Real estate has been an object of investment for decades, and that will continue as long as we desire to have a home, go to shops, and work from an office.
What is changing is how we’re buying and selling real estate.
Over the past years, the markets have become more and more liquid thanks to financial instruments. But most real estate investment is not available to the public due to their high prices, loaded paperwork, and administrative costs.
With blockchain technology and DeFi (Decentralized Finance), we are now entering a new normal for real estate investment because real-world assets on the blockchain can be transparent, liquid, fractionalized, and thereby become easy to trade.
The problem faced by real estate tokens is that they are completely illiquid before launching.
So, to ensure liquidity, you need a way to tap into existing liquidity pools and connect to these.
Since there are many real estate tokens — from many different real estate properties — there is a high risk of a particular real estate token becoming illiquid in the market, unless there is a mechanism that works to prevent this.
When tokens are traded in the open market, they can be manipulated. That is a great concern that has to be addressed.
First of all, real estate tokens are different from other native blockchain tokens like BTC and ETH in the sense that there is an underlying asset with a book value.
The Platform Reserve:
Whenever a real estate token is traded below the book value of the underlying asset, the reserve should start buying up these real estate tokens. The real estate tokens are only resold to the market when the price has increased above the book value.
Real Estate Developer Reserve:
Similar to the platform reserve, the real estate developer that initially issued the real estate tokens has to allocate a certain amount of tokens raised in a reserve to buy up real estate tokens if the price drops below book value.
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Also published here