The senior executives of the four major RWA projects discuss the application and development of real estate tokenization

The core content of this AMA discussion revolves around the advantages and potential of real estate tokenization. The guests shared their initial motivations for entering this field and looked forward to the immense potential of real estate tokenization in reducing investment barriers, increasing liquidity, and providing passive income.

Additionally, the seminar delved into the challenges and opportunities facing the development of real estate tokenization. The guests shared their insights on market acceptance, legal structures, regulatory environments, and future development directions, emphasizing the importance of education and collaboration in promoting the widespread adoption of this technology.

• AMA English Original Link
• Below is the Chinese transcript of this AMA (compiled with the assistance of RealtyX community Buidler: Sanqing).

AMA Chinese Summary

Defactor (Anastasia): Hi everyone! It's great to hear your voices. My name is Anastasia, and I am the Growth Director at Defactor. Today, we are hosting this discussion on Twitter Spaces, focusing on real estate tokenization. This is a very hot topic, and many people are eager to tokenize their properties or invest in tokenized properties globally.

Today, we are honored to have three excellent speakers: Alan from RealtyX, Parv from Estate Protocol, and Alan from Libertum. I would like to start by understanding how you all initially got involved with digital assets and entered the realm of real estate tokenization.

Libertum (Alan): Like most great ideas, this one started with a simple conversation. A few months ago, my co-founder Javvad and I discussed the rising interest rates around the world for various reasons, the impact of the COVID-19 pandemic, and the broader geopolitical environment. These factors are driving changes in interest rates, affecting us and those around us.

From there, we talked about the loan-to-value ratios offered by banks for the commercial real estate we purchased. In fact, if you want to buy commercial real estate, you typically can only get 60% of the loan value. This means you have to pay the remaining 40% out of your own pocket. Imagine a property worth one million dollars; you need to pull out $400,000 from your savings, which is almost permanently locked until the asset is sold.

I think both of us have always been fans of several RWA projects, but we got tired of waiting, so we decided to develop a solution ourselves. Ultimately, tokenization is a technology that can solve many problems, whether it's unlocking capital or providing passive income for investors. Once again, tokenization makes it easier for everyone to access real estate.

Thus, we had a conversation around the common concerns in the real estate industry and realized we could make a real change in this field. We started this project based on our beliefs and initiatives, believing that tokenization could bring substantial improvements.

Defactor (Anastasia): Yes, that sounds like a typical entrepreneurial issue or journey. So, Jade and Parv, did you both start working in real estate in Dubai? Why choose Dubai? Why that market? How did this happen? Parv, maybe you can start with this question?

Estate Protocol (Parv): As Alan mentioned, real estate is the largest asset class globally, and many people's livelihoods depend on it. However, it is becoming increasingly out of reach, turning into an unattainable dream for many, especially young people. Moreover, saving for a down payment is not as easy as it used to be. For various reasons, the supply of new homes in many places is restricted, making housing prices unaffordable for many, particularly young people.

But for me, my journey into this field is somewhat different. I grew up in a working-class family in India surrounded by wealthy people. I noticed that they were either working hard to make money or investing their money in real estate. This is also a broader phenomenon in Asian culture, which you might have seen in Hong Kong. Real estate as an asset class is very important to Asians. So I always knew that at some point, I would want to do something in real estate.

In my teens, I became fascinated with cryptocurrency. Five years before I had a bank account, I already had a crypto wallet. I worked as a trader, a writer, and did many jobs in this industry. During the first COVID-19 lockdown in 2020, an art group in the Netherlands asked me to write an article explaining the significance of NFTs for the art world. While writing that article, I suddenly realized that this technology is very suitable for digitally representing assets like real estate, as they are often non-fungible. For example, even apartments in the same building can have different pricing due to non-fungibility.

Since then, the platform has evolved a lot. We no longer use NFTs and are no longer related to ERC721. But that was the starting point of this little research. Since then, I have shown the white paper to some industry peers, and they advised me to take the legal issues seriously. So, I spent a lot of time on that. After about two years of research, we launched the first batch of properties in Dubai this year, and the first few listings sold out quickly. Now, we look forward to advancing all the possibilities that arise. When you tokenize something like real estate, you essentially open up a lending market. We are doing some interesting work there.

Defactor (Anastasia): Thank you for sharing. Jade, it's your turn.

RealtyX DAO (Jade): Actually, my entry into the real estate RWA and RealtyX space was for somewhat different reasons. While I agree with Alan that the real estate industry needs significant reform and, like many Asians, I am passionate about investing in real estate, I initially entered the Web3 world as a content writer, collaborating with nearly a hundred crypto projects to help them develop content marketing strategies.

However, I found that most of these projects lacked real value support, did not provide practical real-world applications, and could not genuinely empower users or create value for the ecosystem. It wasn't until my friend Bill, one of the co-founders of RealtyX, shared his vision for real estate RWA with me that I had an epiphany.

