorporation. For example, Leasehold Holding’s buyback-and-burn rule is the only necessary legal component which pegs its real estate portfolio to the LSH token — It’s a rule which can be easily verified and enforced by our decentralized community (whose incentives are aligned towards maximizing the volume of token buybacks).

By allowing multiple companies and/or projects to organize themselves around a single blockchain token, Leasehold aims to dissolve the artificial line which separates currencies from shares and reduce the friction involved in raising capital.