June 09, 2022 - 18 min read
Real estate is undoubtedly one of the largest and most important industries, both in the U.S. and around the world. In 2020, the global value of the world’s real estate assets was estimated at a staggering $326.5 trillion, far larger than the value of all stocks, bonds, and currencies combined. The global value of real estate industry revenue is much smaller, at an estimated $2.2 to $3.3 trillion, but still dwarfs a wide variety of other industries, including machinery, oil and gas production, fashion, and consumer electronics.
Despite the massive size and influence of the real estate industry, and the recent proliferation of real estate tech companies, many industry practices remain hidebound and stuck in the past. Major industry processes such as property purchase and sale, financing, escrow, title, and investment services remain little changed since the 1990s or 2000s, meaning that real estate transactions can be slow, require a wide array of intermediaries, and be prohibitively expensive.
In addition, despite an increase in crowdfunding platforms and somewhat faster closings, real estate remains one of the most illiquid asset classes on the market today, which means that homeowners, investors, and other market participants often need to wait months for transactions to close, costing them valuable time and money.
Fortunately, the blockchain industry is poised to revolutionize the industry in multiple ways. Via the use of immutable, distributed ledgers, blockchains can help facilitate the storage and access of records, such as title and deed records, via smart contracts. This can speed up real estate transactions exponentially, potentially allowing transactions to close in days or even hours instead of weeks or months.
Tokenization also offers massive opportunities, as commercial properties and even single-family homes can be wrapped within tokens, facilitating the easy transfer of assets between multiple parties.
In addition, multiple real estate-related cryptocurrencies have popped up; some ICOs have attempted to raise money for real estate transactions via coins, while, in other cases, blockchain-based real estate services companies have also raised money through ICOs. Despite this, most real estate-related cryptos have a relatively small market cap and seem to have little to no effective value proposition for users or investors.
Finally, the rise of virtual real estate in the metaverse has also produced a new market for an entirely new type of asset. While so far, these assets have been fully removed from real-world properties, we may begin to see some type of merge between digital and real-world assets in the near future, such as in-metaverse NFTs offering full or fractional property rights to real estate in the real world.
Tokenization makes it easy to break up real-world assets like real estate into many smaller pieces. This can potentially make it far easier for smaller investors to invest in commercial real estate, as properties can be split into thousands of smaller tokens.
Much like cryptocurrencies, real estate tokens can be sent from wallet to wallet, making it easy for individuals to fully own and privately transfer fractional real estate assets from person to person, even allowing buyers to pay in cryptocurrency.
For additional protection, blockchain escrow services can be utilized to hold assets until both sides have transferred their tokens or crypto into the required accounts. Real estate tokenization can also potentially be utilized on a personal level; for example, an individual could tokenize their home, and provide a certain percentage of tokens to each family member in their will.
Tokenization can be achieved through both traditional, fungible token types, such as ERC-20 tokens on the Ethereum blockchain, or via fractionalized NFTs such as the ERC-1155 and ERC-721 token standards, also on the Ethereum blockchain.
Despite the massive potential for real estate tokenization to add liquidity to the market, legal, regulatory, and liquidity challenges remain a major challenge that needs to be overcome before tokenized real estate can make a significant difference in the market.
For example, due to the potential negative legal ramifications of ICOs, many companies have decided to attempt Security Token Offerings (STOs) in lieu of ICOs, though this process remains somewhat expensive and complex, and may require significant programming expertise due to the lack of standardized real estate smart contracts.
In addition, when it comes to commercial real estate investment transactions, some investors are wary of the concept of many small token or coin holders, which could potentially have voting rights over the property, taking away the centralized decision-making power of the main investor or investment firm and potentially muddling the investment decision-making process.
While one of the major benefits of real estate tokenization is the potential for enhanced liquidity, a lack of liquidity is also perhaps the largest barrier to widespread adoption of tokenization throughout the industry. While there are already several tokenized real estate exchanges, they are not interoperable, which means that each transaction must take place on that individual exchange.
While most exchanges want interoperability, this has not yet occurred, and makes tokenized real estate investing just as illiquid, and potentially riskier, than traditional crowdfunding, limiting the number of investors who are interested in such deals.
