Real Estate Real World Asset ( RWA ) Market Research

Introduction

The concept of real-world assets ( RWA ) is not new in the cryptocurrency market, having existed at least since 2018, when asset tokenization and security token offerings ( STO ) bore similarities to today’s RWA concept. However, due to an immature regulatory framework and a lack of significant advantages in potential returns, these early attempts did not 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 crypto market. As a result, tokenizing U.S. Treasury bonds into RWAs became increasingly attractive to the crypto industry. Consequently, well-known DeFi projects such as MakerDAO, Compound, and Aave, as well as traditional financial institutions like Goldman Sachs, JPMorgan, Siemens, and even some governments began to explore RWAs.

In the past two years, several Real Estate RWA projects have emerged in the market. They aim to expand the real estate investment market in various ways, diversify real estate investment products, and lower the entry barriers for real estate investors. This study conducts case analyses of these projects to assess the advantages and disadvantages of real estate RWA design and its potential market. Since these projects mainly target real estate assets and investors in North America, the discussion of relevant policies, regulations, and market conditions will primarily focus on the North American real estate market.

Methods for Tokenizing the Real Estate Market

The real estate market is a vast field full of investment opportunities. A study by Statista in March 2023 showed that the market value of publicly listed real estate in North America reached a staggering $13 trillion. Meanwhile, the global market value of publicly listed real estate is $26.6 trillion.

The core objective of tokenizing the real estate market is to achieve one or more of the following goals: to create more diversified and flexible real estate investment products, to attract a broader range of investors, and to enhance the liquidity and value of real estate assets. These products are primarily manifested in three forms:

1. decentralized real estate ownership for financing.

2. specific area real estate market index product.

3. tokenized real estate as collateral.

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

Real Estate Investment Trusts ( REIT ) are companies that own, operate, or finance income-producing real estate. REITs provide an investment opportunity similar to mutual funds, allowing ordinary investors to earn 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 property investment opportunities, effectively lowering the investment threshold and increasing 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 rigorous asset review and investment structure within a strict regulatory framework provide a solid blueprint for real estate RWA projects.

In the operation of real estate RWA projects over the past two years, we have gained a clearer understanding of their advantages and disadvantages.

Generally, real estate RWA projects have the attributes mentioned above. After深入研究具体案例, I found that due to different management and product approaches, each project encounters different situations in actual operations.

Case Study

In this chapter, I have selected three real estate RWA projects for analysis. Each project employs a different approach to tokenizing the real estate market and is the most popular in its field. It is worth noting 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 in the market, focusing on making U.S. residential real estate available for investment through the Ethereum and Gnosis blockchains ( primarily Gnosis ).

RealT acquires residential properties and tokenizes the ownership contracts of these properties in accordance with U.S. regulations. The management, maintenance, and rent collection responsibilities of these properties are entrusted to third-party management agencies. After deducting fees, the rental income generated by specific properties is distributed to their token holders. While RealT oversees the tokenization process, they are legally separate from the companies that hold the real estate assets. As stated on their website, if a company defaults, token owners retain the option to appoint another company to manage the company holding the property contracts. It is worth noting that they do not mandate co-investment in the properties they introduce to the market. Property token holders can receive a share of the rental income from the properties each month, 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 $2,600 in rental income per month. After deducting a total of $622 in operating and management expenses, 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 remaining rent and maintenance fees, while the investment platform only takes 2% for property tokenization, selecting management agencies, and overseeing management. Through this approach, the RealT team can save a significant amount of management time, focusing on finding qualified properties and tokenizing them for the market.

However, although fractional ownership promotes risk sharing among investors, it also brings challenges. When investors’ financial interests are too small, the management costs of the company become unfeasible. A report explains the conflict of interest between real estate token holders and RealT. RealT selects a management agency to manage its owned properties; if RealT has a large ownership stake in the property, it can reduce agency costs; therefore, inefficient management will negatively impact them. However, if RealT’s stake is too large, it may negatively affect token liquidity, and minority shareholders may become free riders. These owners may expect major shareholders to supervise whether the management agency employed is financially viable. On the other hand, if RealT’s stake is very small, RealT may lack sufficient motivation to choose a management agency or participate in the oversight process, and many investors find it difficult to effectively supervise the management agency.

I checked the latest ten sold-out tokens on the RealT market and used the relevant blockchain explorer to find the number of holders for each property.

As shown in the chart, RealT splits properties into different amounts of tokens, with each token priced at approximately $50. Most properties are located in Detroit, with about 500 token holders, and two properties have over 1,000 holders. Now, combine this with the number of tokens held by each holder to 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 housing market.

According to the transaction data of the RealT wallet, ( Gnosis wallet address: 0xE7D97868265078bd5022Bc2622C94dFc1Ef1D402), RealT has paid a total rent of approximately $6 million. The platform fees vary based on maintenance costs, insurance, and taxes, approximately 2.5%-3% of the rent, which translates to about $150,000 to $180,000 in platform revenue over the past two years. However, since RealT does not need to participate in real estate investment, there are no restrictions or guidelines on the extent of its participation ( if it chooses to invest. ) The income that RealT receives from rental income has not yet been disclosed.

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 only serves as the operational entity of the RealT project. Additionally, RealT established 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 primary purpose is to simplify legal procedures, allowing users to participate in investments in all properties by entering into 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 specific properties and corresponding tokens. 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 trends of the global real estate market. Parcl is used to gain perpetual exposure to synthetic assets, utilizing an AMM architecture. Parcl introduces the Parcl Labs Price Feed, which creates indices for real estate in specific areas based on sales history. The sales history period can vary depending on the frequency of property transactions. After the index is created, investors have the opportunity to speculate on real estate 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 question whether it is truly a real estate RWA project, as it does not meet the aforementioned criteria. However, it is a relatively popular RWA project that has received investments from Coinbase, Solana Ventures, DragonFly, and many other prominent names in the industry. It is reasonable to discuss the diverse possibilities of real estate RWAs.

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 does not seem to have 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. The Parcl Labs Price Feed and index market are well-designed and easy to use.

In terms of operations, the Parcl team actively launched user acquisition projects 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-key market image, with a small user base and limited trading volume. Perhaps the market is not yet ready to embrace real estate index products.

Reinno

Large cryptocurrency companies like Ripple and MakerDAO are also exploring the possibility of allowing users to tokenize real estate as collateral for loans. Ripple announced in July that its central bank digital currency team is working in this direction. MakerDAO has integrated with RobinLand to support real estate-backed loans. RealT offers the option to use tokenized real estate as collateral for loans, although this service is limited to the tokens they issue. Essentially, this service is more akin to a token lending product and does not significantly increase the capital liquidity of real estate owners.

Reinno is an abandoned project that was launched in 2020 and ceased operations in 2022. Although it left little mark on the market, it introduced two noteworthy products related to real estate RWA.

The first product is a loan service based on tokenized real estate. When property owners need financing, they can submit property documents to Reinno. Once approved, Reinno will create a special purpose entity company ( in Delaware for the transaction, also known as an SPV, which is a subsidiary created by the parent company to isolate financial risk. It operates as an independent company.