I believe RWA is a great way to bring real-world value into the crypto space, making the entire ecosystem more sustainable. So, that was the catalyst for my journey into RWA and RealtyX.

Defactor (Anastasia): Thank you very much for your sharing!

Tokenization indeed brings greater accessibility to specific assets, which is what makes it appealing. Real estate, as an asset class familiar to the public, naturally becomes a hotspot for tokenization exploration. What are your thoughts on the market's acceptance of tokenized real estate? Where do you see opportunities and obstacles in delivering such products to the market? Parv, you start.

Estate Protocol (Parv): I believe that professionally managed real estate, where the owner is not the resident, has great potential for financialization. Short-term rentals, investment residential properties, commercial real estate, etc., are likely to be the first to achieve tokenization because people have direct economic incentives.

When it comes to real estate tokenization, you are trying to combine an industry that is typically risk-averse with the highly risk-tolerant world of cryptocurrency. There is a huge difference in risk tolerance between these two groups. Every real estate tokenization company globally is studying demand issues, trying to bridge this gap. We have some interesting solutions, and Estate Protocol will have some attempts to address this issue.

I believe solutions will emerge, especially after the launch of the real estate lending market, where yields will be more attractive to crypto enthusiasts accustomed to high returns, but it will also bring real estate-level risks. Therefore, in a few months, mortgage-layer assets and DeFi may be replaced by similar things first, as that makes the most sense in terms of risk-return.

Defactor (Anastasia): Very good! Alan, what are your thoughts on the obstacles that real estate tokenization might encounter?

Libertum (Alan): I completely agree with Parv's perspective. Your question has two aspects. First, regarding market readiness, I think bridging the gap that Parv mentioned is where we are all working together. It depends on what market you are referring to. Our vision is to have a QR code outside every building that passersby can scan to invest in reality instantly. But again, I think it depends on your target users. I believe the Web3 community is ready. Our Libertum community is very excited and ready to dive into this space.

In fact, many of our investors want to tokenize their assets. Institutional investors familiar with REITs have already realized the efficiencies that can be gained through tokenization. So I think they are ready. But the bridge that Parv mentioned is a problem we are all trying to solve. I think lending protocols are one way we can achieve this goal, such as the various solutions provided by Defactor. But I believe many obstacles are inherent to any innovation curve. It really depends on how we will climb this curve.

The reality is that regulation is largely lagging, so I have a love-hate relationship with regulation. In many ways, consumer protection is crucial. We have a very clear and explicit approach to obtaining securities licenses, complying with regulations, and protecting investors as core principles.

On the other hand, there is an old saying that all processes and new technologies equal expensive old processes. I think this indicates what is happening right now in the regulatory landscape. I do believe that regulation will evolve to more accurately represent blockchain technology. But we are not there yet. So, there is still a lot to do. I think education will play a key role. Obstacles like this will actually only help adoption, allowing them to continue coming into this space.

Defactor (Anastasia): Okay, we are definitely all working together to educate this field. I want to return to the issue of legal frameworks and jurisdictions in a few seconds, Alan. But before that, Jade, do you have anything else to add? I know we talked about many borrower loan issues. Regarding DeFi, do you want to discuss the opportunities or obstacles of tokenized real estate?

RealtyX DAO (Jade): Parv mentioned the current user profile of Web3, which is very worth discussing. To be honest, most users in Web3 come here to get rich quickly and do not have a true long-term vision, which is why meme coins are so popular. Facing such a large group of users, as Alan said, we need to educate.

But beyond that, there are many tools and mechanisms in the Web3 world that we can potentially leverage, such as composability. Lending and using our RWA as collateral will become an indispensable part of the entire Web3 economy, but I think we should really go beyond that. Because composability is not just about integrating with DeFi protocols; we actually have GameFi, SocialFi, and we can also combine with them.

In fact, we have been exploring such opportunities. For example, DeBox, which is a Web3 social media platform, is about to launch their token, and users are already mining their tokens. Through smart contracts, RealtyX allows our RWA token holders to mine DeBox tokens.

By creating this composability, we can bring more practical value to our RWA token holders and potentially increase yields. So I think these are some interesting areas we should continue to explore.

Libertum (Alan): Huge composability, where everyone can find a combination that suits them.

Defactor (Anastasia): Yes. Next, I want to pose an open question to anyone willing to share: What do you think is the most common legal structure for real estate tokenization in the current market? Or which method is most easily accepted by the current market?

Parv: There are some jurisdictions in the EU, such as Liechtenstein, that can achieve contract-level tokenization. But I think such cases are rare and usually negligible. It would be a wonderful world if we could achieve native tokenization of real estate at the contract level and do it anywhere.

But before that, I think SPVs (Special Purpose Vehicles) are the way to solve this problem. As for which legal structure and entity to use as an SPV, that is a question each project needs to answer. For us, the answer is the UK trust.