Ideally, the use of standardized smart contracts, cross-chain bridges, and open-source code will make tokenized real estate just as liquid as the major cryptocurrencies such as Bitcoin and Ether. However, this will likely take massive collaboration by startups, the entrance of institutional players, or large amounts of venture capital into the real estate tokenization market.
In the next section, we’ll review the top tokenized real estate platforms on the market today, the top blockchain real estate services companies, and the top real estate-related cryptocurrencies, as well as touch on the future of blockchain and real estate, including the proliferation of virtual and metaverse real estate and how it may impact the broader market.
Some of the top real estate tokenization platforms currently operating include:
RealT is one of the most interesting, and perhaps one of the most advanced tokenized real estate platforms on the market today. Investors can purchase tokenized properties utilizing Ethereum, owning the properties via the platform’s native RealTokens. Rental payments are provided weekly to investors using cryptocurrencies including USD, xDAI, and ETH. Access to the marketplace is currently only available to accredited investors in the U.S., though this could change in the future.
RedSwan is currently one of the industry’s largest tokenized real estate platforms. The company’s registered investment advisory (RIA) team directly manages two commercial real estate funds with $800 million of tokenized shares per fund. The platform also allows others to tokenize and list their properties, and, as of Q2 2022, listed 144 tokenized commercial real estate projects, including some that have sold out. So far, the firm has tokenized $2.2 billion in real estate, mainly focusing on multifamily projects in the U.S.
According to RedSwan, the firm has 30,000 accredited investors currently registered and plans to tokenize $4 billion of properties over the next few years. Unlike some platforms, RedSwan focuses on higher-end investors who want to invest between $500,000 and $1 million in tokenized properties.
SolidBlock is a tokenized real estate investment platform that allows fund managers to create ERC-20 tokens through securitized token offerings (STOs) that allow investors to purchase fractional, tokenized shares in real estate projects. These tokens can be engineered to ensure that each token’s value does not fall significantly below the property’s net asset value (NAV).
The platform permits fund managers to list tokenized properties or tokenized real estate funds on its marketplace, as well as to market and sell the tokens on their own. The platform focuses on making things easy for smaller real estate investors and suggests that managers split up their tokens on a per square foot or per square inch basis, allowing investors to make extremely small minimum investments.
SolidBlock’s marketplace is currently quite small, with 5 projects listed as of Q2 2022, including a fund flipping high-end residential real estate in London, a U.S.-based fund investing in drug and alcohol rehab centers, and a warehouse and logistics project in Kiryat Gat, Israel.
Blocksquare is a real estate tokenization protocol built on Ethereum and IFPS that allows users to partially or fully tokenize properties by creating up to 100,000 tokens. Blocksquare has a particular focus on partially tokenizing properties to add additional capital to real estate deals (along with traditional equity, debt, and preferred equity) for larger, institutional investors like investment funds, family offices, banks, public-private partnerships, asset managers, and large real estate developers.
Blocksquare also operates Oceanpoint, an open-ended DAO on the Ethereum blockchain that allows for the decentralized financing and ownership of real estate assets across the globe. Users can stake their properties for a minimum 6-month period to mint the BPST token and stake it to earn additional BST rewards. When users stake BST, they earn sBST, a governance token used by holders to make operational decisions for the platform.
After the minimum 6-month period, property owners can withdraw all their BSPT from the protocol as well as all earned BST, or leave the BSPT in the protocol and withdraw POINT tokens together with all earned BST. If the property owner opts for the second choice, they will need to begin paying the specific, proportionate amount of revenue the property is earning to Oceanpoint (paid in DAI), as per the corporate agreement signed at the time of tokenization.
If the asset owner withdraws BSPT, then Oceanpoint essentially does not have any claim over the economic rights of the real estate asset and the owner is free from any financial or legal obligations towards the protocol. Oceanpoint DAO owns economic rights to the property for a set period, including revenues, but does not own the property itself. Though the system is complex, utilizing 5 token types, BST, BPST, sBST, POINT, and DAI, it could potentially revolutionize real estate investing through a nearly fully-decentralized model.
Lofty AI is yet another tokenized real estate platform. Lofty AI is geared toward smaller investors and individuals wishing to list single-family homes as investments and has a minimum investment requirement of just $50. Token holders can vote on a variety of decisions relevant to the management of the property, including rent increases, repair requests, and other decisions. A 60% supermajority is required to make a final decision, with the message being sent directly to the property manager via a smart contract.
