Exploration of Real World Asset Real Estate Projects

The concept of real-world assets ( RWA ) has not emerged recently in the cryptocurrency market; it has existed since 2018. The asset tokenization and security token offerings ( STO ) at that time had many similarities with today’s RWA concept. However, due to the incomplete regulatory framework and the lack of significant potential return advantages, these early attempts did not develop into a mature market scale.

In 2022, as U.S. interest rates continued to rise, the yield on U.S. Treasury bonds significantly exceeded the stablecoin lending rates in the crypto industry. Therefore, tokenizing U.S. Treasury bonds as RWA assets has become increasingly attractive to the crypto industry. Some established DeFi projects, as well as traditional financial institutions, have begun to explore the RWA sector.

In the past two years, a small number of real estate RWA projects have emerged in the market. These projects aim to expand the real estate investment market in various ways, enrich real estate investment products, and lower the barriers to real estate investment. This article will conduct case analyses of these projects, exploring the advantages and disadvantages of real estate RWA design and its potential market. Since these projects primarily target the North American real estate market, the relevant policies, regulations, and market conditions discussed will mainly pertain to the North American region.

Tokenization Methods for the Real Estate Market

The real estate market contains enormous investment opportunities. According to a Statista study published in March 2023, the value of the North American listed real estate market reached 1.3 trillion USD, while the global listed real estate market is valued at 2.66 trillion USD.

The core demand for the tokenization of 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 mainly manifest in three forms:

1. Fragmented real estate ownership financing.

2. Specific Area Real Estate Market Index Product.

3. mortgage lending with real estate tokens.

In addition, the tokenization of real estate on the blockchain has the potential to enhance the transparency of real estate assets and the democratic governance of them.

If you understand Real Estate Investment Trusts ( REIT ), it is a type of company that holds and manages or finances income-generating real estate. REITs provide investment opportunities similar to mutual funds, allowing ordinary investors to gain real estate investment income and total returns, and promote the development of the local real estate market. REITs and real estate RWAs have many similarities in providing fragmented property investment opportunities, both effectively lowering the investment threshold and enhancing the liquidity of real estate assets. However, traditional REITs usually do not offer management opportunities or ownership to investors, maintaining a centralized operating model. Nevertheless, their scrutiny of assets, operations, and investment structures within a strict regulatory framework provides a reference model for real estate RWA projects.

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

Real estate RWA projects typically have the following advantages:

• Lower the investment threshold, allowing more investors to participate.
• Improve the liquidity of real estate assets
• Achieving the fragmentation of real estate investment
• Increase the diversity of real estate investment products
• Improve the transparency of real estate asset management.
• Simplify the real estate transaction process

Disadvantages include:

• The legal and regulatory framework is not yet完善.
• Lack of mature market scale and liquidity
• Operating and management costs are relatively high
• The investor rights protection mechanism needs improvement.
• There are challenges in the valuation and pricing mechanisms.
• Potential security and fraud risks

However, upon深入研究具体案例时, it was found that due to differences in management and product methods, each project encountered different actual situations during the operation process.

Case Analysis

This chapter selects three real estate RWA projects for analysis. Each project employs different methods to tokenize the real estate market and is representative in its respective field. It is important to note that these projects are still in the early stages, 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 earliest real estate RWA projects, focusing on tokenizing U.S. residential real estate for retail investors mainly on Gnosis through Ethereum and the Gnosis blockchain (.

RealT purchases residential properties and tokenizes the held properties in accordance with U.S. regulations. The management, maintenance, and rent collection responsibilities of these properties are delegated to third-party management agencies. After deducting fees, the rent generated from these properties is distributed to their token holders. Although RealT is responsible for the tokenization process, they are legally separated from the companies that hold the real estate assets. As stated on their website, if the company defaults, the token holders have the right to appoint another company to manage the held properties. However, it is worth noting that the agreement does not require RealT to participate in the investment of the property tokens they promote to the market. Users holding property tokens can receive monthly rent from the property, with the amount needing to be deducted by approximately 2.5% for maintenance reserves and typically around 10% for management fees.

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Taking a 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, amounting to $23,736 annually. Thus, each token receives a distribution of $3.83, resulting in an annual profit margin of 7.35%.

