Written by: Weilin, PANews
The real estate industry has a significant influence and status worldwide. According to Statista, the global real estate market is expected to reach an impressive $634.90 trillion in 2024. Looking ahead, the industry is expected to grow at a CAGR of 2.77% per year (2024-2029), reaching a market size of $727.80 trillion by 2029.
Despite this, the transaction process in the traditional real estate industry has many limitations, such as lengthy processes, over-reliance on intermediaries, and vulnerability to fraud risks. With the rise of blockchain technology, this pattern is facing disruption. Blockchain technology has significantly improved the transaction process, transaction costs and security of real estate through innovative technologies such as distributed ledgers and smart contracts, dynamic NFTs (Dynamic NFTs) and tokenization. These advances have the potential to streamline the property ownership process, reduce fraud, and create more accessible investment opportunities for users around the world.
In the future, the real estate transaction process may be greatly shortened, or even completed within a day, due to the expansion of technologies such as blockchain and artificial intelligence (AI). These innovations are revolutionizing the industry by automating processes, increasing transparency, and improving efficiency at every stage. Financialization and disintermediation will completely change the traditional real estate market, making the liquidity of real estate assets close to the level of the stock market.
Previously, PANews introduced Propy, a star real estate project in the RWA track, and its core product PropyKeys, as well as how they broke through the pain points of traditional real estate transactions and made transactions safer and more convenient. This research report will take the recent cooperation between Propy and the decentralized oracle network Chainlink in integrating Automation as an example to deeply analyze the trend of tokenized real estate and its growth potential.
01 The current pain points of the traditional real estate industry
Unaccustomed to the high cost and lengthy process of buying a home, as well as the reliance on numerous intermediaries, investors, buyers, and sellers are demanding a transparent, one-click process that meets the needs of the times they live in. The Propy team believes that the traditional real estate transaction process is long, cumbersome, and primitive, with the following problems:
It can take weeks or months to find the right buyer or seller
Buyers and sellers often have difficulty obtaining accurate and complete information during transactions and are overly dependent on intermediaries. This information asymmetry increases the complexity and uncertainty of transactions and affects the fairness and transparency of the market.
The intermediary process is cumbersome, involving too many manual processes and stakeholders
These stakeholders include buyers, sellers, intermediaries, banks, lawyers and government agencies. Each stage requires extensive paperwork and verification procedures, making the process cumbersome and time-consuming. This inefficiency is evident in the U.S. market and cross-border transactions, where long transaction times and high costs pose significant challenges.
Heavy operational workload
Since real assets are not programmed, a lot of operational work is required to ensure the execution of contracts, transactions, payments, etc.
High security risk, prone to fraud, data leakage and other security risks
The problem of fraud in the real estate field is significant, and the amounts involved are huge. According to the FBI’s Internet Crime Complaint Center (IC3), the agency received 9,521 real estate-related complaints in 2023. That may not seem like a large number, but in terms of losses, these crimes totaled $145,243,348 in losses (an amount that exceeds losses from identity theft, ransomware, malware, and many other types of crime).
02 Solution: Combining blockchain technology with real estate, PropyKeys introduces dynamic NFT
Propy officially launched PropyKeys in March this year, allowing users to mint digital addresses and deeds for real-world properties, with the goal of putting 1 million home addresses on-chain by 2025. Additional features include AI-generated landmark NFT minting and a novel staking mechanism designed to create a gamified experience that makes home ownership more accessible, secure, and interactive.
Dynamic NFT Technology
Dynamic NFTs are a way to tokenize real estate assets. Owning an NFT can be equivalent to owning the property, transferring an NFT can mark a change in property ownership, and NFTs can hold and automatically update key data. Dynamically updated NFTs can facilitate the exchange of information between the two parties of a transaction. Relevant information such as home improvements, renovations, and past sales. Dynamic NFTs become more useful over time. For example, an NFT can save a picture or video of a property, showing the condition of the house at a certain point in time. With multiple changes of ownership, the continuous addition of videos/pictures allows buyers to see how the property changes over time, providing deeper insights into their purchasing decisions. Using dynamic NFT technology can not only speed up the transaction process, but also increase security.
