Governance & Jurisdiction in Tokenized Real Estate

By Nadine Loepfe & Daniel Radwansky

REITs in Web3: Part 6

As we continue in our series exploring REITs in web3 - diving into the key features and components that make up our end-to-end RWA/DeFi solution - we aim to provide a comprehensive overview of both real-world asset tokenization in general as well as Hedera’s role within this emerging industry. In doing so, it is essential to feature thought leaders and industry partners within the space to provide you with the fullest picture possible of what the potential future of tokenized real estate looks like.

For this edition, we sat down with Daniel Radwansky, CEO of the RWA marketplace ecosystem StegX as a guest contributor to share his perspective on property assets on-chain, specifically in the areas of governance and legal considerations.

When Property Meets Blockchain: A New Era of Ownership

The ownership of property is about to undergo its most significant revolution in centuries. We're moving from a world of passive investment to one of active, programmable ownership. Now, with the rise of blockchain and tokenization, the rules are being rewritten.

This article follows that transformation, from the classic world of REITs to today’s programmable tokens, and explores where things might go next - toward a future where even property titles could live on-chain. Along the way, you’ll be introduced to the model implemented by the RWA/DeFi Demo, a practical blueprint for how on-chain governance and smart contracts could finally give investors a true voice, real transparency, and a stake in shaping how real estate is managed.

Whether you’re new to real estate, deep in the tokenization space, or just curious about what comes next, this article will give you a clear view of how the old and new worlds are colliding, and what that means for the future of property investment.

The Traditional REIT Model

To understand how tokenized real estate governance is evolving, it’s important to first consider how things work in the traditional world. Most large-scale real estate investment is done through regulated investment funds - such as Real Estate Investment Trusts (REITs) - that are structured for broad public access.

REITs operate in the public domain. Their shares are traded on major stock exchanges, which means that virtually anyone with a brokerage account can invest. This accessibility is one of the defining features of the model. But what about governance? Technically, every shareholder has a voice in the company, but the practical reality is different.

REITs are legally obligated to hold annual shareholder meetings and put certain matters to a vote. Yet, for the average investor, these rights are limited to big-picture decisions, like electing the board of directors, approving major mergers or sales, and casting advisory votes on executive compensation. The real, day-to-day decisions about which properties to buy or sell, how assets are managed, or when to refinance are always made by the professional management team. The board and fund manager hold the reins, while investors mostly observe from a distance.

This model has strengths: it puts control in the hands of licensed professionals with a proven track record, and it’s built on layers of regulation and oversight. But it also means that investors have almost no direct influence on how their money is put to work. They rely on transparency reports, periodic statements, and - most importantly - the expertise and integrity of the fund manager. For many, choosing the right manager is the single most important investment decision.

Tokenized Real Estate: From Theory to Practice

While traditional real estate funds and REITs concentrate governance in the hands of professional managers, tokenization promises something new: digital assets, programmable ownership, and direct investor participation. But how does this play out in practice?

In reality, the vast majority of so-called “tokenized real estate” transactions today do not involve direct, on-chain ownership of physical property by token holders. Instead, what’s typically being transacted are tokenized financial products that represent an interest in a legal entity (such as an SPV - Special Purpose Vehicle) that owns and controls the real estate asset.

In most jurisdictions, the SPV holds the property on behalf of investors. The tokens themselves might represent different things depending on the project and local law:

• In some cases, tokens are structured as shares or units in the SPV (so-called “equity tokenization”). This model gives investors a legal stake in the company that owns the real estate. In selected jurisdictions, this form of direct equity tokenization is permitted and recognized by law.

• More commonly, tokens are structured as debt instruments - for example, private credit or private debt - where token holders provide external financing to the real estate manager or project sponsor. In these cases, the tokens represent a claim on future cash flows (such as interest or principal repayments), but not direct ownership or control over the asset itself.

