Written by: Milk Man

Compiled by: Shenchao TechFlow

TL；DR

Roofstock onChain is building a bridge between real estate and Web3. And they have some game-changing products.

It all starts with real-world NFT houses on the blockchain. Next, DeFi lending will enter this new field.

Stay curious.

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People have been talking about on-chain real estate. They say this could be one of blockchain’s major use cases. Single-family rentals represent a $3.4 trillion industry, and putting it on-chain is 3x the size of current cryptocurrencies.

The U.S. real estate housing market as a whole is about 10 times that size.

But I have doubts:

Why buy real estate on the blockchain?

Is it possible to put real estate on the blockchain? Others have tried it before, so why is this project getting so much attention?

Is it really possible to buy and sell real estate using ERC-721 smart contracts, just like buying a Punk or Ape?

Even so, how would it work?

In October, we wrote about a house purchased on the blockchain for $175,000 in South Carolina.

The company behind that blockchain sale is called Roofstock onChain — a Web3 platform that lets you buy single-family properties using NFTs.

Here’s how it works:

They create a limited liability company for each property

The limited liability company owns the property (i.e. the property is in the name of the limited liability company)

An NFT associated with the LLC is minted and an LLC ownership record is created on the blockchain.

When you own an NFT, you own the company. The company owns the house, which means you own the house.

People can browse NFTs on the marketplace and click to buy homes in a legally enforceable manner.

So why put real estate on the blockchain? The real estate market is already functioning. Is this another case of cryptocurrencies trying to insert blockchain into something that doesn’t need it?

Let’s take a deeper look at why blockchain makes sense for this:

It can be a financial management solution for Web3 institutions. Crypto-native institutions can finally invest some of their crypto holdings directly in real assets.

Buying a house the traditional way kind of sucks, blockchain makes it easier.

Blockchain can give real estate investors more flexibility and a greater competitive advantage.

And, perhaps most importantly, you can buy a home with cryptocurrency in one click.

We covered the “why” of blockchain and real estate mixing, but “how” does it work? Let’s get into the details.

Can crypto institutions avoid bankruptcy by revamping the way they manage treasuries?

You know, those household names FTX, Celsius, etc. who bet everything on leverage, all lost.

However, the consequences of these things are now threatening many other Web3 players who are innocent bystanders. We are talking about the unsung heroes who work hard in the Web3 ecosystem - DAOs, protocols, and even cryptocurrency companies funded by venture capital firms who maintain their finances in cryptocurrency.

To them, treasuries are more than just a way to gamble with other people’s money — they actually represent the lifeblood of the organizations that keep them going. And this year, those treasuries have been evaporating faster than soda.

So what would happen if these companies parked some of their money in real assets instead of their native coins?

Imagine what the cryptocurrency industry would or could look like today if these companies deployed their cash into something like real estate.

Think about it, real estate has always been around, and it almost always appreciates in value over time.

If you talk to most wealth managers, they will tell you to diversify your portfolio into stocks, bonds, and other alternative investments like real estate.

Diversification is the way money is managed! So why, isn't it crazy that crypto institutions don't manage their money in a similar way? After losing billions, it drags the entire industry down with it.

Real estate is not correlated to the cryptocurrency market, not necessarily to the stock market, it generates income, and it can appreciate over time. It is fairly stable, especially compared to cryptocurrencies.

And stability is often very attractive (except to Alameda).

Okay, maybe you’re thinking that real estate does have value for Web3 institutions. Maybe you’ve even bought into that idea.

But if you’re a Web3 institution, you probably don’t have time to deal with tenants complaining about when the shower runs hot. And you might not know that there are companies out there that can handle the boring management part of owning a real-world rental property.

Allocating a portion of your cryptocurrency treasury to real estate might sound like a good idea, but you might be saying, “it’s not my money.”

Until now, it has really been impossible for Web3 institutions to use crypto assets to buy homes because it was simply too cumbersome.

But as Bob Dylan once said, times they are changing.

Imagine a world where Web3 institutions could simply hand over their cryptocurrency and receive a real estate portfolio in exchange.