PropyKeys uses dynamic NFT technology with three levels, with different strategies for different users. The first level means that users perform basic address minting to prove asset ownership. The second level means that users upload property ownership documents to ensure that their property deeds will not be tampered with under any circumstances, improving the security of assets. At the third level, users can speed up the purchase or sale process, use NFT as collateral, and achieve 100% RWA. This gradual upgrade increases user participation and makes it easier for them to understand the complex application scenarios of real estate combined with RWA.
Simple tokenized real estate (NFT), representing individual real estate assets as NFTs
The characteristic is that owning an NFT can be equivalent to owning real estate, and the transfer of an NFT can mark a change in property ownership. NFTs can contain key data, such as past sales records, addresses, etc. In theory, selling a house is as simple as placing an order on the NFT market. Buyers only need to click a few buttons, and if they have enough funds, the purchase can be completed in minutes - in stark contrast to the current real estate transaction process that takes weeks.
In 2022, the first real estate-backed NFT in the United States was sold on the Propy platform for over $653,000 in ETH.
In 2022, Propy sold its first NFT-backed property in the U.S., located in Gulfport, Florida
Further tokenization: fractionalizing real estate assets (fungible tokens)
Another way to tokenize real estate is to fractionalize ownership, which is to achieve partial ownership of real estate, using fungible tokens (FTs).
Each token can represent a specific percentage of ownership of a property. Owning all the fungible tokens is equivalent to owning full ownership of that property. Fractionated real estate enables buyers to purchase small portions of a property, making real estate more accessible.
Through proper design, fractionalized real estate tokens can allow investors to build customized real estate portfolios, potential homebuyers to gradually achieve their goals of living in and owning their ideal property, and companies to develop customized real estate products.
Tokenized real estate cash flows and tokenized real estate asset baskets
In this "tokenized real estate cash flow" model, property owners can separate real estate ownership from cash flow ownership. The cash flow rights (usually monthly rental income) can be sold as a whole to other parties over a specific period of time. Tokenized real estate cash flows can provide property owners with additional options and reduce the cost of real estate ownership.
In addition, a basket of real estate assets can be created. Fungible tokens can collectively represent all the properties and cash flows, and cash can automatically flow to token holders.
The key benefit of using tokenized large-scale real estate baskets is the ability to provide trust-minimized guarantees that are automatically enforced based on verifiable data. Putting the ownership of real estate and cash flows on-chain allows for greater verifiability of the underlying collateral (the property and its cash flows), enables automated payments, and increases transparency into the health of the assets.
03 Case: PropyKeys cooperates with Chainlink to integrate Automation on PropyKeys
In April 2024, PropyKeys integrated Chainlink Automation on the Base network to distribute staking rewards. As of September 14, 276,284 addresses have minted PropyKeys.
From the technical background of Automation, smart contract functions cannot be triggered automatically, and an external party needs to send an on-chain transaction to execute the contract function. The automated market maker (AMM) protocol usually uses a transaction initiated by the user to wake up the contract; while many other smart contracts use an external party, usually called a "keeper", to monitor whether predefined conditions are met and trigger the on-chain contract when the conditions are met. The predefined conditions can be a certain point in time, an event, or a complex off-chain calculation.
Before the emergence of the keeper service, smart contract development teams had to use centralized servers or DevOps teams to manually trigger contracts. However, doing so not only may lead to single point failure of the protocol, but also waste valuable resources that should have been used to develop underlying business logic or functions on DevOps.
Chainlink Automation is like a decentralized trading automation robot that allows smart contracts to run automatically. Developers can submit custom tasks to Chainlink Automation, which define the functions of the smart contract in detail and call these functions based on specific conditions. Automation will monitor whether these conditions are met through secure off-chain calculations and trigger the function to run when the conditions are met. Ultimately, developers can effectively improve the operational robustness of decentralized applications, reduce development costs, simplify user experience, create feature-rich hybrid smart contracts, and ensure automated operation from end to end.
After PropyKeys integrated Automation, Chainlink Automation allows developers to automate key on-chain functions at timed intervals or in response to external events. Based on Chainlink Automation, Propy achieves highly reliable, high-performance and decentralized automation, and transactions can be quickly identified and confirmed even during periods of severe network congestion.