Modern token standards, such as ERC-7518 and ERC-3643, allow compliance requirements to be programmed directly into the smart contract. Unlike standard tokens that can be transferred freely, these specialized tokens build the rulebook directly into the asset, making compliance automatic rather than operational. This means only verified (KYC-approved) investors can own or transfer security tokens, and important regulatory rules - like transfer restrictions - are enforced automatically. For the SPV, which typically acts as the issuer of these tokens, this ensures that all regulatory obligations are met seamlessly.

With the emergence of distributed ledger technologies such as Hedera, investors around the world can now access assets and markets that were previously out of reach through the power of real-world asset tokenization. DLTs enable investors to be directly connected with these assets, removing the need for a broker account or other intermediaries. Marketplaces for tokenized real-world assets such as StegX make it possible to buy tokenized interests in real estate directly, making investing simpler and more inclusive.

Stablecoins and on-chain settlement have also eliminated the old barriers of slow and costly international payments. Now, investing across borders is increasingly fast, affordable, and frictionless. Real estate tokens are programmable, giving investors secure, efficient processes and new possibilities, such as using tokens as collateral, earning yield, or taking part in real-time on-chain governance.

Even as real estate moves on-chain, a strong legal foundation remains essential. In nearly all cases, an SPV holds the property itself and acts as a legal wrapper. Within this structure, governance can be reshaped: the rules and articles of association can be written so that token holders have real authority. For example, token holders might be able to propose and vote on major asset decisions, or even instruct the board of the SPV directly.

This approach aligns with most existing company laws. The Articles of Association (AoAs) spell out exactly how decisions are made and who has the final say. By connecting on-chain voting to the formal governance mechanisms of the SPV, the token holders’ decisions can become legally binding and enforceable.

Bridging Practice and Possibility

The model, as discussed in this series, is built around the idea of true, programmable investor participation. Instead of passive ownership, token holders are empowered to influence real estate management and economics directly using smart contracts for voting, revenue distribution, and transparent reporting. The core components of this governance approach include:

• A governance contract is deployed for every property, mapping voting rights to token holders in real time.

• Token holders can put forward proposals and vote using their tokens. Every vote is transparent and recorded on-chain.

• The model supports both direct token-holder governance (for major strategic or policy decisions) and operational decisions via a multisig or delegated management group (for routine matters).

To make this vision a reality, the legal layer is critical. For the RWA/DeFi Demo - or any tokenized real estate product with on-chain governance - everything ultimately comes back to the legal wrapper: the SPV. Even if decision-making power is exercised on-chain, the SPV acts as the legal interface that holds the property, signs contracts, and interacts with the outside world. Importantly, every SPV is governed by real people: directors or appointed managers. These directors are legally responsible for carrying out the instructions that come from token holder votes, as outlined in the SPV’s Articles of Association or operating agreement. In practice, this means the SPV’s founding documents must be drafted to explicitly recognize and enforce the outcomes of on-chain governance. The company commits to acting on blockchain-recorded decisions, ensuring a seamless bridge between programmable code and enforceable, real-world action. By aligning the legal responsibilities of directors with the outcomes of on-chain governance, the RWA/DeFi Demo model could empower token holders as active participants, while maintaining the legal protections and trust that come with traditional real estate investment vehicles.

In summary, the bridge between on-chain voting and real-world action is built on strong legal agreements, responsible directors, and transparent, auditable procedures. With these elements in place, on-chain governance becomes a real, enforceable part of managing tokenized real estate assets.

This solution brings this legal-technical bridge to life through its automated cash flow and distribution system.

Take automated rental income distributions as an example. Once the property is generating income, that revenue is received by the SPV - the legal owner of the asset. The SPV’s directors or administrators are responsible for transferring these funds (or their digital equivalent) to the token holders help from the “on-chain vault” associated with the property. Because the tokes’ legal documentation recognizes these on-chain distributions, the directors can use the smart contract to ensure that the income is transferred and distributed to the token holders. This is a prime example of how tokenization combines programmable, automated processes with enforceable legal obligations - transforming traditional real estate distributions into instant, borderless, and transparent experiences for investors.

