Real Estate Tokenization: A New Driving Force and Technological Innovation in the RWA Field

The real estate industry occupies an important position in the global economy. According to data, the global real estate market size is expected to reach $634.90 trillion by 2024, growing at a compound annual growth rate of 2.77%, and is expected to reach $727.80 trillion by 2029.

However, the traditional real estate industry has many problems, such as cumbersome transaction processes, excessive reliance on intermediaries, and high fraud risks. The emergence of blockchain technology provides new ideas for solving these problems. Through innovative technologies such as distributed ledgers, smart contracts, and dynamic NFTs, blockchain is expected to simplify the property transaction process, enhance security, and create more convenient opportunities for global investors.

In the future, with the development of blockchain and artificial intelligence technologies, real estate transactions may significantly shorten in time, potentially even being completed in one day. These innovations will fundamentally change the industry landscape through automated processes, increased transparency, and efficiency. The trends of financialization and disintermediation will bring the liquidity of real estate assets closer to that of the stock market.

Challenges Facing the Traditional Real Estate Industry

1. Finding suitable buyers and sellers takes a long time: Buyers and sellers find it difficult to obtain accurate and complete information, overly relying on intermediaries, which increases the complexity and uncertainty of transactions.

2. Complicated intermediary process: Involves numerous stakeholders, such as buyers, sellers, intermediaries, banks, lawyers, and government agencies. Each stage requires a significant amount of paperwork and verification procedures, resulting in a cumbersome and time-consuming process.

3. Heavy operational workload: Due to the lack of programmability in real assets, a large amount of manual operations is required to ensure the execution of contracts, transactions, payments, etc.

4. High security risks: prone to fraud, data breaches, and other security issues. According to data from the FBI, 9,521 real estate-related complaints were received in 2023, resulting in losses of up to $145 million.

Solutions Brought by Blockchain Technology to the Real Estate Industry

An innovative product launched by a real estate technology company allows users to mint digital addresses and contracts for real-world properties, aiming to put 1 million home addresses on the blockchain by 2025. The product also includes an AI-generated landmark NFT minting and staking mechanism, designed to create a gamified experience that makes home ownership more convenient, secure, and interactive.

Dynamic NFT Technology

Dynamic NFTs are a way to tokenize real estate assets. Owning an NFT is equivalent to owning the property, and transferring the NFT signifies a change in property ownership. Dynamic NFTs can automatically update key data, such as home improvements, renovations, and historical sales information. Over time, dynamic NFTs become increasingly useful, for example, by saving images or videos of the property at different periods to showcase its condition changes.

This product utilizes dynamic NFT technology and is divided into three levels:

• Level 1: Users perform basic address minting to prove asset ownership.
• Second level: Upload proof of property ownership documents to ensure that the contract is not tampered with, enhancing security.
• Level Three: Accelerate the buying and selling process by using NFTs as collateral to achieve 100% RWA.

Simple Real Estate Tokenization

Representing a single property as an NFT means that owning the NFT is equivalent to owning the property. Transferring the NFT signifies a change in property ownership. The NFT can contain key data such as past sales records, address, etc. In theory, selling a house could be as simple as listing it on the NFT market, with buyers able to complete the purchase in just a few clicks.

In 2022, the first real estate-backed NFT in the United States was sold on a platform for over 653,000 USD in ETH.

Further tokenization: Dividing real estate assets

Use fungible Token (FT) to achieve fractional ownership of real estate. Each Token represents a specific percentage of ownership in the property. Owning all Tokens is equivalent to owning the entire property. This approach enables investors to build a customized real estate portfolio, while potential homebuyers can gradually achieve their goal of living in and owning their ideal property.

tokenization of real estate cash flows and asset baskets

Property owners can separate ownership from cash flow ownership. Cash flow rights (such as monthly rental income) can be sold in whole to other parties for a specific period. In addition, a basket of real estate assets can be created, represented by fungible Tokens, collectively representing multiple properties and cash flows, enabling automatic distribution of profits to Token holders.

Case: A Real Estate Technology Company Collaborates with an Oracle Network

In April 2024, the real estate technology company integrated automation features on a certain network for distributing staking rewards. As of September 14, a total of 276,284 addresses have been minted.

The automation feature allows developers to automatically execute critical on-chain functions at specified time intervals or in response to external events. This highly reliable, high-performance, and decentralized automation can quickly process transactions even during periods of network congestion.

This collaboration brings multiple benefits to real estate technology companies:

• Cost savings: Eliminate internal automation infrastructure costs and reduce DevOps resource requirements.
• Accelerated Expansion: Avoid the challenges of building and maintaining multi-chain automated infrastructure.
• Unlock new use cases: Achieve more innovative features.

Challenges and Future Development Trends of Tokenization in Real Estate

Regulatory and User Challenges

1. Regulatory Compliance: Projects must comply with the laws and regulations of different jurisdictions.
2. Technical challenges: Issues such as liquidity, market infrastructure, data security, transparency, standardization, and interoperability need to be addressed.
3. User Education: There is a need to help real estate professionals and ordinary clients understand the application of blockchain technology in the real estate field.

RWA track development trends

1. Diversification of asset classes: extending to commercial real estate, industrial real estate, real estate financial assets, tokenized funds, etc.
2. Scalability Enhancement: Incorporate DeFi elements such as staking, re-staking, derivatives, indices, and hedging strategies.
3. Expansion of asset scope: Future possibilities may include products such as commodities, artworks, intellectual property, and even ETFs/ETPs.

With the development of technology and the popularization of applications, the speed of real estate transactions will be significantly enhanced, with the potential to complete transactions within a day. The digital transformation of asset management will accelerate, such as the popularization of warehouse information management. The trends of financialization and disintermediation will bring the liquidity of real estate assets closer to stock market levels, driving the industry into a new stage of development.