Real Estate Asset Tokenization: Exploring the New Integration of Blockchain and the Real Economy

Asset tokenization ( RWA ) is not a new concept in the cryptocurrency market. As early as 2018, similar asset tokenization and security token offerings ( STO ) had already emerged. However, due to the immature regulatory framework at the time and the lack of significant advantages in potential returns, these early attempts failed to develop into a mature market segment.

In 2022, as the United States continued to raise interest rates, the yield on U.S. Treasury bonds significantly exceeded the lending rates of stablecoins in the cryptocurrency market. Therefore, tokenization of U.S. Treasury bonds into RWA has become increasingly attractive for the crypto industry. Consequently, some well-known DeFi projects, traditional financial institutions, and even some governments have begun to explore RWA.

Over the past two years, multiple real estate RWA projects have emerged in the market. They aim to expand the real estate investment market in various ways, enrich real estate investment products, and lower the threshold for real estate investors. This study conducts case analyses of such projects to analyze the advantages and disadvantages of real estate RWA design and its potential market. Since these projects primarily target North American real estate assets and investors, the discussion of relevant policies, regulations, and market conditions will mainly focus on the North American real estate market.

Tokenization of the Real Estate Market

The real estate market is a vast field full of investment opportunities. A study by Statista in March 2023 indicated that the value of the publicly listed real estate market in North America reaches up to $1.3 trillion. Meanwhile, the global publicly listed real estate market is valued at $2.66 trillion.

The core objective of tokenization in the real estate market is to achieve one or more of the following goals: to create more diverse and flexible real estate investment products, to attract a broader range of investors, and to enhance the liquidity and value of real estate assets. The main forms of these products typically take three forms:

1. is a division of real estate ownership for financing.

2. Specific Area Real Estate Market Index Product.

3. tokenization real estate as collateral.

In addition, tokenization and blockchain integration have also enhanced the transparency and democratic governance of real estate assets.

Real Estate Investment Trust ( REIT ) is a company that owns, operates, or provides financing for income-producing real estate. REITs offer a mutual fund-like investment opportunity, allowing ordinary investors to gain dividend-based income and total returns, while helping to grow the local real estate market. REITs and real estate RWA share similarities in providing diversified real estate investment opportunities, effectively lowering the investment threshold and enhancing the liquidity of real estate assets. However, traditional REITs typically do not offer management opportunities or ownership to investors, maintaining a centralized operational model. Nevertheless, their strict asset scrutiny and investment structure within a stringent regulatory framework provide a solid blueprint for real estate RWA projects.

Over the past two years of project operations regarding real estate RWA, we have gained a clearer understanding of its advantages and disadvantages.

Generally, real estate RWA projects have the above properties. After delving into specific cases, I found that due to differences in management and product approaches, each project encounters different situations in actual operations.

Case Study

In this chapter, I have chosen three real estate RWA projects for analysis. Each project adopts a different approach to tokenizing the real estate market and is the most popular in its field. It is important to note that these are still early projects, and their products have not yet undergone long-term and extensive market validation and testing.

RealT

RealT was launched in 2019 and is one of the oldest real estate RWA projects on the market, focusing on providing investments in U.S. residential real estate primarily on the Gnosis Blockchain ( through Ethereum and Gnosis ).

RealT acquires residential properties and tokenizes entities holding property contracts in accordance with U.S. regulations. The management, maintenance, and rent collection responsibilities for these properties are entrusted to third-party management agencies. After deducting expenses, the specific property generates rental distribution to its token holders. Although RealT is responsible for the tokenization process, they are legally distinct from the companies holding the real estate assets. As stated on their website, if the company defaults, token owners retain the right to appoint another company to manage the property contract holding company. It is noteworthy that they are not required to jointly invest in the properties they bring to market. Token holders for the properties can receive a share of the rental income from the property on a monthly basis, excluding approximately 2.5% for maintenance reserves and management fees, which are typically around 10% of the value.

Taking this property in Montgomery as an example, the total value of the real estate tokens is $323,020, with each token priced at $52.10, and a total of 6,200 tokens issued. The property generates a monthly rental income of $2,600. After deducting operating and management expenses totaling $622, the monthly net profit is $1,978, resulting in an annual income of $23,736. Therefore, each token receives a distribution of $3.83, with an annualized yield of 7.35%.

For this property, RealT offers 100% tokenization, which means RealT does not need to co-invest with clients and maintains a nearly risk-free operating model. The management agency collects 8% of the rental and maintenance fee remainder, while the investment platform only charges 2% for property tokenization, selecting management agencies, and overseeing management. Through this method, the RealT team can save a significant amount of management time, focusing on finding qualified properties and tokenizing them for the market.

