GM. 🫶
This is Web3 Espresso ☕—the Web3 Newsletter for creators, marketers, and coffee drinkers looking to understand how Web3 technology is changing the world we live in.
G’Day 😎,
Decentralization and Web3 have become influential ideas that are reshaping a variety of industries, including luxury, art, film and e-commerce. This week, I examine the ways in which Web3 is promoting innovation in the real estate sector.
Real estate is typically our most valuable asset. Why? It provides a place to live, financial security, and opportunities for long-term investment.
However, due to rising real estate costs and the cumbersome paperwork involved in purchasing property, it continues to be among the most challenging purchases to make.
Is real estate still a desirable investment in today's uberized economy?
Younger generations are becoming more impatient and value simple, quick, and easy processes. The lengthy procedures required to "get the keys" seem outdated and set for disruption.
What are the opportunities and challenges for real estate investors and innovators looking to disrupt one of the most established industries in the world?
Can Web3 provide some of these answers?
Read on.
What’s in store today:
🥡 The Weekly Roundup 5 in 5
☕+👧 TechyGirls
🏢 Real Estate Tokenization: Explosive Opportunities
IA Your weekly ChatGPT Prompt
Let’s go! 🥤
🥡 5 in 5 …
Nike Brings .SWOOSH to Fortnite's 240M Users With 'Airphoria' Virtual Experience 👉 read it here
BOSS BEAUTIES: Empowering Gen Z in the Digital Age through Web3 Education 👉 read it here
Ethereum For Business Book Launched 👉 get it here
Web3 Charity Teddy DAO is Raising Money Through Daily NFT Auctions 👉 read it here
How will token-gating revolutionise the digital world 👉 read it here
☕+👧 TechyGirls Event
Next week in Monaco join me at the Maison des Associations for the TechyGirls event. This is a great opportunity to network and meet other like-minded Web3 enthusiasts in Monaco.
SAVE THE DATE: 29th June 2023
🏢 Real Estate Tokenization: Explosive Opportunities
In 2023, we'll have been using the internet for over 30 years, and it seems that we can pretty much buy anything we want online, bar one thing: Real Estate.
The process is still paper-based and involves a series of intermediaries, from real estate brokers to loan brokers, banks, and notaries.
Web3 and blockchain technology are based on the premise of transparency, automation, and decentralization.
How can Web3 transform the real estate industry and bring innovation, speed, and ease of use to one of the most established industries in the world?
A little like securitisation and REITS did 20 years ago, real estate tokenisation has captured the attention of investors, property owners, and industry experts alike due to their potential to revolutionise the way we buy, sell, and invest in real estate.
Understanding Web3 and decentralization
One of the most significant advancements in my lifetime has been the internet. There were 100,000 websites online in 1996. They number 1.13 billion as of right now. More people than ever before produce and exchange information with one another.
Yet the information that is created doesn’t belong to the person who created it. Instead, large corporations control a lot of our online activities, including what we see and how we use websites. They also collect and use our personal information more often than not without our knowledge.
In Web3, the idea is that everyone can have more control over their own information and the things they create.
The foundation of Web3 is the idea of "decentralization." This implies that everyone who uses the internet can influence how it functions, rather than just a small number of powerful corporations. In the decentralized internet, people can create their own websites, apps, and tools, and they can decide how they want to use them.
Web3 also uses "blockchain" technology to make sure things are fair and secure. Blockchain is like a special lock that keeps everything safe and makes sure no one can cheat or change things without everyone else knowing.
The other major component is cryptocurrency. Cryptocurrency is a digital or virtual form of money that uses cryptography to secure transactions, control the creation of new units, and verify the transfer of assets. It functions independently of conventional banking systems and is typically decentralized, which means it is not governed by a bank or other central authority.
I will also include the metaverse, which is a virtual reality space where users can interact with each other and digital assets in real-time. It is often visualised as a fully immersive and interconnected digital world, combining elements of augmented reality and virtual reality.
How are these concepts being applied to the world of Real Estate?
Real Estate Tokenization
Introducing the concept of tokenization which has gained significant traction in the real estate industry.
Tokenization refers to the process of converting physical real estate assets into digital tokens on a blockchain, thereby fractionalizing ownership and enabling investors to participate in the market with smaller investments.
Real estate tokens are similar to non-fungible tokens (NFTs), with the exception that real estate tokens are generally tied to the value of a physical asset. A real estate token can represent, among other things:
Ownership of part of a real property
Ownership of the entire real property
An equity interest in an entity that controls real property
An interest in a debt secured by real property, or
A right to share in the profits generated by real property
If you don’t fully understand the logic behind tokens, I recommend you jump to the Tokenomics article first.
A number of real estate tokenization platforms have emerged and claim to offer solutions to many problems that real estate investments have historically had, for example:
Increased liquidity through fractionalization of properties,
Secondary market trading,
Lower costs and increase speed by reducing the need for intermediaries in the transaction process.
How does it work?
Real estate tokens represent pieces of the underlying asset with all of its rights and obligations, and the contractual details are embedded in "smart contracts".
Given the nature of “smart contracts,”, pre-defined rules are coded into the contract, and once triggered, an automatic action occurs. For example, if a transaction occurs, the smart contract would be executed and reflect the transfer of ownership, the update to the land registry, and the payment of taxes. This information would appear on the blockchain, and it would be done immediately without any human involvement.
