With the current “tokenize everything” movement taking place within DeFi, we are seeing people take advantage of the ability to digitize real world assets, or even hold custodianship over current digital assets (such as virtual currencies within gaming or owning their own data).
With the current climate, real estate is highly prized as an investment due to the potential increase in price of the property, as well as the revenue generation involved by tenants paying rent.
This type of two-factor return only takes place in some stocks, private equity, staking PoS coins and Yield Farming in DeFi.
The advantage for real estate is that it’s a tangible asset with generally less volatility, due to the price of the rent being fixed and the fact that there will always be demand for housing.
The issue with investing in real estate is the high barrier to entry; a large sum of capital is required upfront (generally between 5-25% of the total amount), as well as a pristine credit score to borrow the rest of the money as a mortgage.
With tokenized real estate like the advancements seen on sites such as RealT, you can buy shares of the property and also receive automated returns on the amount via a smart contract.
This new way of transacting property on the blockchain is in its infancy, however the potential from here can revolutionize the industry.
Another potential benefit of investing this way is the ability to leverage your share of the property for yield farming, as you are essentially your own digital bank. This opens up the possibilities for cross collateralization between different assets and setting up a portfolio previously thought impossible.
Aave has recently partnered with RealT, bringing interest-earning mortgages to DeFi. This integration allows users to borrow stablecoins by collateralizing their RealT holdings. This is significant as Aave has been granted an Electronic Money Institution Licence in the UK by the FCA (Financial Conduct Authority).
It seems that the red tape is being removed, strip by strip, as regulation and understanding of this new asset class becomes clear. The integration of DeFi into the real economy will give the user the power, removing the fees and control by the intermediaries.
Banks will need to pivot and either provide more value to customers or shift their roles and the way they interact with users in the near future.