Tokenized Real Estate

The Road To Revolution

Something big is beginning to happen in the less visited corners of the online world. A revolution is brewing, one that can easily flip the natural order of the past 200 years on its head.

As technology has advanced, natural and unnatural forces in our systems have caused a huge amount of centralization of capital. Tech giants absorb greater numbers of companies with each passing year, and large central financial institutions such as banks have continued their long-standing pattern of growth to dominate every facet of the economy.

Simultaneously, an opposing force has been rising that resists the tendency to centralize wealth and power: the cryptocurrency market. Cryptocurrencies, removed from the controlling influence of a centrally-defined financial system, have opened up the possibility of alternative means of raising funds to allow for a greater number of people to have access to wealth-generating assets.

These assets range from the purely digital, such as the cryptocurrencies themselves, to corporeal items such as precious metals, art, and even real estate. Each asset is divided into a set number of tokens that are tied to the value of the asset itself, which allows for a much smaller initial capital buy-in and a more liquid hold on the asset. This effectively democratizes the asset, providing access to buyers that either don’t have the means to buy the asset outright or are too afraid to make the investment in the first place due to a lack of liquidity.

With greater access to wealth-generating assets comes a greater ability to leverage the assets into further growth. As people purchase the tokenized assets, they can use the tokens as collateral to acquire more currency, which can then be used to purchase more assets, creating a self-sustaining financial ecosystem much like what we have in the legacy financial systems in use today. This is the main idea behind the quickly emerging Decentralized Finance industry, or DeFi for short.

Start ups in the decentralized finance space share many of the same hardships faced by more traditional companies, with the added hurdle of not having access to the investment institutions that create opportunities for explosive growth. Instead, they have to rely on smaller investments buying into their ideas, which makes it all the more impressive when one company manages to succeed in reaching investment targets.

One such company, RealT Real Estate, has managed to smash through the $1 million mark for number of real estate assets issued. The company has bought a number of different investment properties and distributed ownership via its proprietary tokens, each of which also grants access to monthly rental income. David Hoffman, RealT’s chief of operations, explains in his medium post marking the occasion:

“Investors from over 40 different countries have purchased and received ownership of 6 different real estate properties in the United States! This global set of real estate investors has produced demand for $1M in tokenized US real estate, and marches higher each month!

RealT investors are currently receiving a collective $350 in daily rental distributions generated from these 6 properties. That’s over $10,000 in monthly rental income passed to RealT property owners!

$1M of tokenized real estate assets on Ethereum means that there is $1M of value that is able to be leveraged by the various financial applications inside the Ethereum ecosystem. The growing pool of real estate assets on Ethereum offer DeFi applications a new source of value to tap into.”

This final point is important, as RealT believes that its fractional real estate tokens should play and important part in the expansion of the decentralized finance system:

“Applications like MakerDAO, Compound, and Uniswap have the largest $USD amounts of value in their respective systems from the products and services they offer to their users using the assets inside their application. Ether and Dai are the two most popular assets used inside of these applications, because they are the two native assets to Ethereum.

This produces an unfortunate chicken+egg problem:

-Applications on Ethereum need ETH to appreciate in price, so that they can access a larger market.

-In order for Ether to do become more valuable, Ethereum’s native assets need to become more useful to its users.

-ETH is the only asset that Ethereum applications can leverage.

RealT is attacking this problem head on. With now over $1M worth of Real Estate assets on Ethereum, the next step for RealT and DeFi is to get that value leveraged by Ethereum applications.

Uniswap proved the utility value of financial applications to digital assets on Ethereum. The next step in this journey is maximizing the integration of real estate and DeFi.”

Utilizing assets as collateral is going to become a much more common and important aspect of the decentralized financial system, as the tokenized assets are sheltered from the turbulent swings in value that currently characterize cryptocurrency markets. To put it simply: with companies like RealT providing safe havens for financial value, users can safely and securely use those assets as both investment vehicles and as a means to borrow more crypto to further invest in the DeFi system to make more money while simultaneously expanding the power and wealth of that system.

The road ahead will be bumpy and filled with moments of both great triumph and bitter disappointment. You can’t expect a smooth transition of power during a revolution, and that is undoubtedly what the decentralized financial system appears to be.