The DeFi industry has long been held up as the most successful aspect of the crypto industry, but that is no longer the case, as real world asset tokenization has finally surpassed the world of alternative borrowing, lending and staking.
At Consensus 2024, Chainlink co-founder Sergey Nazarov – a prominent supporter of RWA tokenization – revealed that the tokenization trend has now overtaken DeFi. The total value locked in RWAs was $160 billion at the start of June, compared to just $107 billion TVL in DeFi protocols.
The revelation suggests that tokenization, which has long been held up as one of the most intriguing use cases for blockchain and digital assets, is finally living up to the promises that have filled up hundreds of pages in the crypto media for years.
Tokenization expands
One reason for the growth of RWAs is that the industry finally appears to be diversifying away from its most prominent initial use case, which was stablecoins.
Cryptocurrencies such as Tether and USDC are the most successful RWAs, being digital representations of fiat currencies such as the U.S. dollar, holding exactly the same value as a $1 greenback, despite only existing as bits and bytes on a blockchain.
But RWAs have so many more applications. It’s possible to tokenize just about anything in the world that has tangible value, such as commodities, stocks and shares, fine art, luxury cars, and real estate.
The latter is especially promising because the real estate market has traditionally always been somewhat exclusive and characterized by a lack of liquidity. In order to realize the value held in a property, the owner has always been required to sell all of it in one go, and that process can take many months. It also means real estate is inaccessible to all but the richest investors.
With tokenization, real estate becomes accessible to everyone, enabling any individual to own a small share of a property, such as a mansion or a penthouse apartment. By eliminating the intermediaries, reducing the amount of paperwork involved, and lowering the cost of entry, real estate tokenization provides a compelling opportunity for any retail investor looking to diversify their portfolio.
How is real estate tokenized?
Tokenizing real estate means taking a physical property and transforming it into a digital asset that lives on the blockchain. It’s represented by thousands of tokens, with each one acting like a small piece of a much larger jigsaw puzzle. These individual pieces all signify a share in that property, and they live on the blockchain where their ownership can be tracked. Being on the blockchain also makes them quick and easy to buy and sell.
A luxurious beachfront villa in Bali, or a lush penthouse suite at a towering skyscraper in Manhattan can be sliced into thousands of tiny digital pieces. Tokenization unlocks the possibility of fractional ownership, making expensive real estate assets accessible to anyone, as opposed to before, when only high-net-worth individuals and investment firms could participate.
Benefits include a lower minimum investment and expanded investment options, because tokenized markets are truly global. Tokenization also brings massive amounts of liquidity into real estate markets, streamlines property management and increases transparency, while reducing transaction costs.
Real estate tokens take off
Real estate tokenization is no longer just a vision but a reality. According to Prophecy Market Insights, the global tokenized real estate market hit a value of $3.8 billion in early 2024 and is projected to grow at a compound annual growth rate of 2.9%, to reach $26 billion by 2034.
Investors can access tokenized real estate opportunities now through a platform such as Blocksquare, which has built both a platform and tools for tokenizing real estate, and a marketplace for trading them. The Oceanpoint.fi platform is designed to simplify the process of creating, purchasing, staking and managing the tokens that represent real estate.
Blocksquare has been quietly growing its marketplace, and in May it revealed that it now hosts a pool of more than $100 million worth of tokenized real estate. That pool consists of 118 different assets, including hotels, restaurants, healthcare facilities, apartments and even parking lots, which generate passive income for token holders.
Taking on the challenges
To get this far, Blocksquare has had to overcome some major challenges. Real estate tokenization has had to solve some complex problems before it could spark into life, including the lack of a regulatory structure that ensures token holders do, in fact, have legally recognized rights to the properties their tokens represent.
Blocksquare solved this by creating a complex legal structure that’s abstracted away behind its platform, so those tokenizing real estate or looking to invest in real estate tokens don’t have to concern themselves with it. Its process was recognized in the EU last year when it announced it had notarized its first tokenized property – a parking lot in Slovenia’s capital Ljubljana – through the EU land registry.
Pushing ahead
Having laid the foundations for a tokenized economy, Blocksquare is at the forefront of a monumental shift in the blockchain industry. No longer is it just an industry that offers promise – it’s offering practical and more-efficient use cases that will eventually transform the status quo in every financial market.
The value of tokenized assets is expected to grow immensely from here on out, and investors are already paying attention and showing a keen interest. For now, many kinds of tokenization do not fit easily within the existing regulatory frameworks that govern financial markets, but don’t expect that to slow things down.
Innovators such as Blocksquare have shown that it’s possible to push forward with tokenization no matter the regulatory landscape, illuminating the path for other markets to follow.
