Tokenisation

Tokenisation in the Hotel Industry

November 3, 2022

Have you ever dreamed of opening your own hotel? Did you ever harbour aspirations to transform an old and dilapidated building into an alluring art-deco establishment where literary types gather to sip tea and compare notes about their latest masterpiece? Maybe you have, at some point in your life, imagined an opulent opening day, when the Grand Crypto Hotel welcomes its first set of guests through its revolving doors.

Back in the day, you would have to be a millionaire, or a real estate tycoon to be able to open such a hotel and partake in hotel ownership. But what if I explained that there is a way that you can own a part of that hotel without great wealth? Is your interest piqued yet? Sit down there beside the fire and listen while I tell you about tokenisation. It won’t take long, I promise.

A brief history of tokenisation

In today’s technology-savvy world, we understand tokenisation as the process of turning sensitive data into non-sensitive data tokens. That then can be shared or traded without compromising the underlying information. Banks use tokens to transmit banking details to a payment processor, for example, to prevent data breaches.

But tokenisation itself is a concept as old as mankind itself. Clay tokens used to count, store, and communicate financial data are known to have been used circa 4,000 BC in regions today known as the Middle East. Early tokens were individual pieces made in different sizes to represent quantity. Later, the tokens would be etched with lines or dots to denote the quality of whatever they represented.

These early tokens were used for administrative purposes, in local economies. Much later, they led to the advent of writing. So from the very beginning, tokenisation has been used to convey information. Data.

This trend of representing data continues today, albeit in a more sophisticated fashion, more in accordance with modern technology.

Tokenising the hotel industry

If you ask any hotelier what their main business goal is, you’re likely to hear that their focus is to increase occupancy rates, and maximise revenue per room, commonly known as RevPAR. Millions of hotel rooms worldwide lie unoccupied, i.e., they’re not producing revenue. And as the pandemic made evident, being able to fill your hotel is never certain. So, in light of this economic quandary, hotel managers have been forced to reinvent the business and find alternative ways to make their establishments profitable again. Tokenising their hotels is one of these new ventures.

But how does tokenising a hotel actually work, and what benefits does it bring? Tokenisation opens up two interesting avenues: Fast access to monetary resources (capital, in other words), and tokenisation-as-as-service.

Releasing capital, fast

Hotels range from small, family-run establishments, to larger, franchise-owned mega buildings. The plot of land where they stand might be worth millions, and when considering the furnishings, equipment, ornaments, furniture, etc., the value of a hotel site might run into the billions. The problem is if the hotel has no guests, all that value is locked unto itself. In fact, it costs a lot of money just to have the place open, in terms of staff, energy consumption, water, etc.

During COVID-19, millions of hotel rooms remained dormant for the better part of two years, with many hotels looking for different ways to unlock all this locked capital. In this situation, the hotel owner could just sell the property, but this would mean finding a buyer, which is easier said than done, particularly in times of uncertainty. And if the property is sold, the hotel would obviously be in the hands of somebody else. This might not be in the seller’s best interest.

Tokenisation would enable the hotel owner to sell part of the hotel, by digitising the hotel’s assets through blockchain technology. Once the digital version of the hotel is uploaded to the chain in the form of tokens, the owner can begin selling these assets to different buyers. People would effectively own part of a hotel. The blockchain would keep all the information transparent and secure. So, the hotelier can track which tokens are sold, to whom, and at what price.

In this scenario, tokenisation enables the fragmentation of the sale (rather than selling the entire hotel to one person). This means that every investor retains what is called fractional ownership. In other words, you no longer need to be an eccentric billionaire to own a hotel. Or part of it, anyway.

Tokenisation-as-a-service

Tokenising a hotel opens up brand new possibilities for turning a profit via blockchain, including tokenisation-as-a-service.
The digitisation process creates a perfect replica of the hotel on the blockchain, a ‘digital twin’, if you will. Using smart contracts, several specialised platforms now enable this virtual representation of your establishment to manage daily tasks.

These include maintenance, supplies, etc. through third-party contractors, for example. This has an immediate and obvious benefit: cost reduction, by a great margin. The hotel manager (the human one) can delegate all these tasks to the digital twin, and focus on more pressing matters. Tokenisation-as-a-service saves a whole lot of money and frees up a great deal of time.

How to tokenise your hotel: NFTs or FTs?

In the hotel industry, these differences can be explained through the example of tokenising a hotel. Let’s say you want to tokenise ownership of the hotel with fungible tokens, you can, for example, create a 100.000 hotel tokens, and each token represents ownership of 1/100.000 of the hotel. Every hotel token is the same and can be easily traded as each token has the same value.

As described above, tokenisation (in blockchain) is essentially the process of representing a certain item with one or more tokens, and it can be done in two ways, namely through fungible tokens and non-fungible tokens. Fungible tokens are interchangeable, for example every euro is the same as every other euro. Non-fungible tokens (NFTs) are all unique and can have different values, such as different art pieces or different car parts, etc.

But you can also tokenise ownership of a hotel with non-fungible tokens. In this case you could tokenise the hotel rooms, the hotel restaurant, the hotel ground, etc. Each of these assets has a different value and people could then buy these individual assets rather than a fraction of the whole hotel. To make things even more interesting, you could then also tokenise high-value assets such as the ground of the hotel for example, using fungible tokens.

In this example both ways of tokenisation are used to fractionalise ownership, just in different ways. But they can coexist and work together.

Conclusion

Whether it’s a relatively small family-owned hotel, or a location of a major hotel franchise, tokenising hotels, or hotel rooms, creates real investment opportunities for small to medium investors. And from the hotelier’s perspective, it’s a win-win situation.

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