Tokenization of Real World Assets (RWAs) with Real Estate in Focus

11 min readFeb 22, 2024

Introduction

Tokenization, the process of representing real-world assets as digital tokens on a blockchain, has become a transformative force in the decentralized space. Solana, known for its high-speed and low-cost transactions, provides an ideal platform for tokenization.

The Solana Primary Library (SPL) defines how smart contract tokens on the Solana blockchain operate. The operational standards are delineated in the library and must be adhered to by any token created on the Solana blockchain. These tokens are known as SPL tokens.

The SPL Token Standard

The SPL token standard on Solana defines how NFTs and fungible tokens on the Solana blockchain operate, and ensures that SPL tokens are composable and interoperable with Solana wallets and smart contracts.

Unlike Ethereum’s ERC, where there are different token standards for different types of tokens like ERC-20 and ERC-721 (NFTs), the SPL token standard applies to all token types on Solana, where the difference in operation is defined at the token creation stage.

Solana’s official developer documentation serves as a valuable resource for those seeking to understand and implement tokenization on the platform. It includes detailed guides, tutorials, and API references that cover various aspects of token creation, smart contract development, and integrating tokens into applications.

To create an SPL token, you can log the code first or modify the program of an existing SPL token. Certain applications have also been deployed to help creators mint SPL tokens without doing much programming. During the minting stage, the core properties of the token are inscribed on the program.

For example, to create a non-fungible SPL token, the supply is set to one and the decimal function is removed. For fungible tokens, the developer inscribed the decimal function to allow the token to be sent in splits. Similarly, the supply data is set, according to the project’s tokenomics strategy. Once created, the tokens function like any other crypto asset, unless defined otherwise by the creator at the minting stage.

Basically:

Fungible Tokens (FTs): Represent divisible assets like currencies, loyalty points, or fractionalized ownership of physical assets. Imagine tokenized shares of a company or a stablecoin pegged to the US dollar.
Non-Fungible Tokens (NFTs): Represent unique digital assets like artwork, collectibles, or event tickets. Each NFT is distinct and cannot be replicated, making it ideal for representing unique ownership or value.

Tokenization on Solana:

Define the Token: Begin by outlining the token’s purpose, characteristics, and total supply.
Choose a Token Standard: Solana utilizes the SPL (Solana Program Library) token standard, which provides a framework for creating and managing tokens.
Develop the Token Program: This program governs the token’s behavior, including minting, burning, transfers, and interactions with other programs.
Deploy the Program: Upload the program to the Solana blockchain, making it accessible to users.
Mint Tokens: Create new tokens based on the program’s rules.

Solana’s Token-’22

The Solana token program is the innovation that is part of the Token-2022 program currently in development. Token-2022 is meant to add new functionality to SPL tokens, extending the capacities of the existing functionalities. Token-2022’s innovations will expand new metadata to SPL tokens and will allow users to explore even more use cases for SPL tokens. The innovations include Minting and Account functions such as:

New Minting Functions

Transfer fee: Developers and enterprises can add fees when an SPL token is transferred.

Transfer functions: Developers and enterprises can specify advanced transfer operations for an SPL token. Tokens can be set as non-transferrable too.

Interest-bearing tokens: Permit enterprise or businesses to add some custom logic to an SPL token.

New Account Functions

Transfer memo: This will permit users to add a note to SPL token transfers.

Account ownership (or Permanent Delegate): Permits users to define rigid ownership data for an account. This cannot be changed once set.

Account state: Permits users to input a metadata pointer that applies only to a selected account.

The newly-introduced functions of the Token-2022 program could be a significant upgrade for the token system on the Solana blockchain. More on the Token-’22 here

These SPL tokens can be used to represent Real-World Assets. The mode of operation is defined by the creator, but the SPL standard is fit for known RWA tokenization procedures. Future implementations that could make SPL tokens more suitable and compliant for RWAs than they currently are is the Solana token extensions innovation.

However, before we delve into the Solana token extensions, let us explore RWA and DeFi. DeFi, or decentralized finance, has revolutionized the financial landscape by providing open and permissionless access to a wide range of financial services. While DeFi primarily operates within the realm of digital assets on-chain, there is a growing interest in integrating real-world assets (RWAs) into DeFi protocols.

This integration opens up new avenues for liquidity, diversification, and yield generation. The first step in integrating RWAs into DeFi is tokenization. As mentioned earlier, tokenization involves representing real-world assets, such as real estate, stocks, bonds, or commodities, as digital tokens on a blockchain. These tokens are then made tradable and divisible, enabling fractional ownership and transferability.