Since May 2021, $16.6 million in tokens have been invested on the platform. Tokens can be sold at any time, with no lock-up period, and token investors earn daily rental income. Potential investors buy tokens with U.S. dollars as well as the stablecoins $STBL and USDCa via Algorand-supported wallets (including MyAlgo and the Pera Wallet) as well as Algorand’s native cryptocurrency, ALGO. The platform also encourages users to take out collateralized loans on the partnered AlgoFi platform in order to maximize the number of Lofty tokens they can purchase.
Vave is a real estate tokenization platform and marketplace that allows investors to begin investing with as little as $10. Users can track and withdraw their income at any time, as well as fund their investments with PayPal, credit cards, debit cards, or crypto. The platform reports that average investors earn 9% APY on their investments, not including potential appreciation on the property over time. Currently, the marketplace is quite small, with only six properties listed on the company’s website.
As previously mentioned, blockchain and crypto aren’t just transforming the real estate investing process through tokenization, it’s also transforming the transaction process through easier real estate closings and other related real estate transactions. Some of the top blockchain companies in the real estate closing, services, and transaction space include:
Propy is perhaps the best-known blockchain real estate transaction firm on the market today. Propy conducted the first-ever blockchain-based real estate sale in 2017, making it the first mover in an increasingly competitive market. Propy helps users convert homes into NFTs, and automates the entire closing process through easy-to-use blockchain technology. Propy also has a native token, which, as of April 2022, had a market cap of over $109 million.
Like Propy, SmartRealty is attempting to revolutionize the real estate transaction process via blockchain and smart contracts. The company offers smart contract templates for all types of standard real estate transactions, including rental, purchase, and sale agreements. Smart contracts will generally include basic information such as payment due dates and required payments amount, agreement length, and non-compliance penalties.
Users can make smart contract rental or sale payments using U.S. dollars, euros, BTC, ETH, LTC, and a variety of other fiat and cryptocurrencies. These currencies are then converted to the platform’s native RLTY token and applied to the smart contract. Contracts can be programmed to terminate upon expiration, and can also be programmed to automatically serve notices in the event that one party has breached their contract.
Somewhat similar to SmartRealty and Propy, PropertyClub is another platform that facilitates the use of smart contracts for real estate transactions. However, in addition to helping users conduct digital real estate transactions using cryptos like Bitcoin or its native PropertyClub Coin (PCC), it also allows users to search for properties using its native marketplace.
Propy, which we’ve already mentioned, is currently the top real-estate-related cryptocurrency on the market today, and the only currency with a market cap above $100 million. The next largest real-estate-related cryptocurrencies include:
LAToken defines itself as “a blockchain platform that tokenizes and makes tradable assets ranging from equity and debt to real estate and works of art.” The platform, which announced its intentions to sell fractionalized real estate and other assets, however, has moved away from this market and appears to function as a typical crypto exchange, with a variety of trading pairs. However, it may move back to its traditional focus in the near future.
According to Cointracoin’s website “Contracoin was founded with one vision in mind. Make property ownership easily available to the masses.” Users can leverage their Contracoin as equity to purchase a property within the Contracoin network. Contracoin was specifically designed to facilitate international real estate transactions, focusing on facilitating investor transactions in countries including the U.S., Australia, China, Hong Kong, and India, where variations in international laws and regulations can make traditional transactions slow, cumbersome, and expensive, particularly due to bank transfer and legal fees.
The Contracoin project provides users a set of standardized Ethereum-powered smart contracts for property purchase, sale, and transfer, which will be recorded on Contracoin’s blockchain application. The project has a native wallet that supports BTC, ETH, USDC, and the project’s native Contracoin, which is an ERC-20 token. As of April 2022, the Contraglobal property network had 55 properties up for sale, including apartment/condo units, apartment buildings, and a hotel, which can be purchased in full or in a fractional capacity. Users can purchase Contracoin on Uniswap, Probit, and Coinbene.
ELYSIA is a DAO (decentralized autonomous organization), which focuses on the tokenization of real-world assets. The organization aims to reduce intermediary costs by facilitating peer-to-peer real estate transactions. ELYSIA’s partner project, ELYFI, calls itself “the first real-estate collateralized, decentralized lending protocol.” The project “provides digital asset loans by converting real estate into NFTs and using it as collateral.”
