The Liquidity Advantage

A major limiting factor in real estate has traditionally been the illiquidity of RE assets – any transaction between buyer and seller typically takes 30 days or more, and the time it takes typically scales with the value of the asset. An investor buying a piece of real estate will know that, for better or for worse, they are stuck with that property for a significant amount of time, even if they have a bad feeling that the market is going to go belly-up in short order or they need quick cash for another investment.

Thankfully, technological progress is finally catching up with the real estate market to blow away previous limitations, this time in the form of the company RealT’s venture into real estate asset tokenization. This innovative solution to the problem of liquidity fractionalizes the ownership of a piece of property (as you would a public company with stocks) into security tokens (RealTokens) that are tied to the price of the cryptocurrency Ethereum. Investors are able to search out properties on an exchange and invest as many tokens into the property as they want, thereby securing ownership of a percentage of the property, its rents, and an equivalent portion of its sale value.

The real value of this comes from how quickly investors can sell and buy up these property options. Using their first exchange pair on Uniswap, the team at RealT has created a liquidity model for their flagship property, 9943 Marlowe, that utilizes an asset pool to designate a per-token value. The company describes to process like this:

“At RealT, we went through an extensive research phase, weighing the pros and cons of various liquidity mechanisms for our properties and users. There are a number of different options for exchanging tokens and generating liquidity, but none of them provide the elegance and simplicity of Uniswap.

After months of deliberation about how to provide liquidity to RealTokens, it became clear that the responsibility for operating an exchange for real estate properties was best left to the algorithms. Market-makers and order-book exchanges would simply require too much maintenance and overhead for providing perpetual liquidity to RealTokens. As RealT expands its real estate offerings, and more sets of RealTokens are minted on Ethereum, the maintenance and management of all these various markets by market-makers would be undesirable.

Placeholder VC’s article DeFi Liquidity Models illustrates why an exchange like Uniswap has significant advantages over other liquidity mechanisms. One quote from the article stood out from the rest: “users don’t need to find a counter-party, they can just trade with the asset pool.”

Uniswap enables you to sell your property on a whim. Unexpected bill? Want a night out on the town? Just need some cash? If your property is a RealT property, you can instantly sell your property.”

What this liquidity model does is create a decentralized real estate exchange where each security token retains its value regardless of the number of investors have a stake in the property, so each person who buys in can sell or buy whenever they want or need to without collapsing the value of the asset. This provides a solid short- or long-term investment option that does not shift with the chaotic regularity associated with cryptocurrencies.

So why is this exciting news? We’ll let them tell it:

“This is the first known (to us) instance of a centralized crypto-company leveraging an [Ethereum] Open Finance application to improve the product that they create for their customers. RealT is able to provide instant buy/sell to its users because of the permissionlessness and opennness of Uniswap.

This is the power of Ethereum. RealT can plug right into Uniswap and leverage the liquidity mechanism Uniswap provides. Our legacy finance competitors have no mechanism for liquidity for their customers, and thus lock their customers into multiple-year-long investment commitments.

With RealT, you access exposure to the U.S. real estate market while enjoying the freedom of instant liquidity from Ethereum’s DeFi.”