No-hype conversations about crypto and blockchain.

Real Estate is the largest asset class in the world. In 2017 an estimate valued the global real estate industry at around $280 trillion dollars. The overwhelming deviation of value that residential real estate has over commercial real estate is even more alarming; in the United States alone, the residential real estate market is valued at over $35 trillion dollars.

It is also the most impassioned asset class as its value is derived from a very humanistic and basic need: a place to call home. There are two main questions I will attempt to answer in this post:

  1. What role does real estate play in 'The Great Redistribution" of wealth?
  2. How does blockchain fit into this historical moment?

The longer term trends point towards the institutionalization of residential real estate on a global scale. Private and public sectors alike will begin to control the majority of housing inventory in an effort to capitalize on yields.

What does that mean for economies, industry, and — most importantly — the people? The tough pill to swallow is that there isn't necessarily a sole entity or individual to blame. The current landscape is just a consequence of reactionary decision making during times of exponential growth and the consequence of long-term unforeseen market responses.

One of the biggest reasons we are seeing an influx of financial institutions ramping up acquisitions in the housing market has a lot to do with the baby boomer generation, so let's take a look there first.

The Baby Boomers

The Baby Boomer generation was the largest generation the world had ever seen, a product of the post-World War II era (50s-60s) in which human behavior shifted from nationalism to isolationism. Americans shifted their focus to themselves and their livelihood just as much as the United States shifted focus to its own livelihood.

Economic policy emphasized growth as many veterans took advantage of new policies, such as the GI Bill of Rights in order to go to school, buy homes, and vehicles at subsidized rates. The United States was the most well positioned to prosper after the war, and the economy emerged affluently beyond many expectations.

As the country approached the late 70's and 80's, the United States' largest generation was about to hit peak-consumption age in one of the most prosperous times in history.

The Baby Boomer generation was also more prone to the consumer ideology as they tried to escape the harsh living conditions of wartime that their parents endured, sparking the age of excess. Large generational consumer demand for houses, cars, household items, food etc. sparked massive inflation as supply bottlenecks sprung up in almost every sector of the economy. The United States was utterly unprepared for the sheer amount of people bidding up goods. This is where decisions were made that are still affecting our economy today.

Wall Street

With the largest cohort of spending-prone individuals in the world, the question was: how can we leverage this? Financial institutions brought forth two very intuitive monetary schemes:

  1. The pension plan.
  2. The credit programs.

Baby Boomers now didn't have to save for retirement or use their cash; consumption on steroids. The problem? Neither Wall Street nor credit-servicing individuals could keep their promises.

Pension funds struggled to procure yields and individuals lost enormous amounts of wealth in both equities and real estate during the Dot-com crash and housing crisis. Household debt and pension fund deficits began to rise.

Figure A

The average retirement age in the United States is 65, with the average 'Boomer' turning 65 in 2018. We are now in the middle of the biggest unwinding of economic participants — or at least, we should be.

Look at how abysmal the above income stats are for most potential retirees (Figure A). Remember, in the lifecycle of wealth, as you near retirement age you should traditionally be cycling out of growth investments and into fixed income assets.

Remember, these baby boomers endured two of the largest over-valued crashes in both the equity and real estate market and can no longer afford to be risk averse. And guess what? Neither can the pension funds.

As life expectancy continues to exponentially rise, cost of living increases, millennials continue to produce less offspring and join the labor force, pension fund income is no longer sustainable.

With less capital flowing into funds from labor contribution, funds must chase after higher risk investments in order to safely secure projected retirement benefits. This is why pension funds are over 5 trillion dollar's in unfunded liabilities in the United States, among others.

In a SEC filing, CalPERS (the largest pension fund in the world) reported taking positions in 'risky' tech stocks like Nikola, Nio, Zoom, and Tesla. As financial conditions push individuals and funds to seek returns in riskier investments on this type of scale, the truth becomes glaringly clear: wealth is being redistributed in grand proportions, but how?

The Wealth Distribution

As publicly funded pensions were pushed to the fringes of seeking higher returns the transparency into their financials have been increasingly murky. Studies have shown wide distrust and information asymmetry when pension fund portfolio allocation is completely opaque.

This is very alarming. What makes it worse is Covid-19 has cornered them between a rock and a hard place. How so?

This is the Fed Funds Rate (Figure B). As you can see in the 80's, around the same time pension funds were beginning to gain widespread adoption in both the political and regulatory arenas, interest rates were at an all time high (blue arrow). When interest rates are at all time highs, things like fixed annuities, money markets, bonds etc. produce substantial yields. These yields provided pension funds with the funds to cover present value liabilities and future obligations.

