Real Estate RWA Project Research: Bricks on the Blockchain

Real-world asset (RWA) tokenization has been in the cryptocurrency market for many years, with early attempts including asset tokenization and security token offerings. However, these attempts have failed to gain scale due to imperfect regulation and a lack of significant gains.

In 2022, as U.S. interest rates rose, Treasury yields surpassed stablecoin lending rates in the crypto space, making Treasury RWA tokenization more attractive to the crypto industry. A number of established DeFi projects and traditional financial institutions are starting to explore RWA.

In the past two years, a number of real estate RWA projects have emerged, aiming to expand the real estate investment market, enrich investment products, and lower the threshold. This study will analyze the design strengths and weaknesses of these projects and their potential markets, with a focus on the North American real estate market.

! Bricks & Blocks: Research on Real Estate Projects in the RWA Market

Methods for Tokenizing the Real Estate Market

The investment opportunities in the real estate market are huge. Data for March 2023 shows that the listed real estate market in North America is worth $1.3 trillion and the global market is worth $2.66 trillion.

There are three main forms of tokenized real estate market:

1. Fragmented property ownership financing
2. Region-specific real estate index products
3. Real estate token mortgage lending

In addition, on-chain can also improve the transparency and democratic governance of real estate assets.

! Bricks & Blocks: Research on Real Estate Projects in the RWA Market

REIT (REIT) and real estate RWAs are similar in providing fragmented investment opportunities, with both lowering the barrier to entry and enhancing liquidity. However, REITs usually do not provide management or ownership for investors, and remain centralized. Nonetheless, the regulatory framework and operating model of REITs provide a reference for real estate RWA projects.

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

Merit:

• Lower the threshold for investment
• Improve liquidity
• Diversify your investments
• High level of operational transparency

Shortcoming:

• Unclear regulation
• Inadequate legal framework
• High operating costs
• Inadequate investor protection mechanisms

The actual operation of specific projects varies depending on the management and product approach.

! Bricks & Blocks: Research on Real Estate Projects in the RWA Market

Case Analysis

RealT

Launched in 2019, RealT is one of the older real estate RWA projects focused on the tokenization of residential real estate in the United States.

RealT buys residential properties and tokenizes them in accordance with U.S. regulations. Property management, maintenance, and rent collection are the responsibility of a third party. After deducting fees, the rent is distributed to token holders. RealT is responsible for the tokenization process, but is legally separate from the company that holds the property.

Take a property with a total value of $323,020 and issue 6,200 tokens at $52.10 each. The monthly rent was $2,600, and the net profit after expenses was $1,978, for an annual total of $23,736. Each token receives a dividend of $3.83 with an annual interest rate of 7.35%.

! Bricks & Blocks: Research on Real Estate Projects in the RWA Market

RealT provides 100% tokens to the market, without the need to co-invest with customers, maintaining a near-risk-free model. The management takes 8% of the rent and the rest from the maintenance fee, and RealT only charges 2% of the tokenization fee.

However, decentralized ownership also presents challenges. When the investor's shareholding ratio is too small, the company's management costs may be too high. RealT's shareholding is too large or too small, which can lead to a lack of incentive for the supervisory authority.

The data shows that about 90% of RealT investors invest less than $500, 9% invest $500-$2,000, and 1% invest more. This shows that RealT has created a real estate investment market for retail investors to a certain extent, increasing liquidity.

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RealT distributed about $6 million in rent on the Gnosis network. The platform fee is about 2.5%-3% of the rent, which is equivalent to $150K-$180K revenue in the last two years.

RealT's corporate structure includes Real Token Inc., the core operating entity, Real Token LLC, the parent company of the real estate company, and a series of LLCs corresponding to each investment property. This structure is designed to isolate the legal and financial risks of each property.

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) Parcl

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

The Parcl Labs Price Feed creates region-specific real estate indices that allow investors to speculate on house price movements. This method avoids the legal issues of the actual sale and purchase of the property.

The Parcl testnet was launched on Solana in May 2022 and currently has a TVL of $16 million. However, it has a daily trading volume of less than $10,000 and fewer than 50 daily active users.

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Although Parcl's product design is mature and the team actively promotes it, the attention and market share are still low. This could be a sign that the crypto market is not ready for real estate index products.

) Reinno

Reinno was launched in 2020 and ceased operations in 2022, but introduced two real estate RWA-related products worth mentioning.

The first is a loan service based on tokenized properties. Homeowners can submit property documents to Reinno, and upon approval, Reinno will create an SPV company and smart contract that allows owners to pledge tokens as collateral for loans.

The second is mortgage financing. Once a user buys a house with a bank loan, they can tokenize the ownership of the property, which can be used to repay the bank loan, and then repay the agreement at a fixed interest rate.

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Reinno adopts a centralized offline model, which has obvious risks:

1. When a borrower defaults, it is difficult for Reinno to sue
2. Homeowners may sell their home after borrowing, resulting in "double spending"

These risks may be one of the reasons why the project ceases to operate. In the future, real estate RWAs will need a more mature legal framework to address these issues.

Conclusion

Real estate RWA is still in its early stages and has not yet formed a clear market size or leading project. The scale of the existing project and the user base are relatively small. This area requires strict compliance and a mature legal framework.

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Some projects use risk-segregated corporate structures or choose property-related financial products as investment targets to reduce risk. However, to realize the full potential of real estate RWA, legislative progress and compliant operations are indispensable.

Currently, there is a lack of a clear and consistent regulatory framework. There are discrepancies among U.S. regulatory agencies regarding the classification of tokens, and there is also a lack of reference standards internationally. This uncertainty threatens investor confidence and the long-term viability of property tokenization.

Despite this, many well-known financial and crypto companies are still experimenting with real estate RWA, and some projects have initially proven their viability. With the establishment and improvement of the relevant legal framework, real estate RWA is expected to usher in rapid development.

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