Roofstock does this for a living. Roofstock can help you build your ideal portfolio of single-family rental properties, whether you want to buy 5 or 5,000. They’ve done this for some of the largest professional real estate investors.

We are talking about finding, acquiring, and managing tens of thousands of rental properties. Why can’t people in Web3 have access to the same investment opportunities as private equity investors?

Will companies like Roofstock onChain solve all of the cryptocurrency industry’s problems? Of course not. But they may be able to help people and institutions find a more secure home for their cryptocurrencies.

Deploying capital into real estate may just be the building block every crypto institution needs in terms of treasury management as they prepare for the next crypto upcycle.

Web3 just makes buying a house easier

Okay, maybe you’re not a crypto institution, but just a regular guy looking to buy a house.

If you’ve bought a house before, you’re probably familiar with all the traps and pitfalls, but I’ll still give you a rough outline of the process.

First, you have to get approval from the bank.

You'll then meet with a mortgage broker, where they'll check your credit score, bank accounts, and employment status.

They'll check your credit to assess how well you're doing with your debt, but if you've recently disabled a card or two or have had too many brokers pull your credit report, you may end up with a bad score.

You don’t even have a credit history, you’re probably out of luck. Even if you’re rich in crypto, but you don’t have fiat, your credit is about zero in the eyes of the bank.

Even if you pass all the requirements with an excellent score, the bank can still simply say, "You don't deserve it."

There is no Pythagorean theorem for real estate lending. Every situation is different. That’s why the mortgage rejection rate for black borrowers is 84% ​​higher than for white borrowers. One of the top reasons for rejection is a lack of verifiable credentials. Well, that word verifiable sounds familiar.

But let’s say you make it through the mortgage approval process.

Next, you have to find a real estate agent. This may or may not trigger your social anxiety.

A real estate agent helps you "find" the perfect home for you. You make an offer on the home, and then the home goes into escrow.

Once you enter escrow, the paperwork begins. You’ll need the following documents:

Purchase Agreement

Modifications to the Purchase Agreement

Seller Disclosure Information

inspection report

Title Insurance Policy

bill

The property deed. This is what is actually mailed to you and is recorded in the government's public records office.

The entire process can take anywhere from 30 to 90 days.  Buying a home the traditional way is a daunting task.

But buying real estate on-chain… there are fewer steps. With the click of a button, it all happens: Click a button to view property details and review all due diligence materials, from inspection reports to detailed property photos to title insurance and more:

Click the button to purchase your next property.

Click the button to verify your identity and review the transaction documents.

Click a button and legally sign the transaction, just like DocuSign, but with a wallet.

So, signing all of the documents we listed above in a traditional settlement process involves countless people and takes hours to complete. But On-Chain doesn’t “do” physical documents. They also don’t do DocuSign (the program that lets you sign real estate documents online).

Web3 housing documents still exist, but the process is different. Instead of the traditional settlement and signing process, when you “sign” a transaction using your cryptocurrency wallet, you are actually signing the applicable legal documents in one click.

If you buy real estate on-chain, you can cut out a lot of the intermediaries. When you avoid them, you also avoid their fees and transaction costs.

On-chain real estate could give investors an edge

If you’re a real estate investor (REI), buying properties on the blockchain could be a game changer. By law, a person can’t have more than 10 mortgages. And many banks will cut you off before you even reach that number. But you just can’t stop acquiring properties.

There are a lot of creative ways to get around these obstacles, but if you were REI investing in crypto, you’d probably be investing in real estate using crypto on a platform like Roofstock onChain.

If the majority of your net worth is in crypto and you don’t want to move away from fiat but need to diversify your portfolio, on-chain real estate may make a lot of sense.

Is it possible to put real estate on-chain?

Yes, it is promising, but like people, it has its problems.

This is a brand new track and it takes time to educate people, gain their trust and show examples of success.

There is always the possibility that policies can cause inconveniences. For example, Roofstock onChain is required by law to do KYC (Know Your Customer), however, your identity is not made public. When you buy a Web3 house, the only thing the public sees is your wallet address.

Are there other laws and regulations that apply here? Is Roofstock onChain just another dodgy cryptocurrency operator, or are they taking these things seriously?