However, although decentralized ownership facilitates risk-sharing among investors, it also brings challenges. When investors’ financial interests are too small, the management costs of the company may become unfeasible. A report by Laurens Swinkels explains the conflict of interest between real estate token holders and RealT. RealT selects a management entity to manage its owned properties; if RealT has substantial ownership of the properties, it can reduce agency costs; therefore, inefficient management will negatively affect them. However, if RealT’s stake is too large, this may negatively impact the liquidity of the tokens, and small owners may also become free riders. These owners may expect large shareholders to oversee whether the hired management entity is financially viable. On the other hand, if RealT’s stake is too small, RealT may lack sufficient motivation to adequately choose a management entity or engage in the oversight process, while many investors may also find it difficult to effectively assume the responsibility of overseeing the management entity.

I selected the 10 most recently sold out Tokens on the RealT market and used a relevant Blockchain explorer to find the number of holders for each property.

As shown in the chart, RealT divides properties into different numbers of Tokens, so that each Token is priced at about $50. Most properties are located in Detroit, with around 500 Token holders, two of which have more than 1,000 holders. Now, by combining this data with the number of Tokens held by each holder, we can understand the investment range of RealT investors.

About 90% of RealT investors invest less than $500, about 9% invest between $500 and $2,000, and 1% invest more than this amount. This indicates that RealT has successfully created a real estate investment market for small investors to some extent and has increased the liquidity of the real estate market.

According to the transaction data from the RealT wallet, RealT has paid a total of approximately $6 million in rent. The platform fees fluctuate based on maintenance costs, insurance, and taxes, amounting to about 2.5%-3% of the rent, which corresponds to platform revenue of about $150,000 to $180,000 over the past two years. However, since RealT does not need to participate in real estate investments, and if it chooses to invest, there are no specific limits or guidelines on the level of participation, the income RealT receives from rental income has not yet been made public.

From the perspective of company structure, RealT established Real Token Inc. in Delaware as the central entity of the company. This entity does not own any real estate assets; it merely serves as the operating entity for the RealT project. In addition, RealT formed Real Token LLC in Delaware as the parent company of a series of real estate companies. Like Real Token Inc., Real Token LLC does not own any real estate assets; its main purpose is to simplify legal procedures, allowing users to participate in investments in all properties by signing a contract with a company. Finally, RealT establishes a corresponding Series LLC for each invested property. As a subsidiary of Real Token LLC, each Series LLC owns a specific property and the corresponding Token. This structure is designed to ensure that the financial or legal issues of one property do not affect the operations of other properties or the parent company under RealT.

Parcl

The Parcl protocol is a DeFi investment platform that allows users to trade the price fluctuations of the global real estate market. Parcl is used to gain perpetual exposure to synthetic assets using an AMM structure. Parcl introduces the Parcl Labs price feed, which creates indices for real estate in specific regions based on sales history. The sales history period can vary depending on the transaction frequency of the property. After the index is created, investors have the opportunity to speculate on property values, allowing them to go long or short on real estate prices.

This approach allows Parcl to avoid legal issues, as the platform’s operations do not involve actual real estate. Some may argue whether this is really a real estate RWA project, as it does not meet the above criteria. However, this is a relatively popular RWA project that has received investments from industry giants such as Coinbase, Solana Ventures, and DragonFly. It is reasonable to discuss the diverse possibilities of real estate RWA.

Parcl’s testnet was launched on Solana in May 2022, with a current TVL of $16 million. After more than a year of operation, Parcl seems to have not attracted much attention, with a daily trading volume of less than $10,000 and fewer than 50 daily active users.

Parcl’s products are simplified and developed quickly. Parcl Labs price feeds and index markets are well-designed and easy to use.

In terms of operations, the Parcl team actively launched user acquisition programs such as Parcl Point and Real Estate Royale. Despite these advantages and the support of many well-known investment institutions, Parcl still maintains a relatively low market visibility, a small user base, and limited trading volume. Perhaps the market is not yet ready for real estate index products.

Reinno

Some large cryptocurrency companies are also exploring the possibility of allowing users to tokenize real estate as collateral for loans. A certain payment company announced in July that its central bank digital currency team is working in this direction. A well-known DeFi project has integrated with RobinLand to support real estate mortgages. RealT offers the option of using tokenized real estate as collateral for loans, although this service is limited to the tokens they issue. Essentially, this service is more similar to token lending products and does not materially increase the capital liquidity of real estate owners.

Reinno is an abandoned project launched in 2020 and ceased operations in 2022. Although it did not leave much of a mark on the market, it introduced two noteworthy real estate RWA-related products.

The first product is a loan service based on tokenization of real estate. When property owners need financing, they can submit property documents to Reinno. Once approved, Reinno will create a special purpose vehicle ( for the transaction in Delaware, also known as SPV, which is established by the parent company.