Bricks and Blocks: Exploring the Real Estate RWA Market

The concept of real-world assets ( RWA ) is not a new phenomenon in the cryptocurrency space; it has existed since 2018. At that time, asset tokenization and security token offerings ( STO ) had many similarities with today's RWA. However, due to an incomplete regulatory framework and a lack of significant potential return advantages, these early attempts failed to develop a mature market size.

In 2022, with the increase in US interest rates, the yield on US Treasury bonds significantly exceeded the lending rates of stablecoins in the crypto industry. Therefore, tokenizing US 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 the RWA sector.

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 multiple ways, enrich real estate investment products, and lower the barriers to real estate investment. This study will conduct case analyses of these projects to explore the advantages and disadvantages of real estate RWA design and its potential market. Since these projects primarily target the North American real estate sector, the relevant policies, regulations, and market conditions discussed will mainly 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. A study in March 2023 showed that the value of the publicly listed real estate market in North America reached $1.3 trillion, while the global publicly listed real estate market amounted to $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 diverse and flexible real estate investment products, to attract a broader investor base, and to enhance the liquidity and value of real estate assets. The main forms of these products typically fall into three categories:

1. Fragmented real estate ownership financing.

2. Specific Area Real Estate Market Index Product.

3. Real Estate Token for collateralized lending.

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

Real Estate Investment Trust ( REIT ) is a type of company that holds profitable real estate and manages or finances that real estate. REITs provide investment opportunities similar to mutual funds, allowing ordinary investors to earn real estate investment income and total returns akin to dividends, and contribute to the growth of the local real estate market. REITs and real estate RWA have many similarities in providing fragmented property investment opportunities, as they both effectively lower the investment threshold and enhance the liquidity of real estate assets. However, traditional REITs typically do not provide management opportunities or ownership for investors, maintaining a centralized operating model. Nevertheless, their scrutiny of assets, operations, and investment structure 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 insights into their advantages and disadvantages.

Generally, real estate RWA projects have the advantages and disadvantages mentioned above. However, upon深入研究具体案例时, it is found that due to differences in management and product approaches, each project encounters different actual circumstances during the operation process.

Case Analysis

This chapter analyzes three Real World Asset (RWA) projects in real estate. Each project adopts a different approach to tokenizing the real estate market and is representative in its respective field. It should be noted 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 via Ethereum and Gnosis (.

RealT purchases residential properties and tokenizes the properties held in accordance with U.S. regulations. The responsibilities for the management, maintenance, and rent collection of these properties are entrusted to a third-party management agency. After deducting fees, the rent generated from these properties is distributed to its token holders. While RealT is responsible for the tokenization process, they are legally isolated from the companies holding the real estate assets. As stated on their website, if the company defaults, token holders have the right to designate another company to manage the held properties. However, it is worth noting that the agreement does not mandate RealT's involvement in the investments for the property tokens they bring to market. Users who hold 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.

![Bricks and Blocks: A Study of Real Estate Projects in the RWA Market])https://img-cdn.gateio.im/webp-social/moments-361cf484908c28bf10ec4eb5a951dcac.webp(

Taking a property in Montgomery as an example, the total value of the real estate tokens is $323,020, with a price of $52.10 per token, 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, amounting to an annual total of $23,736. Therefore, each token receives a distribution of $3.83, resulting in an annual profit rate of 7.35%.

For this property, RealT has provided 100% of the tokens to the market, which means that RealT does not need to co-invest with clients and maintains an almost risk-free model for operation. The management agency receives 8% from the rent and the remaining portion from maintenance fees, while the investment platform charges a fee of 2% solely for tokenizing the property, selecting the management agency, and supervising the management. Through this method, the RealT team can save a significant amount of management time, focusing on finding qualified properties and tokenizing them on 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. Reports have explained the conflict of interest between real estate token holders and RealT. RealT chooses a management agency to manage its owned properties; if RealT has a significant ownership of the properties, they will strive to reduce management costs, as poor management 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 secondly, the small shareholders of the properties 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 extremely 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 agencies.

By examining the latest sold-out ten property tokens on the RealT market and using relevant blockchain explorers to find out how many holders each property has. RealT divides the properties into different amounts 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.

![Bricks and Blocks: A Study of Real Estate Projects in the RWA Market])https://img-cdn.gateio.im/webp-social/moments-aa31bab48551a8779f9d393bb64e445c.webp(

About 90% of RealT investors invest less than $500, approximately 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 a certain 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, approximately ranging from 2.5% to 3% of the rent, which amounts to about 150K to 180K dollars in platform revenue over the past two years. However, since RealT is not required to participate in real estate investment, and if it chooses to participate, there are no specific limits or guidelines on the extent of its involvement, the profits RealT earns from rental income remain unknown.

From the perspective of corporate 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 serves solely as the operational entity for the RealT project. Additionally, RealT also established Real Token LLC in Delaware as the parent company for 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 processes, allowing users to invest in all properties by only signing a contract with 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 of one property do not affect the operations of other properties or the parent company under RealT.

![Bricks and Blocks: A Study of Real Estate Projects in the RWA Market])https://img-cdn.gateio.im/webp-social/moments-4f0cded6a5d231d49ba59ab808fed894.webp(

) Parcl

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

This method, due to the absence of actual real estate transactions, allows Parcl to avoid legal issues involved in the operation of real estate. You might also question whether it truly qualifies as a real estate RWA project since it does not meet the aforementioned criteria. However, it is a relatively popular RWA project that has attracted investments from many well-known companies, and its uniqueness makes it reasonable to include it in discussions about the diversification of real estate RWA products.

![Bricks and Blocks: A Study of Real Estate Projects in the RWA Market]###https://img-cdn.gateio.im/webp-social/moments-03fb37d3a9ba3003021b1332a31a470b.webp(

Parcl's testnet 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 not attracted much attention, with a daily trading volume of less than 10,000 dollars and fewer than 50 daily active users.

Parcl's products are easy to use and upgrade quickly, with Parcl Labs price providers and index market designs being relatively mature. In terms of operations, the Parcl team actively launches 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 perhaps somewhat proves 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 direction of real estate RWA. A company announced in July that their central bank digital currency team is trying to support users in tokenizing real estate and using it for mortgages. Other companies are also collaborating with various parties to support real estate mortgage lending. RealT also offers the option of using 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 a token lending product 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 products related to real estate RWA that are worth mentioning.

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 an SPV, which is a subsidiary created by the parent company to isolate the financial risks.