Real estate, the largest asset class by value which is expected to grow from $2687.35 billion in 2020 to $3717.03 billion in 2025, is primed to be disrupted by the introduction of blockchain technology. Not only can real estate assets become digitized as tokens on blockchain ledgers, but smart contract developers can deploy on-chain logic that automates various real estate transactions, products, and markets using external data inputs and traditional settlement outputs.
Hybrid smart contracts–smart contracts that leverage both the security of blockchain networks and the richness of real-world data inputs–give holders the ability to use their tokenized real estate assets on blockchains in unique ways, such as trading them against reliable benchmarks or supplying them as collateral for a loan. Additionally, exotic derivatives products can be created and settled on-chain using an external data feed, allowing stakeholders to hedge against various real estate industry trends. Each of these hybrid applications requires access to existing APIs like premium real estate data providers and payment gateways, which Chainlink makes easily available on-chain for both developers and businesses eager to explore the possibilities of blockchain-based real estate applications.
The Benefits of Blockchain Technology for Real Estate
Blockchains allow real estate property to be digitized as fungible or non-fungible tokens (NFTs) on blockchains, giving holders percentage ownership or whole ownership over the physical property they represent. Hybrid smart contracts enable the creation of data-driven logic that allows holders to use their real estate assets on-chain in unique ways, or even to gain exposure to the real estate market without actually holding the underlying assets.
Blockchain-based real estate applications include:
- Transferring real estate ownership based on predefined conditions
- Locking up real estate NFTs as collateral for on-chain loans
- Triggering recurring rental payments at the beginning of each month
- Offering derivative products that provide specialized exposure to industry trends
- Generating passive yields on a decentralized real estate ETF by having it serve as liquidity to lending protocols, with an added benefit of greater transparency and meta-governance.
The use of hybrid smart contract applications within the real estate industry brings about several unique benefits for users:
- Utility – real estate assets can be easily used within other blockchain-based financial products without the cumbersome manual overhead.
- Liquidity – real estate assets can become more globally accessible, creating additional liquidity and less slippage for buyers/sellers.
- Provenance – blockchains can provide an immutable audit trail of ownership for a real estate asset, such as its full transaction history and metadata on improvements made.
- Risk Management – on-chain derivatives products can be built that open up more advanced hedging strategies like a homeowner or real estate agent protecting themselves against a potential decline in projected home values within a geographic region.
- Efficiency – automated real estate transactions can be fully integrated with existing systems to reduce overhead and speed up settlement times.
Bringing Real Estate Data On-Chain With Blockchain Oracles
Each hybrid smart contract application mentioned above is data-driven, meaning it’s priced, settled, and/or secured on the blockchain using high-quality data inputs. Some even require external outputs, such as the ability to make payments on traditional payment gateways or e-signature approvals from specific people.
However, blockchains are purposely built to be isolated networks, creating a high degree of security and reliability by only keeping an internal state of consistency about internal transactions. This means that blockchains do not contain any data about the real estate industry nor do they have any built-in capabilities to call external APIs. This is often referred to as the oracle problem.
To connect smart contracts to the traditional data and systems outside the blockchain requires an additional piece of infrastructure known as an oracle. Oracles are digital entities that exist as a bridge between the blockchain environment (on-chain) and any external environment (off-chain). They provide developers with several features, most notably formatting APIs so they are compatible with different blockchains, transmitting data between on-chain and off-chain environments, and providing additional features like aggregating data from multiple sources, generating data privacy, and signing data to prove it came from a particular web server.
On-Chain Real Estate Datasets Powered By Chainlink
Chainlink is the most widely used and time-tested oracle solution in the smart contract economy, already securing tens of billions of dollars in value for leading hybrid smart contract applications. Chainlink is both blockchain- and API-agnostic, meaning it’s a future-proof middleware that can be used to connect to any external API from any blockchain. It’s also fully customizable in that developers can aggregate from a number of data providers using any number of Chainlink nodes, removing any central points of failure in the sourcing and delivering of external data on-chain
Numerous premium real estate data providers are already supplying high-quality datasets on-chain through the Chainlink Network, including:
- SmartZip – provides a proprietary predictive analytics model that aggregates data from 24 sources and contains over 1 billion data points on residential real estate, including up-to-date market valuations, rental rates, regional trends, and predictive pricing models to smart contracts. Developers can call the SmartZip Chainlink node to obtain estimations of residential real estate values from SmartZip’s patented Automated Valuation Model (AVM).
- ProspectNow – supplies detailed information for every property on record in the United States, including over 100 million residential properties and 42 million commercial properties across all 50 states. ProspectNow aggregates and cleans real estate market data derived from a trusted network of public, private, and internal datasets. Developers can call the ProspectNow Chainlink node to obtain data for the average price per square foot of residential real estate for the last quarter, given a specific ZIP Code.
How Smart Contract Developers Can Access Real Estate Data On-Chain With Chainlink
If you want to consume real estate data in you smart contract application, we encourage you to check out the technical tutorial below, which showcases how to get high-quality residential real estate valuations by taking an average from both SmartZip’s Automated Valuation Model (AVM) and ProspectNow’s price per square foot data. The tutorial also provides additional documentation on how to build connections to other data sources and where to ask technical questions:
To learn more about Chainlink, visit chain.link, subscribe to the Chainlink newsletter, and follow @chainlink on Twitter. To understand the full vision of the Chainlink Network, read the Chainlink 2.0 whitepaper.
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