Figure B

Look at the two red arrows, on the left was the housing crises and on the right is Covid-19. Interest rates plummeted near zero as monetary and fiscal policies were forced to stimulate the economy. Well, guess what? That means all those perfect and juicy yields have dried up. Where does that leave pension funds?

Anywhere from $3-8 trillion dollars of liabilities to service, depending on how you measure them (thanks to non-transparency) and an investment environment that favors speculation and risk.

Real Estate

Where is the opportunity for fixed income, purchased at a historically low rate, and which can also be funded by the public sector with little-to-no political backlash?

You guessed it, Real Estate. But more specifically, single family rentals (SFR's).

Figure C

This is a chart (Figure C) showing the growth of rental homes after the housing crisis, and when institutional investors stepped into the asset class with gusto. Yes, institutional investors.

10 years and $2.5 trillion dollars later, it continues to rise, and has no signs of slowing down.

U.S. home prices are about to hit price discovery once breaking past the speculative bubble-high set in the early 2000's before the housing crisis, and with the current low-for-longer interest rate environment, I don't see this trend slowing down any time soon. Get ready for the federally-backed institutionalization of the most important asset class in the world.


BlackRock is a private equity firm that manages money for other institutions or individuals in order to satisfy specific investment criteria. Their entrance into the real estate game is less about controlling market share and more about satisfying their customer, who has amassed enormous amounts of debt obligations via fund mismanagement and political scrutiny.

Also, as I said earlier, real estate is a very impassioned asset class so when you have a faceless entity buying up even a small amount of homes from normal home buyers, emotions are sent in a flurry.

The scary reality isn't that institutions have gobbled up significant shares of the United States housing market, it's that the federal government's monetary and fiscal policies are about to allow them to without any state or local-level political checks and balances.

The stage is already set for the transformation of the largest asset class in the world:

  1. Fed drops the Fed Funds Rate (bond yields drop)
  2. Fed buys >$1 trillion in mortgage-backed securities since March 2020 (drops mortgage interest rates)
  3. Low bond yields push near-insolvent pension funds towards other investments (real estate)
  4. Pension funds contract private equity firms to invest in SFR's which they can do cheaply because of the low mortgage rates
  5. Rising inflation eats up expected retiree benefits – adding pressure

As long as the stage is set accordingly, we could see the entire asset class shift from home ownership to renter's economy at a shocking pace. The reason this works so well is apparent when you follow the flow of money:

  1. Pension funds receive contribution from employers and employees (i.e. income)
  2. Using a part of that income, the fund allocates it towards a firm like BlackRock
  3. BlackRock takes advantage of low rates to buy properties in strong labor markets
  4. Pension funds now own a majority stake of housing in the market they employ
  5. Employees and employers pay rent back to the pension funds
  6. Inflation and a federally backed housing market boost home prices further

This solves their yield and contribution problems and also puts a strong grip on union workers and laborers. With control over the the rental market, union workers pushing for increased wages may mean very little without state regulatory oversight.

The Problem

There are other rental economies in the world: for instance Germany, Sweden, and Switzerland. However, no country puts more ideological emphasis on home ownership than the United States. That push towards home ownership persists through generations as well, and creates for the United States a unique problem.

According to a 2021 survey by Fannie Mae, a government sponsored entity, showed 74% of Americans believe a home is a safer asset than stocks, and 84% consider owning a home to be consequential to 'the good life.'

How will this radical shift of the United States housing market – a market that drives 15% of national GDP – affect the ideals of American citizens?

If we do shift our way towards a rental forward economy, a massive push towards other investment vehicles will be necessary in order to replace home ownership equity, especially for lower and middle income households.

Figure D

For the majority of homeowners (Figure D) whose median net worth is below $192,000, most of that wealth accrues from the equity of their home. The individuals who have a net worth over $192,000 however, whether a renter or a homeowner, have a significant portion allocated towards non-housing investments.

This is clear financial-education information asymmetry, and shows the likelihood of the 1% to take advantage of more investment vehicles than lower income households.

This is the median wealth per country (Figure E) and the top 1% share of wealth per country (Figure F). As you can see, the United States is closer to the bottom of the global median wealth representation, yet the most top heavy nation in the world when it comes to 1% share of the wealth.

With this information, I see a clear lack of financial education for the majority of American citizens mixed with monetary and fiscal environments that favor liquid individuals and entities.

If real estate does indeed shift, low-to-middle income household wealth will be wiped out. One solution is to educate them on where to invest their money in place of household equity, or other ways to invest in real estate without owning real estate, with the help of blockchain.

