The tokenization of real world assets (RWA) is garnering a lot of attention. We are going to see trillions of dollars rolling in over the next half decade into these assets. It is going to take cryptocurrency from something on the fringe to mainstream.
We have recently discussed what is occurring with Wall Street institutions. This is not to be outdone by startups. There are many companies working on different asset classes globally.
One of the major areas of focus is real estate. The reason for this is simply due to the fact that it is an enormous market. It is also very slow and difficult to enter.
Tokenization changes this completely.
In this article we will dive into it and see why the tokenization of real estate is going to change the world.
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The Tokenization of Real Estate
Anyone who paid even the slightest bit of attention realized that real estate prices shot up over the last few years. This has generated a huge amount of wealth, for those fortunate to own property.
For the rest, it is nothing more than a loss since rents, for the most part, have kept pace. This means the boom in real estate was simply a more costly proposition against the household budget.
Tokenization seeks to change this.
The process holds a great deal of potential simply due to its inclusive nature. Many are excluded from the real estate market due to the high cost. Even though most properties are purchased with a mortgage, it is still difficult for people to quality, let alone keep up with the payments.
What is being constructed will enable billions to potential enter the market. Here is where a radical shift can take place.
After all the key to wealth generate is asset ownership;.
Fractional Ownership
At the core of this is fractional ownership. Essentially, we are looking at taking a property and smashing the ownership into lots of little pieces.
This is already being done by some companies. One that is already involved is Blocksquare. This firm has already tokenized over $100 million in properties.
A simple explanation of the process shows how powerful this is:
The first step is to tokenize the property on a blockchain. It is then offered out in the form of tokens, with them using BSPT (Blocksquare Property Tokens). Each property has 100,000 BSPT.
People from around the world can enter the market by simply purchasing some of the tokens. Smart contracts handle things such as rent collection to distribution of proceeds.
Early Stages
Blocksquare is used as an example. Whether this company ends up succeeding or not is not the main point. I am making no claims about the firm or its services.
What is crucial is the concept. This is not an isolated case and will become more common as time passes.
The global real estate market is worth an estimated $300 trillion. It has one that has a history of trying to reduce risk. The entire mortgage backed security market, both commercial and residential, shows this.
Tokenization achieves the same outcome.
By having fractional owners, the risk is spread among a large number of people. At the same time, an investor is able to reduce his or her risk by buying tokens in different properties. For example, instead of buying 100K tokens in one property, why not buy 1 token in 100K properties? With automation and AI, the ability to track this is likely possible.
The point here is even an individual can then engage in risk mitigation. If one areas suffers a downturn, there are others that are moving in the opposite direction.
This is something that is just getting started. Naturally, there are going to be massive regulatory hurdles. Here is where Gensler's SEC is going to be slow to adopt. Nevertheless, as shown, this will take off in certain areas, especially in the Asia Pacific region, which is expected to see massive growth over the next couple decades.
Ultimately, this is going to be an enormous opportunity for billions of people around the world. It simply is another example of the impact of tokenization.