A company could tokenize a commercial property by representing each square foot of the property as a digital token. Investors can then purchase these tokens, gaining fractional ownership of the property. Platforms like MetaWealth facilitate the tokenization and trading of real estate assets on the Solana blockchain network.

Once real-world assets are tokenized, they can be used as collateral within DeFi protocols to access borrowing and lending services. Collateralization allows users to secure loans by pledging their tokenized RWAs as collateral.

This opens up opportunities for individuals and businesses to access liquidity without liquidating their physical assets. For example, platforms like Ondo finance, Maple finance and MakerDAO (DAI) allow users to borrow stablecoins by collateralizing their crypto assets, such as Bitcoin or Ethereum. Similarly, platforms could offer loans backed by tokenized real estate or other RWAs, providing borrowers with additional options for collateralization.

Tokenized RWAs can also be utilized in yield farming and liquidity provision strategies within DeFi protocols. Users can provide liquidity to decentralized exchanges (DEXs) or liquidity pools by depositing their tokenized RWAs and earning rewards in the form of interest, fees, or governance tokens.

For example, Jupiter and Raydium are popular decentralized exchanges on Solana that allow users to provide liquidity by depositing token pairs into liquidity pools. In the future, similar platforms could enable liquidity provision for tokenized real estate assets, allowing users to earn yield by providing liquidity to real estate markets.

Using permanent delegation in token extension, token transfers can be gated by digital assets like NFTs or loyalty cards, and make it easier to update tokens that are tied to ownership of real-world assets.

Tokenized RWAs can also serve as underlying assets for the creation of derivative products within DeFi protocols. Derivatives such as options, futures, and synthetic assets allow users to hedge risk, speculate on price movements, and gain exposure to various asset classes.

Synthetic assets representing real estate indices or price movements could be created within DeFi protocols. Users could then trade these derivatives to gain exposure to the real estate market without directly owning physical properties, enabling more efficient risk management and diversification strategies.

It’s important to note that integrating RWAs into DeFi comes with regulatory and legal considerations. Compliance with securities laws, property rights, and investor protection regulations must be carefully navigated to ensure legal compliance and mitigate regulatory risks.

Integrating RWAs into DeFi opens up new possibilities for liquidity provision, borrowing, risk management, and investment diversification. However, it also presents challenges related to regulatory compliance, legal frameworks, and technological infrastructure.

Thanks to the flexible token extensions innovations that address not only the challenges of regulatory compliance, but also fees and revenue sharing. Tokens that represent RWAs could add extensions to create tokens that can earn interest, demand metadata about their source, and demand KYC with regulated transfers. Defi projects and developers can use transfer fees to implement fee based tokenomics in their revenue sharing model.

Token Extensions and Innovations

Token Extensions on Solana refer to an extension of the existing token standard, offering additional features and functionalities beyond the basic transferability of tokens. This innovation provides enterprises with the tools to embed specific business logic into the metadata, local and global compliance measures, and governance mechanisms directly into their tokenized assets. Using extensions permits you to customize the behavior of your tokens for your enterprise specific on-chain needs at the base layer of your stack.

Extensions can be of two types: mint and account extensions;

Mint extensions are added on top of the original token program and extend the abilities of the tokens.
Account extensions are added on top of the Solana accounts and include account related features.

Source: https://bit.ly/3SDGvO0

Current mint extensions include; confidential transfers- which permit confidential transfers between participating users without revealing the amount of the transfer. The source, token and destination are not confidential, only the amount.

This gives a chance for regulatory bodies, investors and auditors to do their due diligence. Another innovative feature worthy of mention is the transfer fees. Transfer fees permit fees to be charged with each transfer and sent to a designated account.

Non-transferable tokens cannot be transferred between users. This kind of tokens cannot be traded or exchanged and most times referred to as soulbound tokens.

Transfer Hooks extensions: Transfer hooks could be used to enforce KYC and to mitigate financial fraud cases such as Anti-money Laundering (AML). At the same time, transfer fees could take a share of every transaction for further development and expansion. These use cases ensure privacy and at same time ensuring self custody. All these in one program and no need for a private chain just add a few lines of code to the SPL token.

Source: https://bit.ly/3SDGvO0

Interest bearing token extensions:

With interest bearing extensions, enterprises and businesses can create interest bearing assets on-chain. This will facilitate the mirroring of real-world interest-bearing financial instruments and assets such as real estate and bonds that appreciates over time. With the global net wealth totalling about $510 trillion and the real estate sector taking 68% share. This is a massive use case and MetaWealth is taking a head start.

Tokens can have native yields or transparent, automatic and equitable rewards without the need for a rebase. This is very useful not only for real estate but also for profit sharing mechanisms for DAOs and tokenized staked assets.

