The tokenization of real-world assets (RWAs) is currently one of the fastest-growing trends within and outside the crypto realm. Recently, BlackRock joined the ranks of institutions that have launched their own tokenized funds, attracting over $240 million within its first week of debut.
While the RWA frenzy started off with the tokenization of private credit and U.S. treasuries, other traditional markets that have long suffered from liquidity issues, notably real estate, are also being integrated into on-chain economies.
In the next sections of this article, we’ll explore the developments in real estate RWA, covering some of the offerings that are currently in the market and the pain points they seek to solve. Of course, the industry is still nowhere near its full potential given that real estate only accounts for a small portion of the tokenized assets as of writing.
Bridging the Liquidity Gap in Real Estate
Could blockchain technology be the much-needed infrastructure to revolutionize the $613 trillion global real estate market?
Although one of the best stores of value, real estate has often been associated with its slow transactional nature. It’s not every day that one goes to the market in search of property, let alone gathering enough funds to purchase high-end real estate. Tokenization addresses this shortcoming by introducing five key advantages over traditional real estate markets: liquidity, flexibility, data transparency, reduced settlement time, and fractionalization.
To better understand this value proposition, let’s delve into a few examples of the real estate RWA products which are already in operation.
Real Estate RWA in Action
Like any new innovation space, there are always avant-garde products, some of which end up being a hit while others are a miss. The real estate RWA market is no different. Digishares, a Danish based firm, is one of the players currently immersed in tokenizing real estate. The company features a whitelabel solution designed to enable the issuance and management of tokenized real estate.
What stands out about the Digishares whitelabel platform is its underlying software which eliminates the need for prospective market participants to have any technical knowledge. In other words, a real estate company or group of investors can seamlessly tap into the RWA market by leveraging Digishares as a tech partner.
More intriguing are RWA protocols offered by DeFi-focused companies such as Blocksquare. This real estate RWA ecosystem is the first of its kind; the protocol leverages ERC-20 smart contracts to integrate a bulletproof real estate RWA marketplace that features the nuances of the traditional real estate buying and selling process. It is not just about owning a token and ‘believing’ that it is backed by a piece of real estate.
Blocksquare’s approach to the real estate tokenization market includes automated binding agreements backed by a corporate resolution to define the rules of engagement, loan collateral to avoid issuers from selling off the property at the expense of token holders, among other provisions.
There are also RWA projects which are offering access to exclusive properties. One of them is the Sabai Ecoverse, a real estate marketplace that enjoys the support of a Thailand based property developer.
For context, the Sabai RWA marketplace currently has properties listed with a valuation of over $450,000. Fun fact? You don’t have to purchase the entire property, investments through this RWA marketplace start as low as $50 and could yield a rental income of up to 12% per annum.
These real estate RWA models are just a few of the examples that innovators are trying out. At the same time, it is worth noting that there have been successful collaborations between RWA platforms and traditional institutions or consortiums as was the case when Liquefy was partnered with high networth families in the gulf to tokenize over $1 billion.
This Hong Kong based real estate RWA provider is among the pioneers in the industry, having raised $2.6 million in its Pre-A funding back in 2019.
What Does the Future Hold?
As highlighted in the introduction, the world of real estate tokenization is largely untapped. This means that there is still more land or property yet to be added to the blockchain. A few years ago, it was a question of if. Today, it is a question of when the integration will happen and how fast the players in the market can tap into the opportunities.
That said, tokenizing real estate comes with its own set of challenges, including the lack of clear regulatory frameworks. This is one of the main reasons why most potential investors and innovators remain sidelined.
“One of the primary concerns is the lack of a consistent regulatory framework that governs the market. Different jurisdictions have varying rules and regulations surrounding digital assets, leading to confusion and uncertainty for investors and issuers.” – Andres Zunino, Zircon Tech founder told Forbes in an interview.
On the brighter side, however, the growing RWA interest by well-established companies such as Franklin Templeton and BlackRock could be the trigger for regulators to act accordingly. This time, it will likely not take as many years as the Bitcoin Spot ETF approvals did. RWAs present a clear-cut value proposition and are definitely worth keeping tabs on as the market evolves into a more mature ecosystem.