Time-tested infrastructure helps Propy save costs: eliminating internal automation infrastructure costs, reducing resources dedicated to DevOps, and increasing speed and efficiency.
Propy enables faster scaling: Scale faster and avoid the challenges of building and maintaining reliable automated multi-chain infrastructure. At the same time, it unlocks new use cases and more functionality.
Currently, Chainlink’s oracle network securely supports over $16 trillion in on-chain transaction value.
04 Challenges and future development trends of tokenized real estate
Challenges from regulators and users
Although the tokenized real estate track has a good development momentum and great growth potential, in actual deployment, there are still some challenges that test the participating project parties and developers.
Regulatory considerations in different jurisdictions are an important issue. Any tokenization project must comply with local laws and regulations. Liquidity, market infrastructure, data security, transparency, standardization, and interoperability are some of the key challenges when tokenizing RWAs in the real estate sector. While there are significant barriers to tokenizing real estate, Propy is actively working to address them.
To enhance compliance, Propy integrates KYC (Know Your Customer) and AML (Anti-Money Laundering) checks into its platform to verify the identities of all participants. The company also works with legal experts to ensure that its tokenization process complies with relevant real estate and securities regulations. Propy's platform is designed to be flexible and adaptable to different jurisdictions to ensure compliance with various legal requirements.
In addition, Propy uses blockchain technology to create secure, immutable transaction records. By storing real estate data and ownership records on a decentralized ledger, Propy enhances transparency and reduces the risk of fraud. The platform also implements advanced security protocols to protect user data and transaction information.
In addition, RWA faces challenges in terms of tokenization mass adoption, user education, and user behavior change. To this end, Propy's focus in 2024 is on community engagement and education, often hosting webinars, workshops, and working to develop partnerships, such as Base, Coinbase, Parcl, and Chainlink. In this way, Propy helps real estate professionals and ordinary customers better understand blockchain technology and its future potential in the real estate sector.
RWA track trends: asset class diversification and scalability
1) Diversification of asset classes
With the development of RWA tokenization, asset categories will become increasingly diverse, covering commercial real estate, industrial real estate, and real estate financial assets. It also includes tokenized funds, involving short-term financial assets such as short-term government bonds, repurchases, commercial paper, etc. In addition, private credit and supply chain finance are gradually becoming new areas of expansion. In the future, it is expected to expand to housing mortgages, construction loans, bridge funds and securitization products, further enriching asset types.
2) Scalability
Integrating DeFi elements into real estate tokenized assets has greatly improved its scalability. Pledge and re-pledge, secondary market derivatives, indexes, and hedging strategies have created more liquidity and financial innovation space for real estate-related token assets, prompting the deep integration of traditional finance (TradFi) and decentralized finance (DeFi) to seek more liquidity solutions.
3) In the future, it may include commodities, artworks, and intellectual property, etc.
The tokenization of real estate and private credit is just the beginning. In the future, we can expect other asset types, such as commodities, artworks, and intellectual property, to be gradually tokenized. Even products such as ETFs/ETPs are expected to emerge in the tokenization wave, further enriching investors' choices.
In the future, as challenges are gradually resolved and real estate RWA becomes more popular, the speed of real estate transactions will be greatly improved, and transactions can be completed within 1 day, greatly simplifying the transaction process. In terms of asset management, digital transformation will be accelerated, for example, warehouse information management will gradually become popular. Financialization and disintermediation will completely change the traditional real estate market, making the liquidity of real estate assets close to the level of the stock market, and pushing the entire industry into a new stage of development.
References:
https://x.com/i/spaces/1lDxLlwaOgQxm
https://chain.link/education-hub/tokenized-real-estate
https://blog.chain.link/smart-contract-use-cases-unlocked-by-chainlink-automation-zh/#:~:text=Chainlink%20Automation%20%E6%98%AF%E5%8E%BB%E4%B8%AD%E5%BF%83,%E6%89%A7%E8%A1%8C%E5%85%B3%E9%94%AE%E7%9A%84%E9%AB%98%E7%BA%A7%E5%8A%9F%E8%83%BD%E3%80%82
https://propykeys.medium.com/propykeys-integrates-chainlink-automation-to-power-staking-rewards-distribution-003b3c7170b1
https://www.panewslab.com/zh/articledetails/9e8inlra.html
