Since its inception, the promise of cryptocurrency has always been a marketplace independent of the centralized global financial system that has dominated for the past 70 years. While that promise remains, it hasn’t been able to escape from the enormous gravity well of the central banks: interest rate hikes and QE is highly correlated with the bull/bear cycle.
With macroeconomic factors making their presence known in the crypto world, a long-term bear market has settled over the sphere like an oil slick over the past couple of years. Investors, dependent on leveraging themselves for massive gains during bull runs, have been forced to cool their borrowing habits in the face of 5% borrowing rates for banks.
While the crypto market has cooled down, the DeFi space has been busy preparing alternative options investors can use to park their digital assets while waiting for the next bull run. One such option, Real World Assets (also known as RWAs), has been thriving over the past couple of years thanks in part to the rate hikes.
RWAs, DeFi, And Tokenization
RWAs are more traditional investment assets made available for purchase and sale through the crypto market rather than through fiat. While it may seem strange to utilize blockchain technology to engage in off-chain financial activity, assets like bonds do provide a stable hedge against the usual volatility of the market and are starting to provide a significant return.
DeFi companies have been working to add entire classes of RWAs to the crypto sphere to provide investors with a more varied portfolio and take advantage of the blockchain’s own technological potential in simplifying the transaction process. Bonds, stocks, and even physical assets like artwork, precious metals, and real estate are being made available for on-chain investment through various avenues.
One of these avenues, tokenization, involves the breakdown of the value of these assets into tokens that represent a percentage of ownership over the asset. The tokens are tied to the asset’s value rather than any one cryptocurrency, so much like the traditionally wealthy, crypto investors can shield their money from inflation by investing in productive assets.
Fractional Real Estate Investing With RealT
Tokenization is primarily used for physical assets rather than securities, which means tokens can be bought for items like bullion, antiques, and even the old investment favorite, real estate. RealT is the predominant DeFi firm providing tokenized real estate investment options for the U.S. and abroad.
Fractionalized real estate provides various advantages over traditional investing. One primary advantage is a huge boost to liquidity: the use of the blockchain allows for near-instantaneous contract creation and agreements, meaning that transactions can be completed in a matter of hours. This kind of liquidity allows investors to quickly liquidate or build their portfolio in response to market conditions.
It also gives investors access to a guaranteed income stream through building rents. RealT shares rental income through their proprietary tokens, meaning that investors receive a percentage of the rent proportional to an investor’s ownership of the building. The more tokens they own, the more of the income they are guaranteed.
As the Fed continues to make life as a crypto investor difficult, many find that using their winnings from previous bull markets to invest in RWAs can provide a fruitful alternative to simply day trading this week’s new batch of coins. Companies like RealT are helping modernize ancient asset classes by allowing crypto holders to shelter their winnings in real estate.