The model is designed to push the boundaries of what’s possible with tokenized real estate. By leveraging smart contracts, the RWA/DeFi Demo can enable advanced features such as fractional “Slices” or ETF-style vaults that automatically rebalance based on building metadata and investor preferences. This opens the door for more dynamic, automated portfolio management and on-chain strategy execution.

In practice, even within the innovative framework, these advanced strategies must operate inside a robust legal structure - usually an SPV, a fund or a similar legal wrapper. As discussed earlier, most real estate tokenization in today’s market actually represents financial products rather than direct, on-chain ownership of physical property. In these cases, the legal wrapper is responsible for managing the assets and carrying out investor decisions.

Whether the wrapper is a fund, a collective investment scheme, or an SPV, most jurisdictions require that any form of discretionary or active management is performed or overseen by a licensed asset manager. Even in this model - where smart contracts execute automated strategies - a licensed manager or board of directors remains ultimately responsible for oversight, investor protection, and compliance.

In other words, regulators generally limit the day-to-day investments decisions that can be influenced by a decentralized community, especially for ongoing trading or investment decisions. This does not mean that a decentralized community has no influence, but that the legal wrapper must ensure that any automated decisions are still subject to human approval before being executed. As in our examples above there are multiple types of financial products which do allow this kind of external influence in connection with a compliant setup, but fully automated investment decisions are more complex in the world of real estate tokenization as the legal wrappers are required to perform the oversight.

The Next Frontier

Looking ahead, the landscape of real estate tokenization could shift dramatically with the tokenization of property title registers themselves. Until now, as discussed above, almost all tokenized real estate investments have relied on legal wrappers - like SPVs or regulated funds - as intermediaries. The tokenization of the title register could mark a turning point for real estate investing - transforming DAOs from advisory communities into true, direct property owners. This would bring the RWA/DeFi Demo’s vision of fully programmable, borderless, and community-driven real estate investment closer to reality, while still leveraging external experts for day-to-day operations.

We are now seeing the first government-backed experiments, such as in Dubai, where property titles are being tokenized and stored on-chain. This opens up the possibility that, in the future, a decentralized entity such as a DAO could be the direct, legal owner of a property, eliminating the need for an SPV or traditional fund in between.The DAO itself, governed transparently by token holders, could be listed in the title register as the legal property owner. Governance - everything from leasing and renovation decisions to sale approval - could be executed by collective, on-chain votes without the constant need for an external legal wrapper to interpret and execute instructions.

This shift would unlock several powerful advantages:

• Automated investment strategies and on-chain governance could be executed directly.

• Compliance and ownership would be more transparent, as the ledger itself records all changes and decisions.

• The administrative burden and costs associated with SPVs, boards, and fund managers could be greatly reduced.

Of course, even in this future, the physical management of the property - finding tenants, handling repairs, executing local contracts - would still require trusted, professional service providers. It is unrealistic to expect a DAO to handle these on-the-ground operations directly. But the strategic direction, approvals, and oversight could become fully streamlined and governed by the collective will of token holders, in real-time and with global participation.

The Road Ahead for Tokenized Real Estate

Decentralized technologies like Hedera are fundamentally transforming property investment, management, and ownership. However, governance remains a critical but often overlooked aspect that determines whether tokenized real estate can deliver on its promise of creating compliant, accessible, and transparent environments for all.

Real-world assets on-chain are only as useful as their integration into existing legal and administrative frameworks allows. These frameworks provide the usability, accountability, and transparency that multi-party ecosystems like REITs require to realize the benefits of tomorrow's decentralized economy.

With the RWA/DeFi Demo, Hashgraph aims to provide the necessary infrastructure and tools to turn that future into a reality.

As we progress in this article series on REITs in Web3, we’ll be diving deeper into the broad range of features, technologies, and considerations that make this platform a revolutionary solution for the world of tokenized real estate and beyond, such as price determination, slices, and more.