If you want to dig deeper, I recommend you read KPMG’s in-depth case study on Real Estate Tokenization.
Examples of Real Estate Tokenization Platforms
RealT lets you buy/sell tokenized real estate and get crypto financing
RoofStock allows you to buy property onchain as an NFT using cryptocurrency
HoneyBricks lets you invest in tokenized commercial real estate
Metropoly lets you buy real estate with cryptocurrency
ATOA is a french platform to buy tokenized real estate using fiat or crypto
Vave is a french platform to buy onchain property and tokenize your property
Arrived allows you to invest in rental and vacation homes
DigiShares is a white-label tokenization platform
SolidBlock lets you tokenize your assets
The benefits of Real Estate Tokens
Owning or selling real estate tokens can provide enhanced liquidity, broader accessibility, portfolio diversification, streamlined processes, and the benefits of fractional ownership.
Ability to create liquidity: Real estate tokens offer increased liquidity compared to traditional real estate investments. By tokenizing a property, fractional ownership becomes possible, allowing investors to buy and sell smaller portions of the asset. This opens up opportunities for investors to enter or exit investments more easily, as they can trade their tokens on secondary markets. Increased liquidity also provides property owners with the ability to unlock the value of their illiquid assets by selling tokens to interested buyers.
Lower barrier to entry: Tokenization enables broader access to real estate investments. Traditional real estate ownership often requires significant capital, making it inaccessible to many retail investors. However, with tokenization, investors can participate in high-value properties with smaller amounts of capital.
Portfolio diversification: Real estate tokens allow investors to diversify their portfolios by including fractional ownership of different properties. By tokenizing assets across various locations and property types, investors can mitigate the risks associated with concentration in a single property or geographic area.
Lower transactions costs: Tokenization streamlines various real estate processes, reduces transaction costs and improves transparency. Smart contracts, enable automated execution of agreements, reducing the need for intermediaries and associated costs. Blockchain's inherent transparency ensures that property details, transaction histories, and ownership records can be securely stored and accessible to all relevant parties.
The Risks Associated with Real Estate Tokenization
Every investment has some component of risk. Although the tokenization of real estate has added a technological layer, it is still an investment in real estate, and all the best practices linked to real estate investing remain and should be applied.
Understanding the additional risks incurred when investing in tokenized real estate is essential to making informed decisions and navigating this emerging market successfully.
Regulatory and Compliance Risks: The regulatory landscape surrounding tokenized assets is still evolving in many jurisdictions. Buyers and sellers need to be aware of the legal and compliance requirements related to investing in real estate tokens.
Investor Protection: As tokenization opens up real estate investments to a wider investor base, there is a need for robust investor protection measures. Buyers should be cautious of potential scams, fraudulent projects, or misleading information. Lack of transparency, inadequate disclosure of property details, or misleading marketing can pose risks to investors.
Reputation and Trust: Tokenization relies on trust and transparency. Sellers should be transparent about the property details, financials, and any associated risks. Failing to provide accurate and comprehensive information may lead to a loss of trust from potential buyers, hindering the sale of tokens.
Market Risks: Tokenized real estate assets are still a relatively new and niche market. A lack of liquidity or a limited number of potential buyers can affect the ability to sell tokens at the desired price or within the desired timeframe.
Technological Risks: Real estate tokenization relies on blockchain technology and smart contracts. However, there are inherent risks associated with these technologies. Smart contract vulnerabilities, programming errors, or security breaches can lead to financial losses or unauthorised access to personal information.
Reconciliation with land registries: Real estate tokenization requires reconciling the applicable transaction with the current systems of land registration.
Cryptocurrency volatility: Cryptocurrencies, such as Bitcoin or Ethereum, are known for their price volatility. Fluctuations in cryptocurrency values introduce additional risk to real estate tokenization.
Taxation: Real estate tokenization introduces complex tax considerations as taxation of cryptocurrency varies from country to country. How are capital gains taxed on real estate tokens? How should the rental income be taxed? These are unknowns that need to be factored in.
Regulatory Compliance and Anti-Money Laundering (AML): Regulatory requirements, including Know Your Customer (KYC) and AML regulations, may impose additional compliance burdens on buyers and sellers when using cryptocurrencies for real estate transactions.
Conclusion
The future of Web3 in real estate holds immense potential for disruption and innovation, including decentralized ownership, automation through smart contracts, and enhanced transparency. As blockchain technology continues to evolve, I think we can expect expanded use cases, more adequate regulation, and wider adoption.
The advent of tokenization has opened up new avenues for real estate investment and ownership and has the promise of making real estate exposure a possibility for more people. For investors, real estate tokens offer some improvements when compared to REITS, namely all the benefits associated with using blockchain technology. However, with new technology come new risks and these are at this time difficult to manage.
AI - Your weekly ChatGPT Prompt
Like most people, I have been exploring CHATGPT and different prompts. Each week, I will share my favorite prompts with you.
What it does
Train ChatGPT to generate prompts for you.
Prompt
You are an AI designed to help [insert profession]. Generate a list of the 10 best prompts for yourself. The prompts should be about [insert topic]
That’s all for this week… 🫶 Poke to my real estate friends.
Please note that I do not recommend or endorse the companies and organisations mentioned in this newsletter. This content is purely informative and not a recommendation. Always be mindful of where you connect your wallet. Always do your own research. 💛