As the cryptocurrency industry evolves, it increasingly finds itself converging with traditional finance and legacy systems. An enhanced focus on regulatory compliance and sustainability has created demand for DeFi products that interact with traditional markets and real-world assets (RWAs). Synergy between the blockchain and these legacy markets is primarily achieved through tokenization.
With tokenization, assets like real estate, art, natural resources, stocks, and bonds can be represented on-chain as tokens, allowing them to be instantaneously traded on a decentralized blockchain. As a bridge between the multi-trillion-dollar financial sector and the blockchain, tokenization is rapidly emerging as one of crypto’s most compelling usecases. In fact, S&P Global executives have gone as far as to say that “the tokenization of everything is going to happen.”
Landshare is thrilled to be one of the trailblazers in the real estate tokenization space. Over the last year-and-a-half, we have been offering tokenized investments using an industry-standard model, gaining invaluable experience in the process. While we have come a long way with this model, we believe we can deliver a product that is more accessible, more efficient, and more appealing to the growing number of blockchain users.
In this feature preview, we will be taking a deep dive into the existing industry-standard model, its inherent flaws, and introduce you to our proposed solution— the Landshare RWA Token.
Existing Tokenization Model
At Landshare, we have been tokenizing real estate on the Binance Smart Chain (BSC) since 2021. In this time, we’ve conducted the first real estate offering on BSC and followed that up with its first tokenized house flip, delivering a 10.5% ROI in only a few months.
In our current tokenization model, investors can buy fractional shares of real estate in the form of Asset Tokens. Each property is held in a separate legal entity and has its own unique tokens that represent ownership. The infographic below illustrates the basic structure of the model:
This set-up is widely used, and can be viewed as something of a standard in the industry. In fact, it is essentially ubiquitous with the idea of tokenized rental properties. In its own right, it is a huge leap forward and represents one of the foundational components of RWAs on-chain.
However, in striving to create a tokenized real estate product with healthy trading markets, efficient scaling, and DeFi accessibility, we found that the present model has inherent limitations that make this process more difficult.
Limitations of the Current Model
- Inefficient Scaling: In the current model, each property requires a new legal entity and separate offering. The creation of a new entity requires not only initial registration fees, but also ongoing annual filings costs and other compliance requirements. These fees cut directly into investor returns.
- Volatility: A number of factors outside of the investor’s control, including water damage, neglectful tenants, or vandalism could greatly impact their investment. If a property becomes vacant or depreciates in value, investors in that specific asset stand to lose not only their rental income, but see their principal investment decline considerably. When investing in only a single property, high volatility becomes possible.
- Liquidity limitations: Since each Asset Token’s market cap is tethered to the property’s underlying value, liquidity is inherently limited. For example, if a property is worth $100,000 USD, that property’s token has a marketcap of $100,000 as well. This means price impacts on DEXes will always be higher than desired, and liquidity for large buys and sells won’t be available. While this can be partially resolved through OTC and P2P trading features, the DEX is the most commonly used model in DeFi and is preferred by most investors.
- DeFi Integration: Integration in DeFi products, including loan protocols, decentralized exchanges, and our NFT ecosystem is made more difficult due to the need to support a new token contract for each asset. In most cases, support for new tokens in protocols must be implemented manually, which becomes especially problematic when attempting to integrate with 3rd party applications.
The Landshare team has introduced new features to address these issues over the life of the platform. Although these updates have proven effective, they merely mask the underlying issues with the existing model. Eventually, we recognized the need to address the problems directly by creating a brand-new model from the ground up.
After gathering feedback from across the industry and watching its evolution over the years, we developed 4 core tenets that our new model should strive to achieve:
- Healthy liquidity and easy cash-outs: Buy or sell with minimal restrictions or price impact and instant settlement.
- Token price adherence to the value of underlying assets: The value of the token should accurately reflect the value of the underlying assets, ensuring increases in property value are reflected as gains when selling tokens.
- DeFi compatibility and integrations: RWA tokens should be useable in common core DeFi features, including decentralized exchanges and loan protocols.
- High scalability and flexibility: Expansion of the property selection should be as simple and efficient as possible, reducing fees, administrative overhead, and allowing for more rapid expansion.
In addition, the new model should be easy to understand for investors of all levels, breaking down barriers to entry and offering a clear and transparent path to real estate investment. Taking into account everything above, we developed a solution that will simplify access, address the problems with the current model, and adhere to our core tenets — the Landshare RWA Token.
The Landshare RWA Token
The Landshare RWA Token is the solution to the problems presented in the current model. It breaks away from the industry standard and presents a new system for real estate investment on the blockchain. The RWA Token is based on a simple idea: buy, hold, and earn from a single token representing an ever-expanding series of rental and renovation properties. It’s a simple and efficient way to gain real estate exposure and offers an unrivaled on-chain safe haven.
Unlike the existing system of Asset Tokens for each property, the Landshare RWA Token is a single token which represents multiple properties. This model offers a straightforward proposition to investors: if you’d like to invest in real estate, you can do so at any time and benefit from the appreciation and rental income of all Landshare properties by simply buying and holding the Landshare RWA Token.
The design is intended to be intimately familiar to existing crypto users and accessible to newcomers at the same time. An excellent safe haven alternative to USD stablecoins, the RWA token offers transparent 1:1 asset backing and healthy liquidity to realize gains at any time.
How it works
In the new model, a single legal entity is created which expands its property selection over time. Rather than conducting offerings for a single property, RWA Tokens will be offered continuously, and properties will be acquired as they are sold.