For this property, RealT offers 100% of the tokens to the market, which means RealT does not need to co-invest with clients and maintains an almost risk-free model for operation. The management agency takes 8% from the rent and receives the remaining portion from maintenance fees, while the investment platform charges a 2% fee solely for the tokenization of the property, selecting the management agency, and overseeing the 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, while decentralized ownership helps to spread risk among investors, it also introduces challenges. When an investor's stake is too small, the management costs of the company may become unsustainable. Research has explained the conflict of interest between real estate token holders and RealT. RealT chooses a management agency to manage the properties it owns; if RealT has a large ownership stake in the property, they will strive to reduce management costs because mismanagement will have a significant negative impact on them. However, if RealT's stake is too large, this will first reduce the liquidity of the tokens, and second, the small shareholders of the property will not fulfill their supervisory responsibilities. All token holders expect large shareholders to supervise whether the hired management agency is efficient and diligent. On the other hand, if RealT's stake is very small, RealT may lack sufficient motivation to diligently select management agencies and actively participate in supervision, making it very difficult for numerous retail investors to effectively supervise the management agency.

By looking at the latest sold-out ten property tokens on the RealT market and using related blockchain explorers to find out how many holders each property has. RealT divides properties into different numbers of tokens to ensure that the price of each token is around $50. Most properties are located in Detroit, and there are about 500 token holders, with two properties having over 1,000 holders. Combine the number of tokens held by each holder to calculate the investment range of RealT investors.

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

According to RealT's query of transaction data on the wallet address of its main operational network Gnosis, RealT has distributed approximately $6 million in rental income. The platform fees fluctuate based on maintenance costs, insurance, and taxes, ranging from about 2.5% to 3% of the rental income, which amounts to approximately $150K to $180K in platform revenue over the past two years. However, since RealT is not required to participate in real estate investments, and if it chooses to participate, there are no specific limits or instructions on the extent of participation, the profits RealT earns from rental income remain unknown.

From the perspective of company structure, RealT established Real Token Inc. in Delaware as the core entity of the company. This entity does not own any real estate assets; it merely serves as the operating entity of the RealT project. Additionally, RealT also established Real Token LLC in Delaware as the parent company of a series of real estate companies. Like Real Token Inc., Real Token LLC)LLC: Limited Liability Company( does not own any real estate assets; its primary purpose is to simplify legal procedures, allowing users to invest in all properties by signing a contract with just one company. Finally, RealT has established a corresponding series of LLCs for each investment property. As subsidiaries of Real Token LLC, each series LLC owns a specific property and corresponding tokens. This structure is designed to ensure that financial or legal issues of one property do not affect other properties or the operations of the parent company under RealT.

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) Parcl

Parcl is a DeFi investment platform that allows users to trade the price movements of the global real estate market. Parcl is used to create market-facing synthetic assets related to real estate through an AMM architecture. Parcl has launched the Parcl Labs Price Feed to create specific regional real estate indices based on its sales history. The duration of the historical records can vary depending on the trading frequency of the properties. After the indices are created, investors have the opportunity to speculate on the price trends of properties, establishing bullish or bearish positions on the regional real estate prices.

This method avoids the legal issues involved in actual real estate operations because there is no real property transaction, allowing Parcl to sidestep these complications. You might also question whether it truly qualifies as a real estate RWA project, as it does not meet the standards mentioned above. However, it is a relatively popular RWA project, having received investments from some well-known companies, and its uniqueness makes it reasonable to include it in discussions about the diversification of real estate RWA products.

Parcl's testnet launched on Solana in May 2022, and its TVL currently stands at $16 million. However, after more than a year of operation, Parcl seems to have not attracted much attention, with daily trading volume of less than $10,000 and fewer than 50 daily active users.

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Parcl's products are easy to use and upgrade quickly, and the price providers and index market design of Parcl Labs are relatively mature. In terms of operations, the Parcl team is actively launching Parcl Point, Real Estate Royale, and other user acquisition programs. Despite these advantages and the support of many well-known investment institutions, Parcl still maintains a relatively low market attention and market share, with a small user base and limited trading volume. This may partly explain that the cryptocurrency market is not yet ready to embrace real estate index products.

) Reinno

Some large cryptocurrency companies are also exploring products in the real estate RWA direction. Some companies have announced that their central bank digital currency teams are trying to support users in tokenizing real estate and using it for mortgages. Other companies are collaborating with partners to support real estate mortgage lending. Certain projects also offer the option to use tokenized real estate as loan collateral, but this service is limited to the real estate tokens they issue. Essentially, this service is more similar to token lending products and does not significantly enhance the capital liquidity of individual real estate owners.

Reinno is a platform established in 2020