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“Before you start trying to work out which direction the property market is headed, you should be aware that there are markets within markets.” - Paul Clitheroe
Since the emergence of the pandemic, the central banks are printing money to support deficit funding worldwide. The power to create money is also destroying the value of money and leading us towards inflation. The recent macro-economic developments have changed people’s perceptions about different asset classes. Cryptocurrency as an alternative asset class has outperformed traditional assets like stocks or bonds. Real estate is also an alternative asset class but its true value was not unlocked due to high entry barriers whereas it was always a great inflation hedge. is one project that is trying to solve this problem.
The real estate asset class is generally of two types – commercial and residential. A residential property can be single-family homes, condominiums, townhouses, multi-family properties, vacation homes etc. Commercial real estate refers to any income-generating property. It can be a multi-family property that has more than one tenant. It can be retail space in a mall, office, self-storage facilities for renting space to tenants, hotels, lands or industrial property. Owning income-generating real estate is a viable and sustainable strategy for putting your money to work.
Entering into real estate is really difficult, unlike other asset classes. Although real estate can create wealth more consistently, it has remained outside the reach of common people. Singapore based MNC bank DBS issued a USD 11.3 million digital bond in its first security token offering (STO) earlier this year via its digital exchange but only institutional and accredited clients could take part in it. What if we tokenize real estate? Tokenization of real estate is the process to create a virtual token representing ownership of a type of real estate and many projects have tried to do in the past. A real estate token can be tied to the value of a real estate property effectively.
Tokenization of real estate can help to unlock its true merit. The tokens are backed by physical assets, so the value of the tokens will vary according to the market price of the related real estate. With the help of blockchain technology, the tokens can be accessible to the masses. It can solve many problems of accessing real estate.
Property searching: Searching for real estate is a tough job. Although there are many online marketplaces, their penetration is location-specific. Tokenization will allow the sellers to reach huge buyers across different geographic locations immediately.
Low entry barrier: Property ownership can be divided into many pieces due to tokenization. People with small capacities can easily buy such tokens. Buying such tokens is also very hassle-free.
Liquidity: Buying or selling real estate is a cumbersome task and it takes a lot of time. The legal process itself is very lengthy. The minimum transaction size of real estate trading in the physical world is one property. Tokenization helps to bypass the middleman during the ownership transfer process while allowing fractional ownership and the quick transfer method in the virtual environment makes the asset very liquid.
Proof of ownership: Proof of ownership is established in the real estate sector through legal documents. Tokenization uses blockchain technology and transactions get recorded on the blockchain. Owning a token can be the verifiable proof of ownership and ownership claims can easily be addressed due to this feature.
Composability of assets: Real estate is not a composable asset class. Getting a loan against real estate often requires a lot of documentation and time. It is always difficult to leverage your property for high yield in case of need. The potential of the asset is never tapped truly. DeFi has obtained astounding success recently. Tokenization will allow real estate owners to take benefit of DeFi yield. Collateralized loans, Futures etc. will become easy with tokenized real estate.
In 2017-2018, many projects popped up with the idea of real estate tokenization amidst the ICO mania but none of them succeeded as they could not cross the regulatory hurdles. Some of them could not even link the property deeds with the tokens and some of them failed to create sufficient liquidity in the secondary market. The market situation has changed a lot recently. Blockchain technology has got more acceptance and DeFi has generated permissionless secondary market creation opportunities now. CitaDAO is a project that had been working for a long time to develop a legal structure to link the property deed with the tokens and an easy redemption process. Their team has people from real estate and top web2 startups. The idea was to create a DeFi platform for yield farming powered by the global real estate sector.
CitaDAO’s tokenized real estate platform is launching soon. It will use blockchain technology and the power of DeFi to make tokenized real estate accessible to everyone. The project is mainly focusing on commercial real estate. The valuation of the properties will be published in regular intervals to maintain transparency and professional property managers will manage the income-generating properties. The platform will be launched on Ethereum blockchain and the Layer 2 integration plan is also there to attract cost-savvy retail customers. The project aims to be the first platform to allow the redemption of tokens for actual property and provide legitimate ownership.
The real estate tokens will be issued as ERC20 tokens with the right to trigger a buyout of the property. In case of a buyout of the property, the holder will get ownership of an NFT that will give the right to redeem the title deed of the property. The ERC20 tokens can be traded freely in the AMM (Automated Market Maker) based DEXs and the buyers can take part in the liquidity mining of CitaDAO token by providing liquidity in several pools. CitaDAO token will be the governance token of CitaDAO platform and the holders of the token will be able to vote and take part in the protocol decision making process. 40% of CitaDAO governance token supply will be distributed to the early adopters via liquidity mining incentives and 15% will be distributed via community-building initiatives. Smart contract security is a key area for the success of a DeFi platform. CitaDAO plans to have thoroughly audited smart contracts to ensure the security of the participants’ funds.
CitaDAO’s genesis (Introducing Real Estate On-chain) will be held on Jan 7, 2022. The project has lined up a total of $240m worth of real estate for tokenization by Q4 2022. There is no plan of whitelisting to participate in the IRO and anyone can take part. The problem with DeFi is that the TVL (total value locked) is quite alienated from the real world. The underlying collateralized assets often can not be trusted and the yield is calculated in terms of some tokens which lose value over time. Tokenized real estate will help to bring real-world assets to DeFi and generate ‘real yield’. Reinventing the potential of the real estate sector with help of DeFi can surely be a game-changing concept. The team of CitaDAO seems to be quite prepared with their ambitious plan. The next generation business is going to be DAOfied and CitaDAO aims to ride the tide by being an early mover in this field.
Check out CitaDAO if you have any queries!
Note: The cover image source is . The article was first published
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