On basic level, the process works like this:
- Investors can purchase RWA Tokens at any time, either through the offering on the dashboard or on a DEX.
- Sale proceeds are used to acquire new properties, conduct house flips, or renovate existing rentals.
- As properties generate rental income, change in value, and receive renovations or any other value-adding processes, the value of tokens will change correspondingly. Property values will be updated periodically to accurately reflect their value, and cash holdings will be updated in real time.
- RWA Tokens can be sold to realize gains at any time.
In order to better understand the new model, let’s illustrate it with an example:
- Total RWA tokens: 100,000
- Total property value: $100,000 USD
- Rental income: $500 / month
An investor holds 100 RWA Tokens, each valued initially at $1. After 1 year, the underlying property has increased in value to $110,000 and earned $6,000 in rental income. The total holdings of the company are now $116,000, meaning each RWA Token is worth $1.16. The investor decides to cash out their holdings for a 16% APR by selling into our new fixed-price liquidity pool, covered below.
Value tracking and fixed-price liquidity
The new fixed-price liquidity feature will allow investors to sell their tokens based on their 1:1 asset value, with 0 price impact and instant settlement. This feature helps deliver on our goal of making real estate a truly liquid asset, something that previous iterations tokenized real estate have struggled to achieve so far.
The liquidity pool will track the value of all assets, including properties and cash, in real time to deliver a price that matches the true value of the tokens. While investors will be able to utilize this pool in most cases, certain restrictions may apply regarding frequency of use and volume of tokens sold. In any case, DEX trading is available at any time.
What are the improvements using this model?
As previously mentioned, the new model was created with the intention of addressing the fundamental problems of the industry’s standard model. The use of the single token model greatly enhances liquidity and adaptability while also promoting consistent and stable yields from a diverse set of real estate assets.
Healthy secondary markets, particularly in the decentralized exchange (DEX) model, are a must. Investors should be able to buy and sell instantly with minimal price impacts.
As many of our Asset Token investors are aware, price impacts on our DEX are prohibitively high for large buys and sells. The RWA Token will go a long way toward solving this issue by creating a shared liquidity pool rather than fragmenting liquidity between multiple properties.
While investing in single property has its perks, it also exposes investors to higher volatility. A number of factors outside of the investor’s control can impact the profitability of a single property, while a more diversified approach can reduce risk.
The Landshare RWA Token represents multiple properties across different markets, giving investors more generalized exposure to the real estate market. Underperformance of one property can be offset by the overperformance of another, providing a more predictable return.
By distributing risk over multiple properties, any loss of value from an individual property is greatly mitigated and rental yields remain consistent month-over-month. Additionally, investors no longer need to conduct extensive research on individual properties. Instead, they can focus on the macro-elements of the real estate market to make investment decisions, reducing the barrier of entry for novice investors.
The Landshare RWA Token improves scalability in two primary ways: reduction of overhead and simplified compliance. The new model also provides greater flexibility to acquire new properties with a shared pool of cash and assets.
Because the Landshare RWA Token exists as a single, unified legal entity, the need to tack on registration costs, offering costs, and legal expenses for each new entity is eliminated entirely. These savings are directly reflected in the value of the RWA Token.
Acquiring new properties also becomes easier than ever with the RWA Token. Instead of relying on individual offerings, the RWA model possesses a shared pool of assets which includes rental income, reserves, and sale proceeds. This provides access to more capital, enabling new properties to be acquired more frequently. Best of all, buying RWA Tokens allows investors to benefit from all future properties, house flips, and value adding processes.
As one of our primary goals, DeFi integration becomes far more viable with the RWA Token. Our existing features, including DS Swap (Asset Token DEX) and Landshare NFTs will both benefit substantially from this change. Planned future features and integration with 3rd party protocols will also become more attainable.
Let’s take 2 examples — a DEX and a Loan Protocol. In both cases, the liquidity issues of the previous model are solved, as mentioned in the previous section. But there are far more advantages than that. In order to integrate a security token with a DeFi protocol, a number of additional steps are required. For each token to be implemented:
- Multiple smart contracts must be whitelisted
- The protocol must be updated, often manually, to support new tokens
- New liquidity pools must be created and funded
- All protocol participants must be whitelisted for all tokens
As the number of security tokens increases, the integration process becomes increasingly difficult, and users may find the process confusing and unintuitive. The Landshare RWA Token streamlines integration into a single token, with user on-boarding and protocol integration completed in a single step.
The RWA Token will also become the primary staking asset in our NFT ecosystem. In the new model, any NFT from any property can be used to contribute to a single, shared yield multiplier. A more detailed breakdown of updates to the NFT ecosystem will be provided in a future update.
Cross chain capabilities
With the previous model, taking Asset Tokens cross chain was difficult, if not impossible. Given the size and scope of each individual offering, splitting the tokens between multiple chains would exacerbate existing issues, including liquidity limitations. With the RWA Token, a certain percentage of tokens can be offered on other chains, opening the door to cross chain capabilities for Landshare’s tokenized real estate offerings.
The tokenization of real-world assets is rapidly emerging as one of the most compelling use cases for the blockchain. However, the current model used for real estate tokenization presents certain challenges and limitations such as inefficient scaling, high volatility, insufficient liquidity, and suboptimal DeFi integration.
The Landshare RWA Token is designed to resolve these issues directly. It’s not just a new feature — it's a fundamental reimagining of our entire tokenized real estate ecosystem. It streamlines the investment process while opening new possibilities for future expansion and integrations.