Blockchain in Real Estate

The reality is that blockchain has the power to alter value transfer, and at the center of it is the replacement of middlemen with middleware, and the replacement of trust with guarantees. How does this reflect upon real estate and the coming shift in tides we are seeing in the wake of monetary and fiscal policies today?

Real Estate is probably the most laden industry of middlemen and the most prepared to be disrupted. These middlemen not only suck up exorbitant fees during the issuing and reselling of property, but also cause information overload and bottle necking that stave potential homeowners away from purchasing property. This directly impacts the true value of real estate via an 'illiquidity discount.' With 86 million residential properties in the United States, removing the middlemen and tokenizing property could shore up trillions in lost value.

There are many avenues an individual investor would be able to invest in a tokenized real estate landscape, like the following:

  • Equity ownership through a Special-Purpose Vehicle (SPV)
  • Shares in real estate funds
  • Timeshares
  • Fundraising / Syndication
  • Tokenized REITs (Real Estate Investment Trusts)

Within these avenues there are major pros that exist which tokenization brings for both low/middle income and wealthy investors alike. For instance:

  • Global Access
  • Fractionalization (broader onramp + diversification)
  • Standardized transactions (smart contracts)
  • Baked-in blockchain advantages (transparency, security, immutability, privacy)

A study done by Wyndham Capital Mortgage showed that 58% of people who responded to their survey said they would purchase a home entirely through the use of their smartphone when they are ready to purchase. This shows just how ready American citizens are for the removal of middlemen.

What would need to go on behind the scenes to disrupt the largest asset class on earth?

How Blockchain Real Estate Can Work

There are a litany of things a token issuer has to keep in mind when issuing a tokenized property. For instance:

  • Type of Interest
  • Legal Entity
  • Smart Contracts
  • Securities Regulations
  • Corporate and Tax Codes
  • Asset Type
  • Location
  • Tokenization ratio
  • Mortgage Issues
  • AML/KYC/Accreditation
  • International Sales

Type of Interest

As a token issuer you have to decide what interest your investors are going to take in the property your token represents. That interest could be a direct relationship to the property itself at a 1:1 value ration with the option to be fractionalized. It could be an equity interest in a legal entity, a mortgage, a right to share in rental income, or any variation of these interests.


You need to structure the entity correctly as well. Tokens will likely fall under the same regulatory guidelines as securities, and in most cases already do. An SPV is a legal entity designed to separate a token issuer and the tokens themselves for accounting, tax and bankruptcy purposes. An SPV can be an LLC, a trust, LP, or S-corp and you will need a professional to help set this up.

Smart Contracts

You either need a robust enough platform that provides a DSL-like framework to make it extremely easy to cover all aspects of the tokens lifecycle or you'll need to hire developers to create the smart contracts themselves.

The smart contracts must contain within them the laws of which token holders must abide by in order to truly and effectively create a trustless economy. For instance, if your token holders are to receive dividends from holding an equity stake, the smart contract must say so.

The smart contract must also explicitly outline if the distributions are mandatory, what are the amounts, their vesting or lockup periods, what dates are distributions made, and so on and so forth. Thorough technical security audits will likely be mandatory before any token issuance, and should be.

Security Regulations

If real estate tokens are going to be scrutinized as a security, you must follow the regulation set by the Securities and Exchange Commission. Either by registering with the SEC directly or by structuring in a way that is exempt from certain regulations.


You'll also need to understand the tax implications for your token before, during, and after the token offering.

Tokenization Ratio

You'll need to define how much of the real-world asset is being tokenized and how much is being traditionally funded.


Virtual token issuers must be careful to comply with certain verification laws as well as offering tokens to non-accredited investors without if the asset requires an accredited investor or vice versa.

A New Real Estate

As you can see their is a lot of work to do and a lot of things to change, but imagine a world where no matter if you are a homeowner or a renter, are in Washington DC or India, whether you are an individual or an entity, you can buy, sell, trade, vest, fund and speculate on tokenized digital representations of real property and securities without ever getting out of bed.

That is the path blockchain and the developers within can pave.

The true evil of this shift away from homeownership and the impact it will have on the majority of American's chance to build wealth is the indifference of the government to educate people properly on how to invest their money.

There is a significant opportunity for educational mediums for alternative assets once homeownership is no longer the flagship wealth builder for the largest majority of Americans.

While blockchain can level the playing field and make access to once-exclusive real estate deals (and broaden the onramp in which to do so), it will be up to a select few willing to educate the people on why they should in the first place.

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