The UK Jurisdiction Taskforce (UKJT) published a paper last year outlining how to infer existing UK common law to tokenize physical assets. The UKJT is not a government entity but is government-funded. They should be the entity proposing legal research for legal innovation. This is the most significant regulatory clarity we have received so far from major jurisdictions.

However, as I said, last month we met with UAE regulators, who are also studying native tokenization. Tokenization at the contract level indeed requires a lot of work and investment from the regulators themselves. In most jurisdictions, this is not something startups can expect to happen. But some jurisdictions can, which is why we chose Liechtenstein. They are working hard. Once that happens, we want to ensure we are the first to achieve this.

Defactor (Anastasia): Thank you for sharing, Parv. Alan, do you have anything to add regarding frameworks, jurisdictions, and the types of assets we are tokenizing in real estate?

Libertum (Alan): Yes, I agree with Parv's perspective; we have learned a lot. I think there is no one-size-fits-all answer here, right? Our ultimate goal is to achieve contract tokenization, but we are not at that stage yet. Therefore, I think there is no universal approach to achieving this.

Compliance is a great starting point. Based on that, we need to consider the needs of the clients. For example, based on our experience, commercial real estate owners typically only want to release a portion of the capital in their assets. A good way to do this is to tokenize the income rather than the property itself. What investors usually want is profit, not necessarily ownership of the property. Therefore, this is a good solution for specific use cases.

Of course, more traditional methods, such as SPVs and trusts, can also apply to other scenarios. I think many companies make the mistake of thinking they have found the only correct answer.

Defactor (Anastasia): Yes, of course. Thank you for pointing out the importance of continuous learning and working with regulators. We only have about 30 minutes for each AMA session. So I want to end with a more consumer-centric question. Jade, I want you to share with us what type of property you find most popular among typical investors? We have previously discussed commercial real estate and the income it brings; is it possible that there are some preferences, and which are the most popular? Or is residential property more favored by investors? Additionally, regarding the issues you encounter in your daily work when tokenizing real estate, I have two questions: What types of properties do you typically deal with? How do you think tokenizing real estate can lower the entry barriers for investors, and what is the minimum investment amount typically required from general investors?

RealtyX DAO (Jade): Sure, I think the preference for different property types among investors will be influenced by factors such as individual risk tolerance and investment goals. Some investors may prefer commercial real estate for higher potential returns, while others may lean towards residential properties for more stable income. Therefore, the most attractive option ultimately depends on expected returns, property conditions, and the specific utility these tokens provide.

Regarding the token face value, we currently set it at $50, which is quite affordable compared to traditional real estate investment methods, allowing more people to participate in real estate investment. Traditional methods usually require a significant amount of initial capital, and we are also open to smaller face values in the future, depending on the markets we enter. We are gathering more market feedback to determine the best face value for different markets.

Unlike the previous mention by Parv of using NFTs to represent on-chain properties, we chose ERC20 tokens to maintain flexibility in adjusting unit prices. Because not all users in the crypto space can easily afford $50 or even higher prices, we want to keep flexibility as much as possible to allow more people to participate.

Defactor (Anastasia): Thank you very much, everyone! Jade, Parv, Alan, and all the friends listening today, thank you for your attention to real estate tokenization. It has been a pleasure to communicate with you all, and I look forward to more discussions on Twitter Spaces in the future. This field is developing rapidly, and I believe we can learn more. Thanks again, everyone, and have a good night and a great day! See you next time!

About RealtyX

RealtyX is a real estate tokenization platform and research center dedicated to democratizing the sharing of real estate value through blockchain technology. Its core functions include tokenizing real estate assets, allowing investors to participate in the real estate market with lower barriers, and providing practical features such as rental income sharing and governance rights for token holders. RealtyX has successfully completed the first property tokenization in Dubai and graduated from the Aptos accelerator, joining the Made by Apes ecosystem, demonstrating strong development momentum.

About Libertum

Libertum is an innovative asset tokenization platform aimed at enabling individuals and institutions to easily invest in various real-world assets. Libertum's initial mission was to allow everyone to invest in real estate, but as collaborations with partners expanded, its goals have broadened to support a wider range of asset classes.

About Estate Protocol

Estate Protocol is an innovative platform utilizing blockchain technology to fundamentally change the way real estate investment works, making it more convenient, divisible, and efficient. By tokenizing real estate assets, Estate Protocol democratizes ownership, allowing individuals to invest in real estate with lower barriers and greater flexibility.

About Defactor

Defactor is a bridge connecting traditional finance with DeFi, aiming to link the worlds of traditional finance (TradFi) and decentralized finance (DeFi). By providing an easy-to-use platform, Defactor enables individuals and institutions to tokenize real-world assets (RWA) and integrate them into the DeFi ecosystem.