In partnership with Origin Story, Roofstock onChain launched its NFT marketplace for physical real estate earlier this month.
The $11 trillion real estate market remains a much talked about industry for streamlining access, reducing transaction friction, and democratizing ownership. Real estate technology company Roofstock aims to do just that, launching a marketplace for physical real estate NFTs that cuts sellers’ fees by over 50% when compared to traditional standards.
The nascent “NFT industry” crashed hard in 2022,but what many fail to realize is NFTs aren’t an industry itself. Digital collectibles in the form of profile pictures are the most prevalent NFTs today, but the technology can represent assets in any industry––from real estate to auto loans. Clearly, real estate that leverages non-fungible tokens gets its value from the real estate itself, not the NFT.
Roofstock raised its Series E round this year for $1.9 billion, led by SoftBank. Shortly after its raise, Roofstock launched its subsidiary Roofstock onChain in partnership with Origin Protocol to disrupt the real estate industry via on-chain transactions represented as NFTs.
Origin Protocol co-founders Matthew Liu and Josh Fraser gave insight into the technology, how it can impact real estate, and why investors should be paying attention to it.
Geoffrey Thompson, Roofstock’s Chief Blockchain Officer, and Sanjay Raghavan, Head of Web3 Initiatives, also gave us insights regarding the Web3 initiatives Roofstock has taken on over the last year.
Why tokenize real estate in the first place?
“Tokenizing real estate creates frictionless transactions, simplifies the process, and makes information more readily available. In the traditional closing process, you have at least 10 intermediaries. The whole ecosystem exists for one purpose: so the buyer and seller can have a trusted relationship. Blockchains can be used in real estate to reduce this friction, but it can’t remove all intermediaries for legal reasons.” - Geoffrey Thompson
How does tokenizing real estate improve the transaction process?
“The biggest pain point that real estate NFTs eliminate is the high brokerage fees associated with traditional real estate. Sellers’ fees are traditionally 6% on residential properties, and Roofstock Onchain’s marketplace undercuts this by half. That’s a $15,000 savings for a seller with a $500,000 property. Another benefit of the tokenization of real estate is the accessibility of the properties for potential buyers. The marketplace allows users to purchase real estate with USDC, a widely accepted stablecoin that’s pegged to the value of the U.S dollar. This way, users don’t need to worry about the volatility of the crypto markets.” - Josh Fraser
“I wouldn’t think of it as cutting out intermediaries. The property has to be titled. You have to have someone getting this information the buyer needs. This will always be there. It’s about creating a transparent, immediate system that reduces the information asymmetries between parties.” - Geoffrey Thompson
Are there new financial functions that could be introduced into the real estate industry via blockchain technology?
“Yes, and this is really exciting to us at Origin Protocol. We’ve barely scratched the surface of what DeFi can do, especially when integrated with NFTs. New financial functions created in DeFi will certainly apply to the tokenized real estate market, too. For example, the use of rebasing stablecoins like OUSD could allow for users to earn interest on pending real estate offers on an NFT marketplace. The implications of earning interest on real estate offers could create much more liquid markets in the long-term, bringing a new level of capital efficiency to the real estate markets.
Once physical assets like real estate are represented on-chain, they can be used for on-chain financial transactions. Some examples of this could be using an NFT of a real estate building as collateral for a loan to replace a home equity loan in the real world. Or fractionalization of a real estate NFT so that many parties can invest (vs. using a REIT). Although these aren’t currently offered by Roofstock onChain, they’re interesting ideas to think about.”- Josh Fraser
Do you see in-real-life applications of NFTs becoming the principal application of the tech?
“NFTs will undoubtedly be used to tokenize a variety of in-real-life assets, but right now we’re seeing the principal application of NFTs being mostly through digital applications. This can be attributed to the lack of NFT infrastructure currently available. Real estate, automobile, identity, and music NFTs need much more technological infrastructure than digital collectibles or PFP (profile picture) NFTs that we’ve seen gain in popularity over the last few years.
As platforms like Origin continue to develop infrastructure for new applications of NFTs, I do think in-real-life applications of the technology will become much more prevalent. Now that enough benefits exist for owners to transact real estate via NFTs, the majority of value in these markets could shift on-chain over a long enough time horizon.” - Matthew Liu
Would you ever consider fully decentralizing Roofstock onChain’s marketplace? Is it even possible?
“Our goal is to get to as much decentralization as possible, given the fact that Roofstock is a Web2 company with a traditional governance structure. We think the next evolution of Web3 is to incorporate real-world assets, and we want to be part of that discussion. What does it mean to have real-world assets on-chain? You can't just go to Uniswap and liquidate that. We want to be leaders in integrating these assets with decentralized protocols.” - Sanjay Raghavan
Thompson added, “Even apart from Roofstock, real estate will always have some aspect of centralization. If someone needs their sink fixed, only three people know how much that costs: the tenant, the owner, and the repairman. Should everyone vote on the cost of this? Probably not. We recognize our platform won’t be as decentralized as something that’s only on-chain, but the goal is to get as close to that as possible.”
If I wanted to take a bet on the future of the NFT sector and Origin Protocol, how could I do that?
“Origin Protocol’s OGN token is our value-accrual and governance token for our NFT infrastructure. Origin Protocol works with top NFT creators like 3LAU, Paris Hilton, BT, as well as top collections such as Pudgy Penguins, Karafuru, and Sappy Seals. OGN stakers earn marketplace rewards in the form of ETH, whereas marketplaces like OpenSea treat transaction fees as revenue for the company. OGN is accessible on Coinbase and Binance, so it’s relatively easy to gain exposure to our token.” - Matthew Liu
Non-fungible token infrastructure and adoption is still in its infancy. It’s not likely that homeowners will put their properties on-chain overnight. After talking to the founders that are building the future of on-chain real estate, however, there are clear benefits for transacting on-chain over traditional real estate transactions.
But, will these benefits be enough for your mother to tokenize her home? Probably not in its current state. One thing is certain: it will be exciting to see how non-fungible tokens, decentralization, and blockchains impact traditional industries, especially those as large as real estate.
