Current State of RWA Protocols: Real Estate | TKX Weekly

6 min readJun 4, 2023

Intro

Real estate has always been considered one of the most valuable assets in the world. However, owning real estate can be expensive and difficult to liquidate, which limits its accessibility to investors. This is where real world asset (RWA) protocols come in. RWA protocols allows investors to hold fractional shares in RWAs. In this article, we will explore four real estate RWA projects — RealT, Tangible, Lofty AI, and ELYFI Protocol.

RealT

RealT is a pioneering platform that focuses on creating a DeFi market centered around fractional ownership of US real estate properties. Through RealT, investors can gain exposure to real estate investments without needing to own an entire property. Simultaneously, real estate owners can sell fractional shares of their properties, allowing them to diversify their holdings beyond complete ownership.

To turn a US real estate property into an RWA digital token, its value is formalised off-chain by obtaining a third-party property valuation, establishing ownership through a deed, and defining a clear process for scenarios like rent non-payment or foreclosure.

Once the property is formally structured, its information is bridged onto the blockchain by tokenizing, securitizing, and transmitting the property information using oracles. RealT tokenizes shares in an LLC that holds the property’s deed, adhering to the ERC-20 standard. To ensure compliance with US securities laws, RealT uses KYC technology for legal onboarding of investors and sellers. Oracles provide fair market values to RealT’s DeFi application.

RealT creates and lists new RWA offerings on their protocol to meet investor demand. Their approach to fractional ownership of US real estate properties through tokenization and DeFi presents opportunities for investors and property owners.

Tangible

Tangible is an ecosystem for tokenized real-world assets. The protocol offers users access to tokenized and fractionalized RWAs through their marketplace. Real USD, a native yield stablecoin backed by real estate, is utilised by the ecosystem.

People can use Real USD to purchase valuable physical goods from the world’s leading suppliers. Upon purchasing an asset listed on Tangible, a TNFT (“Tangible non-fungible token”) is minted, representing the physical item. The physical item is then sent to one of Tangible’s secure and insured storage facilities, and the TNFT is sent to the buyer’s wallet.

At any time, the owner of the TNFT can redeem it for the physical item, transfer it to another wallet, or sell it on Tangible’s marketplace. The TNFT is a liquid, tradable, and redeemable asset, represented by an on-chain NFT.

Real USD (USDR) is a natively rebasing, yield-bearing, overcollateralized stablecoin pegged to the US dollar. USDR is primarily collateralized by tokenized real estate that generates yield. Real USD is backed by:

50–80% Tangible Real Estate NFTs (percentage increasing over time with market cap)
10–50% DAI (decreasing over time based on redemption projections and real estate allocation)
10% TNGBL (TNGBL can mint USDR 1:1 up to 10% of the total amount of minted USDR minus USDR redeemed)
10–20% protocol-owned liquidity (USDR — 3pool on Curve)
5–10% insurance fund

The current yield of Real USD is 17.5% (Real USD: 7.50%, TNGBL: 10.00%)

Lofty AI

Lofty AI is a platform that allows anyone to invest in real estate for as little as $50 through tokenisation on the Algorand blockchain. They use AI and market indicators to vet properties, offering low fees and increased liquidity. With Lofty AI, users can easily become real estate owners and earn rental income.

Lofty operates as a marketplace where buyers (token investors) and sellers (property owners) interact. Sellers submit their properties for approval, and once approved, the property is placed under contract by a DAO LLC and tokenized on the Algorand blockchain. A professional property inspection is conducted, and the property is listed on the Lofty marketplace. Once fully funded, the DAO LLC closes on the property, and the deed is transferred to the new DAO LLC. Lofty provides transparency by making all property data publicly available, including inspection reports and appraisals. They collaborate with various parties, such as real estate agents and wholesalers, to source deals for their marketplace.

ELYFI Protocol

ELYFI Protocol is a decentralized finance (DeFi) platform that aims to bridge traditional finance with blockchain-based solutions. It tokenizes real-world assets, starting with residential real estate and expanding to e-commerce receivables, to provide opportunities for DeFi users. Borrowers can access loans backed by tokenized assets, while liquidity providers can earn interest in a secure and transparent environment.

ELYFI Protocol enables the tokenization of real-world assets, including residential real estate and receivables like e-commerce receivables. This allows asset owners to raise capital efficiently, while offering DeFi liquidity providers access to diverse real asset investments.

ELYFI sources receivables from reputable Korean financial institutions. The tokenized assets include apartment collateralized P2P principal receivables, physician future receivables, e-commerce receivables, and mortgage loans. Tokenization is done through Non-Fungible Tokens (NFTs) that provide detailed information about each asset, enhancing transparency and understanding for liquidity providers and improving overall platform efficiency and security.

Thoughts

Real World Assets (RWA) protocol and Decentralized Finance (DeFi) have emerged as innovative solutions for unlocking value in the real world. When it comes to real estate, RWA protocol enables investors to hold fractional shares in property ownership. At the same time, DeFi opens up a new realm of possibilities for financing, lending, and trading these assets.

However, the nature of RWA and DeFi has also created conflict, particularly for real estate RWA projects. RWA tokenization faces trust challenges as the process happens off-chain and lacks the enforcement of smart contracts. This means it depends on traditional financial institutions for endorsement, and RWAs may not have the same level of trust as crypto-native assets.

Fully permissionless DeFi protocols also struggle to support RWAs due to these trust issues. Therefore, current RWA tokenization projects often involve centralized entities that play a major role in managing and influencing RWA assets. This centralization re-introduces traditional gatekeepers and raises questions about the true decentralized nature of DeFi.

Despite these challenges, RWA and DeFi hold great potential for creating more inclusive and accessible investment opportunities. Blockchain technology has made it possible to create security tokens that represent ownership in real estate assets. RWA projects benefit from lower transaction costs, greater transparency, and increased liquidity. They also offer fractional ownership which enables investors to diversify their portfolios.

The key to overcoming the challenges of RWA and DeFi is to strike a balance between centralization and decentralization. This means creating protocols that have some level of trust and oversight while still maintaining the advantages of decentralization. In doing so, we can unlock the full potential of RWA and DeFi in real estate, and create a more open and transparent financial system.

Reference

https://research.binance.com/static/pdf/real-world-asset-report.pdf
https://www.tangible.store/
https://docs.tangible.store/
https://docs-v2.elyfi.world/
https://learn.lofty.ai/en/
https://realt.co/

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