With the extensions, enterprises can set interest rates on the tokenized asset and get the yield on the asset at any time.

Interest is continuously compounded based on program timestamp. Enterprises and developers can use the Solana Tool Suite to build tokens with a CLI in order to begin producing tokens with token extensions. Your command flags may vary depending on the extension you wish to generate, transfer fee or transfer hook, interest bearing tokens and so on.

The Impact of MetaWealth

MetaWealth is at the forefront of innovation in the decentralized finance (DeFi) space, specifically focusing on the development of the Real-World Asset (RWA) ecosystem for real estate. As a pioneering platform, MetaWealth aims to revolutionize the way real estate assets are tokenized, traded, and leveraged within the DeFi landscape.

MetaWealth is a decentralized finance platform that specializes in the tokenization of real-world assets, with a particular emphasis on real estate properties. The platform leverages Solana blockchain technology to tokenize physical assets, allowing investors to gain fractional ownership and access liquidity through DeFi protocols. MetaWealth’s vision is to democratize access to real estate investments and unlock liquidity for asset owners and investors worldwide.

Through its platform, MetaWealth enables property owners to convert their physical real estate holdings into digital tokens that represent fractional ownership. These tokens are secured on the Solana blockchain network, providing transparency, security, and liquidity to investors.

MetaWealth plays a pivotal role in the development of the RWA ecosystem for real estate by providing a robust infrastructure and ecosystem for tokenized assets. This ecosystem encompasses various stakeholders, including property owners, investors, developers, and DeFi protocols, and is supported by it’s innovative solutions and services.

MetaWealth offers a range of features and offerings designed to facilitate the tokenization and management of real estate assets within the RWA ecosystem.

The MetaWealth range of services include:

Tokenization Platform: MetaWealth’s tokenization platform allows property owners to tokenize their real estate assets with ease, providing them with access to a global pool of investors and liquidity.
Secondary Market Trading: MetaWealth facilitates secondary market trading of tokenized real estate assets, enabling investors to buy, sell, and trade digital tokens representing fractional ownership in real estate properties.
Liquidity Provision: MetaWealth partners with decentralized exchanges (DEXs) on the Solana blockchain and liquidity pools to provide liquidity for tokenized real estate assets, ensuring that investors can easily access liquidity and exit their positions when needed.
Governance and Compliance: MetaWealth implements robust governance and compliance mechanisms to ensure regulatory compliance and investor protection within the RWA ecosystem. This includes KYC/AML procedures, smart contract audits, and adherence to legal frameworks governing real estate investments.

Advantages of MetaWealth’s RWA Ecosystem:

MetaWealth’s RWA ecosystem offers several advantages for property owners, investors, and developers:

Fractional Ownership: Property owners can unlock liquidity by tokenizing their real estate holdings and selling fractional ownership to a diverse pool of investors for as low as $100.
Global Access: Investors gain access to a diverse range of real estate assets from around the world, allowing for portfolio diversification and exposure to new investment opportunities.
Efficiency and Transparency: The use of blockchain technology ensures efficiency, transparency, and immutability in the tokenization and management of real estate assets, reducing friction and eliminating intermediaries.
The wallet is created for investors automatically once they sign-up. Users get invested and start getting their yield and ROI with only a few clicks. No paperwork or complicated process required. Since the beginning of the year, MetaWealth have tokenized 66 assets, closed $5.5 million in sales with over 1500 transactions; 30,000 App downloads, $4,500 average transactions and with investors in over 23 countries.

The Bottom line…

MetaWealth is leading the charge in the development of the Real-World Asset (RWA) ecosystem for real estate. The founders include two veteran real estate investors and developers with roots in Canada and the U.K. They have more than 2 decades experience and seasoned managing partners with a track record that includes more than 1,940 apartments developed or owned.

Existing pipeline expands to over 4700 apartments and a GDV of $1.3 billion with office and retail inclusive. To leverage blockchain technology, MetaWealth is in synergy with two of the best and brightest Web3 pioneers from North America, whose experience includes building FinTech startups with $6 billion in assets from ground up. Presently, the team is now leading a growing 12+ in-house development team, building MetaWealth proprietary asset infrastructure in the DeFi ecosystem.

Property owners can securely tokenize their real estate assets, providing investors with fractional ownership and access to liquidity through DeFi protocols. With its innovative solutions and commitment to transparency and compliance, MetaWealth is poised to reshape the real estate investment landscape and unlock new opportunities for asset owners and investors worldwide. Download the MetaWealth App to get started.

Sources:

Tokenization of Real World Assets (RWAs) with Real Estate in Focus

Solana’s Token-’22

New Minting Functions

New Account Functions

Written by Eric Nwachukwu

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