The Rise of Real-World Assets in the Crypto Assets Market

The concept of real-world assets ( RWA ) has existed in the Crypto Assets market for some time, dating back to at least 2018. The asset tokenization and Security Token Offering ( STO ) at that time had many similarities with today's RWA concept. However, due to an incomplete regulatory framework and a lack of significant potential profit advantages, these early attempts failed to develop into a mature market scale.

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

In the past two years, a small number of 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 will conduct case analyses of these projects, examining the advantages and disadvantages of real estate RWA design and its potential market. Since these projects are mainly targeted at the North American real estate sector, the relevant policies, regulations, and market conditions discussed will primarily pertain to the North American real estate market.

Methods for Tokenizing the Real Estate Market

The real estate market is a vast field filled with investment opportunities. Research released in March 2023 shows that the value of the publicly traded real estate market in North America has reached $1.3 trillion. Meanwhile, the global publicly traded real estate market is valued at $2.66 trillion.

The core demand of the tokenized 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. The main forms of these products typically have three manifestations:

1. fragmented real estate ownership financing.

2. specific area real estate market index product.

3. real estate tokens are used for collateral lending.

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

If you are familiar with real estate investment trusts ( REIT ), it is a type of company that holds profitable real estate and manages or finances real estate through this property. REITs provide investment opportunities similar to mutual funds, allowing ordinary investors to gain real estate investment income and total returns similar to dividends, while helping to grow the local real estate market. REITs and real estate RWA have many similarities in providing fragmented property investment opportunities; both effectively lower the investment threshold and enhance 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 review of assets, operations, and investment structures within a strict regulatory framework provides a reference framework for real estate RWA projects.

Through observing the operations of real estate RWA projects over the past two years, we have gained some clear understanding of their advantages and disadvantages.

Typically, real estate RWA projects have the aforementioned advantages and disadvantages. However, upon further examination of specific cases, it is found that due to differences in management and product methods, the actual situations encountered by each project during operation vary.

Case Study

In this chapter, I selected three real estate RWA projects for analysis. Each project adopts a different approach to tokenizing 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 primarily on the Gnosis blockchain through Ethereum and Gnosis (.

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 entrusted to third-party management agencies. After deducting fees, the rent generated by these properties is distributed to its token holders. Although RealT is responsible for the tokenization process, they are legally separated from the companies holding 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 mandate RealT's participation in the investment of the property tokens they promote to the market. Users holding property tokens can receive a portion of the rent from the property each month, with the amount needing to be reduced by approximately 2.5% for maintenance reserves and typically around 10% for management fees.

For example, the total value of the real estate tokens for a certain property 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 a total of $622 in operating and management expenses, the monthly net profit is $1,978, resulting in an annual total of $23,736. Therefore, each token receives a distribution of $3.83, leading to an annual profit rate of 7.35%.

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For this property, RealT has provided 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 rental income and receives the remaining portion from maintenance fees, while the investment platform only charges a 2% fee for tokenizing 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 in the market.

However, while decentralized ownership helps to spread risk among investors, it also introduces challenges. When an investor's investment share is too small, the management costs of the company become too high and unsustainable. Reports have explained the conflicts of interest between real estate token holders and RealT. RealT chooses management agencies to manage the properties it owns; if RealT has a large ownership stake in the property, they will strive to reduce management costs because poor management will have a significant negative impact on them. However, if RealT's ownership stake is too large, this will first reduce the liquidity of the tokens, and secondly, the minority shareholders in the property will not fulfill their supervisory responsibilities. All token holders expect that major shareholders can 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 examining the latest sold-out ten real estate tokens on the RealT market and using relevant 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 more than 1,000 holders. Now, calculate the investment range of RealT investors by combining the number of tokens held by each holder.

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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 liquidity in the housing market.

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

From a company structure perspective, RealT established Real Token Inc. in Delaware as the core entity of the company. This entity does not own any real estate assets; it serves solely as the operating entity for the RealT project. Additionally, RealT also formed 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 streamline legal processes, allowing users to invest in all properties by signing a contract with just one company. Finally, RealT establishes a corresponding series of LLCs for each invested property. As subsidiaries of Real Token LLC, each series LLC owns specific properties and corresponding tokens. This structure is designed to ensure that financial or legal issues related to 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 fluctuations of the global real estate market. Parcl uses an AMM architecture to bring real estate-related synthetic assets to market. Parcl has launched Parcl Labs Price Feed to create a specific area real estate index based on its sales history. The duration of the historical record can vary depending on the trading frequency of the properties. After the index is created, investors have the opportunity to speculate on the price trends of properties, establishing long or short positions based on the real estate prices in that area.

This method avoids involving legal issues in actual real estate operations because there are no real property transactions. You might also question whether it truly qualifies as 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 many well-known companies, and due to its uniqueness, it is reasonable to include it in discussions on the diversification of real estate RWA products.

Parcl's testnet was launched on Solana in May 2022, and its TVL currently stands at 16 million dollars. However, after more than a year of operation, Parcl seems to have garnered little attention, with a daily trading volume of less than 10,000 dollars and fewer than 50 daily active users.

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Parcl's products are easy to use and rapidly upgraded, and the pricing providers and index market design of Parcl Labs are relatively mature. Operationally, the Parcl team actively launches Parcl Point, Real Estate Royale, and other user acquisition programs. Despite these advantages and support from numerous 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 perhaps proves to some extent that the Crypto Assets market is not yet ready to embrace real estate index products.

) Reinno

Some large Crypto Assets companies are also exploring products in the direction of real estate RWA. 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 third parties to support real estate mortgage lending. Some 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 substantially enhance the capital liquidity of individual real estate owners.

Reinno is a defunct project that was launched in 2020 and ceased operations in 2022. Although it did not leave much of a 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 vehicle company ### in Delaware, also known as SPV, which is a subsidiary created by the parent company.