By staking into the ELYFI money pool, users can receive rewards and DAO voting rights. So far, the project has focused on providing microloans to large commercial real estate projects in ETH, BUSD, and UDST. As of April 2022, there is more than $3.3 million locked in the protocol. Users can currently buy the ELYSIA token on the MEXC, BTCEX, XT.COM, Bithumb, and BitGlobal exchanges.
The LABS Group defines itself as the first end-to-end crowdfunding service specializing in the real estate market. The website lists several hotel projects in Asia as crowdfunding investment opportunities, including the Arena Esports Hotel project, which is located at Bugis, Singapore, an e-sports focused hotel, as well as the Kuang Kunag resort in Indonesia, which has billed itself as the world’s first “NFT resort.” The LABS Group token was an ERC-20 token but has recently migrated to the Binance Smart Chain (BSC) token standard.
Like many of the other coins on this list, Breezecoin (BRZE), says its focus is combining traditional real estate assets with cryptocurrency. Breezecoin is an ERC-20 token with a fixed supply of 200 million. Breezecoin is specifically designed to allow holders to invest in the development of the Breeze de Mar family of resort properties. According to the company’s Medium page “Breeze de Mar is the successor of Akpinar Group, which is one of the rooted construction companies in Germany and has been serving the construction and real estate sectors on building commercial and residential complexes, as well as manufacturing areas since 1960.”
IHT Real Estate Protocol is the native token of the identically named IHT Real Estate Protocol, a project which attempts to match ordinary investors with token holders in order for property developers to issue asset token offerings (ATOs) for individual real estate projects.
According to the company, “Alt.Estate is a blockchain-based protocol for real estate tokenization and the platform for tokenized real estate asset exchange. Alt.Estate makes it possible to buy and sell tokenized real estate assets in a trusted, fast and smooth manner with instantaneous transactions and low transaction costs.”
Winco is a cryptocurrency designed to decentralize the fundraising and payment process for both startups and real estate investment projects alike. Winco hopes to reduce the cost of real estate transactions while potentially reducing the tax burdens of property sellers.
Unlike many of the coins and tokens on this list, the Rentberry token is more focused on real estate rentals and leasing, rather than the sale and purchase process. According to CryptoSlate “Rentberry is a decentralized long-term rental ecosystem utilizing blockchain technology which makes the rental process less costly and more convenient and secure. Rentberry Token (BERRY) is our proprietary cryptocurrency designed to facilitate a standardized global approach to the long-term rental process, with all transactions kept in a secure manner.”
Now that we’ve reviewed some of the top real estate coins and tokens, let’s discuss the role of blockchain and crypto in real estate lending and financing.
In the last few years, loans utilizing cryptocurrency as collateral have become commonplace, allowing investors to HODL their crypto while getting a significant amount of financing to spend however they like. However, the entrance of crypto home mortgages has been somewhat slower– but a few options have still emerged– and more options are likely to come onto the market in the coming months and years.
Milo is one of the most interesting crypto mortgage companies to enter the space. It allows users to utilize cryptocurrencies including BTC, ETH, and stablecoins as a downpayment for their home. Milo currently provides loans of up to 5 million with terms up to 30-years, allows users to finance 100% of their home with a crypto-collateralized loan, and offers highly competitive mortgage rates from between 3.95% to 5.95%.
The benefit, of course, is that if the price of the borrower’s chosen crypto asset increases in value more than the borrower’s mortgage rate, they will make the difference in profit. In addition, another benefit of Milo (and other crypto mortgages) is that investors will not have to sell their crypto assets and incur capital gains assets.
XBTO is another firm looking to enter the crypto mortgage space, though its initial focus will be far more constrained– it’s initially planning to offer Bitcoin-backed mortgages only to borrowers in Florida looking for more than $1 million of home financing.
Borrowers can borrow up to 100% of their home’s value by utilizing a 10% crypto downpayment. The company claims that its mortgages will be offered with 15-30-year terms with competitive interest rates.
Figure is yet another company that plans to begin offering crypto mortgages by mid-2022. Borrowers will be able to take out 30-year loans of up to $20 million and utilize BTC or ETH as collateral.
