Real Estate Real World Assets ( RWA ) Project Research

Real-world assets are not a new concept in the cryptocurrency market; they have existed since 2018, similar to the asset tokenization and security token issuance of that time. However, due to inadequate regulation and a lack of significant returns, these early attempts failed to form a mature market scale.

In 2022, as U.S. interest rates rose, U.S. Treasury bond yields significantly exceeded the lending rates of stablecoins in the crypto industry. Therefore, tokenizing U.S. Treasury bonds as RWA assets has become more attractive to the crypto industry. Mature DeFi projects and traditional financial institutions have begun to explore RWA.

In the past two years, some real estate RWA projects have emerged, aiming to expand the real estate investment market, diversify investment products, and lower investment thresholds. This study will analyze the design advantages and disadvantages of these projects and their potential market, mainly focusing on the North American real estate market.

Tokenized Real Estate Market Methods

The real estate market holds immense investment opportunities. Research from March 2023 shows that the North American listed real estate market is valued at $1.3 trillion, while the global market is valued at $2.66 trillion.

The goals of the tokenized real estate market include: creating a diverse range of flexible investment products, attracting a broader range of investors, and increasing asset liquidity and value. The main forms of expression include:

1. Fragmented property ownership financing
2. Specific Area Real Estate Index Products
3. Real Estate Token Mortgage Lending

Tokenization of real estate may also enhance asset transparency and governance democracy.

Real Estate Investment Trusts ( REIT ) are similar to Real World Assets (RWA) in providing fragmented investment opportunities, both lowering investment thresholds and enhancing liquidity. However, REITs typically do not offer management or ownership opportunities and maintain centralized operations. Nevertheless, their operational framework can serve as a reference for RWA projects.

Real estate RWA projects typically have the following advantages and disadvantages:

Advantages:

• Lower the investment threshold
• Improve liquidity
• Simplify the trading process
• Enhance transparency

Disadvantages:

• Regulatory ambiguity
• Legal Risk
• Technical Risk
• High management costs

Case Analysis

RealT

RealT was launched in 2019 and is one of the earlier real estate RWA projects, focusing on tokenizing residential properties in the United States for retail investment through Ethereum and Gnosis blockchains.

RealT purchases real estate and tokenizes it in accordance with the law. Management and maintenance are entrusted to third-party institutions. After deducting fees, rental income is distributed to token holders. RealT is responsible for tokenization but is legally separated from the company that holds the property. Token holders have the right to change the management company.

Taking a property in Montgomery as an example, with a total value of $323,020, each token priced at $52.10, totaling 6,200 tokens. Monthly rent is $2,600, with a net profit of $1,978 after deducting $622 in fees, resulting in an annual profit rate of 7.35%.

RealT offers 100% tokens to the market without the need for co-investment, maintaining a low-risk model. The management organization earns income from rent and maintenance fees, and RealT only charges a 2% tokenization fee. This approach allows RealT to focus on finding qualified properties and tokenizing them.

However, decentralized ownership also brings challenges. When the investment share is too small, management costs may become unsustainable. There may be conflicts of interest between RealT and the token holders in terms of the selection and supervision of the management body.

Analysis shows that approximately 90% of RealT investors invest less than $500, 9% invest between $500 and $2000, and 1% invest more than this amount. This indicates that RealT has created a real estate investment market for retail investors to a certain extent, increasing liquidity in the housing market.

RealT has established multiple entities in Delaware, including a core operating company, a parent company for real estate, and subsidiaries for various properties, to simplify legal processes and isolate risks.

Parcl

Parcl is a DeFi investment platform that allows users to trade price fluctuations in the global real estate market. Parcl provides real estate-related synthetic assets through an AMM architecture.

Parcl has launched a regional real estate index based on sales history. Investors can speculate on housing price trends. This approach avoids legal issues related to actual property operations.

Parcl has received investments from several well-known companies, but its market attention and share remain relatively low. This may suggest that the crypto market is not yet ready to embrace real estate index products.

Reinno

Reinno was launched in 2020 and ceased operations in 2022, but introduced two noteworthy real estate RWA products:

1. Loan services based on tokenized real estate. Homeowners can tokenize their properties and use them as collateral for borrowing.

2. Mortgage financing. Users can tokenize property ownership after purchasing a house for financing, to repay bank loans.

Reinno's operations are still centralized and offline. This approach has obvious risks, such as borrower defaults and difficulties in effectively resolving issues like property transfer. In the future, a more mature legal framework will be needed to address these problems.

Conclusion

Real estate RWA is a relatively emerging field, with no clear market size or leading projects yet established. The existing project scale and user base are relatively small. This field requires strict compliance operations and a mature legal framework.

Some projects adopt risk isolation structures or choose real estate-related financial products as investment targets to reduce risk. However, fully realizing the potential of real estate RWA still requires legislative progress and operational compliance.

The current regulatory framework is unclear, with various regulatory agencies having differing views on token classification, and there is a lack of a unified international standard. This threatens potential investors and jeopardizes the long-term viability of real estate tokenization.

Nevertheless, many well-known financial and crypto companies are still trying Real World Assets (RWA) in real estate. A small number of projects have initially proven their feasibility. With the establishment and improvement of the relevant legal framework, real estate RWA is expected to usher in rapid development.