It’s no secret that the cryptocurrency market is highly volatile. While its potential upside is unmatched, it also frequently experiences sharp price corrections and enters prolonged bear markets. When this happens, investors need a place to protect their funds from losses — often referred to as safe havens.
A safe haven is a type of investment that is expected to retain or increase in value during times of market turbulence. Investors move funds into safe havens to mitigate their risk of losses during market downturns. In the crypto space, these types of investments can be difficult to find — especially if the investor is also expecting a consistent return.
Real estate-backed tokens offer the ability to invest in real estate directly on-chain. They are not affected by cryptocurrency bear markets because their value is derived from real world assets. By moving trading profits and idle funds into real estate-backed tokens, investors can protect their funds from volatility while also earning regular cash flows.
What are real estate-backed tokens?
Real estate-backed tokens, or Asset Tokens, are cryptocurrencies that represent the ownership of real-world assets. To put it simply, the value of an Asset Token is based directly on the value of the asset it represents. All of this is made possible by a process called Tokenization.
Tokenization splits the ownership of a real estate asset into smaller parts represented by tokens. Each individual holder of the tokens is a co-owner of the asset and receives a share of the profits it generates. Asset Tokens tokens can be bought, sold, or traded just like any other token on the blockchain.
For a more detailed description of Asset Tokens and the process of Tokenization, check out Landshare’s Tokenized Asset Overview video.
Real Estate Tokens vs. Stablecoins
Traditionally, crypto traders move their funds to stablecoins such as USDT, BUSD, and USDC to take profits or protect themselves from market downturns. Because the value of a stablecoin is always at or near $1 USD, they allow traders to keep their funds on-chain while protecting themselves from volatility and price fluctuations. While stablecoins offer great utility in this regard, real estate-backed tokens offer several unique advantages as a safe haven for crypto traders.
Tether’s USDT is the most popular stablecoin in the market today. There is a widespread assumption that Tether holds enough USD to back up the whopping 69,000,000,000+ circulating supply of USDT. However, at this point it is not clear how many USDT tokens are backed by actual USD. According to a recent Bloomberg article:
“Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery. For years a persistent group of critics has argued that, despite the company’s assurances, Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud.”
On October 15, 2021, the CFTC ordered Tether to pay a $41 million dollar fine for issuing unbacked USDT tokens. According to the release:
“The Tether order finds that since its launch in 2014, Tether has represented that the tether token is a stablecoin with its value pegged to fiat currency and 100% backed by corresponding fiat assets, including U.S. dollars and euros. However, the Tether order finds that from at least June 1, 2016 to February 25, 2019, Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time.”
The concerns over Tether’s operations should be taken seriously if cryptocurrency is to be adopted by the mainstream public. Without being collateralized 1:1 USD, a “run-on-the-bank” situation, or even regulatory actions, could leave hundreds of millions of users with valueless USDT that can no longer be redeemed for $1 USD.
By contrast, Asset Tokens are fixed supply tokens transparently backed by real world assets. Because token holders are shareholders of the asset itself, they have a direct legal claim to their share of the asset’s value.
Cash returns and appreciation
While stablecoins offer protections against market downturns, they do not intrinsically offer any yields or returns to investors, nor can they appreciate in value. In fact, due to inflation rates reaching 30-year highs, holding stablecoins can mean a loss of buying power over time.
Asset Tokens offer similar protections from the volatility of cryptocurrency while also offering annual cash yields and value appreciation averaging between 6–8% and 5–10% respectively, for total annual returns up to 18%. While the value of the US dollar shrinks, US home prices are projected to increase by 13.6% over the next year.
Traders may choose to stake stablecoins on loan or yield farming platforms such as Venus or Beefy Finance. These platforms offer a great way to earn some extra income while holding USD and greatly outperform the rates offered by banks.
Unfortunately, these platforms come with their own risks that can still result in traders losing their investment. Due to the open nature of DeFi, many protocols have vulnerabilities that can be exploited by hackers, and these attacks are not uncommon. $119 million was recently stolen from BadgerDAO by hackers, Cream Finance was exploited for over $100 million, and Poly Network was exploited for $600 million. According to Cipher Trace, over $10 Billion was stolen in DeFi related theft this year.
In addition to DeFi risks, investors are vulnerable to the loss or theft of wallet private keys and exchange hacks, meaning funds can be lost even by holding. If these events occur, there is typically no way to retrieve lost funds.
Tokenized Real Estate offers additional security measures that traditional protocols cannot. While traditional tokens can be lost due to DeFi exploits or wallet hacks, Asset Tokens are immune to this because they are owned by the investor, not a wallet. If an investor’s wallet suffers an attack or is compromised, the stolen tokens can be administratively reissued to a secured wallet.
Tokenized Assets offer a great way to hold your profits in a secure and traditionally stable manner without the risks of being run on, being hacked, or sitting on depreciating assets. While your first thought for a safe haven may be holding stablecoins, it may be time to consider real estate-backed tokens as an alternative.
Landshare offers fractional real estate investment on the blockchain, enabling hassle-free investment for as little as $50. You can find out more about the Landshare platform at https://landshare.io and view our current offering at https://app.landshare.io/property-details.