How can RWA break the 700 trillion real estate dilemma?

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Abstract generation in progress

Source: Blockchain Knight

According to Deloitte, by 2035, tokenized real estate could account for 10% of the global market, valued at over $4 trillion, with an annual growth rate of 27% in the industry.

The following is a guest article and perspective by Abdul Rafay Gadit, co-founder of ZIGChain.

The value of the U.S. real estate market alone exceeds $100 trillion, while the global real estate market value surpasses $700 trillion. However, the liquidity of this asset, which is closely tied to the land beneath our feet, is astonishingly low. A report from the World Economic Forum indicates that insufficient liquidity in the real estate market results in transaction costs that account for 1% to 3% of property value, totaling hundreds of billions of dollars each year.

More importantly, this lack of liquidity creates artificial barriers for both buyers and sellers: it prevents homeowners and most potential investors from exchanging value, and it also restricts access to the capital market for Crypto assets valued at over $1 trillion, one of the most trusted asset classes in human history.

Quick Definition of Real World Assets (RWA)

In 2015, Ethereum was the first to propose the concept of asset tokenization, allowing almost any asset to be divided into tradable digital shares. Recently, the tokenization costs on many blockchains have significantly decreased, nearly approaching zero. RWA is a broad concept that, depending on different interpretations, almost encompasses all tokenized assets that are not native Crypto assets.

"Soft" RWA includes stablecoins and tokenized equity. "Hard" RWA, on the other hand, refers to the tokenization of physical assets, such as real estate, vehicles, or precious metals. While there have been some high-profile RWA cases in the real estate sector, such as the tokenized issuance of $18 million for a portion of the St. Regis Aspen resort's equity, the real turning point will occur in the relatively overlooked global middle-class real estate market.

How RWA Will Transform the Real Estate Market

In the past, RWA was limited in development due to insufficient liquidity. For real estate RWA to succeed, liquidity must achieve two-way flow. This requires not only the extensive provision of tokenized real estate but also the careful design of incentive mechanisms by a networked team to attract existing capital into these assets.

Dividing large asset-backed debts into smaller portions allows retail investors to participate in investments with any amount, thereby expanding the potential liquidity pool. However, feasibility does not equate to success. Builders of RWA must strategically attract institutional and retail liquidity to avoid market failure.

We are witnessing the early stages of network effects. With each additional tokenized property, the utility of the entire ecosystem increases, attracting more investors, which in turn attracts more homeowners to tokenize their properties.

The critical mass required for this virtuous cycle is accelerating, and the speed is exceeding the expectations of many industry veterans. Projects that successfully combine traditional real estate expertise with Blockchain infrastructure are likely to become the market leaders of the future.

Propchain is an example that tokenizes fractional shares of real estate. Compared to traditional real estate investments, Propchain and other similar companies offer annualized returns with shorter lock-up periods. Additionally, there are localized options like KiiChain that focus on unlocking the potential of RWA in Latin America.

The function of tokenizing real estate is not only to optimize existing processes but also to fundamentally reshape the meaning of property ownership and investment in the digital age.

The transformative power of tokenization is reflected in the functions it achieves:

  • Fragmented ownership: Dividing real estate into thousands of tokens, allowing for minimal capital investment.
  • Programmable Compliance: Smart contracts automate regulatory requirements, eliminating intermediaries.
  • Global Liquidity Pool: Access to global capital rather than being limited to local markets.
  • 24/7 Market: Enable trading around the clock, not just during business hours.

Concerns about Real Estate RWA are Overblown

Given the 2008 financial crisis, it is understandable that people are skeptical about real estate tokenization. However, tokenization is actually the opposite of the reasons that led to that collapse. The 2008 crisis packaged high-risk mortgages into abstract "de-risked" units, while tokenization reduces abstraction by breaking a single tool into smaller, more transparent parts.

Tokenization does not eliminate asset risk, nor does it claim to do so. It simply enhances liquidity and allows more people to participate in the wealth appreciation potential of real estate. By enabling more people to engage in leveraged, stable asset investments, tokenization addresses the two major challenges of housing affordability and investment opportunities.

Conclusion: The Tokenization Revolution is Inevitable

The real estate market is at a crossroads. Those who cling to traditional models will gradually find themselves surpassed and replaced by tokenized alternatives. RWA is not just a technological upgrade, but a fundamental restructuring of the valuation, trading, and leveraging methods of the $70 trillion "sleeping giant."

For investors, the message is clear: adapt or be eliminated. As regulatory frameworks mature and institutional adoption accelerates, the window of first-mover advantage is rapidly closing. By 2030, when we look back at non-tokenized real estate assets, we will view them as relics of an inefficient past, much like how we currently perceive paper stock certificates.

This liquidity revolution will not only change the way we trade real estate but also make one of the world's most enduring stores of value more accessible, potentially unlocking trillions of dollars of capital that were previously frozen. In a world where financial volatility is on the rise, tokenized real estate offers the perfect blend of stability and accessibility, which is precisely what both traditional investors and Crypto asset investors are eagerly seeking.

The question is no longer whether real estate will embrace RWA, but rather who will lead this transformation and who will have to explain to shareholders why they missed out on this revolution.

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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
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