In the area of commercial real estate, well-known decentralized crypto lending facility MakerDAO recently funded one of the world’s first crypto real estate financing transactions, providing $7.8 million of financing to Tesla for a collision repair facility through an affiliate lender.
MakerDAO has a controversial and complex structure and operates two tokens, the MKR governance token, and the DAI stablecoin, which is backed by a treasury of Bitcoin, ETH, and USDC. By staking ETH on the Maker blockchain, lenders can mint the DAI stablecoin and offer under-collateralized loans in DAI, which can be converted to U.S. dollars on major exchanges.
In this sense, MakerDAO’s fractional reserve lending operation functions much like a miniature, digitized version of the U.S. Federal Reserve, though many questions have arisen about its legality, potential regulatory crackdowns, and the DAOs ability to keep the DAI stablecoin permanently pegged to the U.S. dollar.
Despite this, the Tesla transaction is likely to be just the first of many real-world real estate transactions funded by the platform, which will certainly provide the stress-testing MakerDAO needs to determine if its economic and legal structure is up to the challenge of financing real-world, non-crypto assets. If it succeeds, we may see other DeFi platforms begin to compete to finance real-world real estate, potentially being able to provide lower interest rates and fees compared to traditional banks and lenders.
While substantially different from the main content of this article, we would be remiss if we didn’t at least mention the staggering growth of the virtual real estate market. The two major metaverse real estate projects are currently Decentraland and The Sandbox, though other metaverse real estate projects like Upland, Somnium Space, and SuperWorld are quickly gaining ground.
So far, purchasing real estate in the metaverse has not had any discernible impact on the real-world real estate market, but this could easily change in the future. New platforms could potentially create greater links between the metaverse and the real world. For example, a user buying virtual real estate NFT in a game like Decentraland could potentially gain full or partial rights, or even income, to a similar piece of real-word real estate.
One company, The Metaverse Group, has even started a real estate investment trust (REIT) solely focused on purchasing property in the metaverse. The firm, which recently sold a 50% stake for $1.7 million to Tokens.com, plans to build a large portfolio of properties in Decentraland and other virtual land metaverses such as The Sandbox, Upland, and Somnium Space.
As with most other integrations of blockchain and tokenization into the real world, the real estate blockchain, tokenization, and crypto industries are still each in their infancy. While the future appears bright, major barriers remain before the technology will become widespread. As previously mentioned, tokenized real estate, perhaps the most valuable potential use of blockchain in the real estate industry, suffers from an incredibly illiquid market, almost no ability to trade assets between platforms, and a lack of institutional adoption.
In all likelihood, the explosion of tokenized real estate will only occur when larger-cap tokenized assets (such as REITs) can trade on major crypto exchanges along with major cryptos like Bitcoin and ETH. This will require either current institutional players or large VCs to truly believe in the potential of the fusion between these two markets, which could be a slow and arduous process. Of course, this process could occur from the ground up, as smaller startups gain ground by tokenizing hundreds or thousands of assets themselves, but this could take even longer.
Perhaps the second most important application of blockchain in real estate is the ability to conduct blockchain-based transactions to directly transfer property from owner to owner utilizing smart contracts in lieu of traditional paper or electronic agreements. There are, of course, still legal hurdles, including title searches and insurance, that may need to be overcome, but as these services also integrate blockchain, blockchain-based, smart contract-enabled purchase, sale, and leasing agreements are likely to become far more widespread.
The most theoretical, and perhaps the least practical combination of real estate and blockchain lies in the creation and proliferation of real estate cryptocurrencies. Unless these cryptocurrencies are backed by tokenized real-world assets or tokenized real estate loans (such as the creation of the aforementioned tokenized REITs), they mainly seem to act as disguised equity in small, yet-to-be-proven real estate startups. Unless a powerful, secondary function can be devised for these currencies, it’s unlikely that most of these real-estate flavored cryptocurrencies will be more than a passing fad.
Finally, it should be noted that real estate in the metaverse is getting hotter than ever. Much like real estate-related cryptos, it’s hard to tell whether this is a passing fad or whether metaverse real estate is a legitimate investment. So far, no connections have been made between real-world and metaverse real estate, but in the future, we’re likely to see the real world of “meatspace” and the metaverse begin to merge in ways we can only begin to imagine.
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