Introducing Real-World Utility

Published on
March 12, 2024

Introducing Real-World Utility

RWA’s - real-world assets brought on-chain in some way, shape, or form - are ready for prime time. According to the Boston Consulting Group (BCG), the total value of tokenized illiquid assets, such as real estate and natural resources, is projected to reach $16.1 trillion by 2030. However, the term RWA is broad. The greatest opportunity within the RWA domain lies in discovering applications that offer actual real-world utility; utility that may only be possible to deliver via blockchain due to its ability to provide transparency, immutability, and on-demand liquidity. Parcl introduces novel and actionable use cases for RWAs, coining it: RWU – real-world utility. 

RWA's and Parcl

In the early days of the real world asset (RWA) narrative, tokenized property ownership was the talk of the town. Tokenized property ownership modernized the concept of fractional ownership by converting real estate into onchain tokens. The concept of fractionalized or tokenized real estate, while not new, has presented scalability challenges.

Traditional models of tokenization require significant capital upfront to acquire properties that are then divided into tokens. This process demands substantial monetary investment and time, presenting considerable headwinds to scalability and accessibility.

Parcl takes a bolder approach to addressing these challenges. Rather than acquiring physical properties to tokenize, Parcl's strategy focuses on creating indices that mirror the underlying pricing dynamics of real estate markets.

The realization that no existing indices tracked real estate prices per square foot or meter led to the development of price feeds by Parcl Labs. Parcl isn’t possible without Parcl Labs. This wholly-owned subsidiary undertakes the significant data effort required to publish daily price points for cities featured on the Parcl platform. By focusing on creating an index that tracks pricing dynamics rather than acquiring physical properties, Parcl has developed a scalable and less capital-intensive model, enabling the cheapest and fastest execution in the real estate industry.

The Opportunity in Digitizing Real Estate

Real estate represents the largest asset class globally, with an estimated value surpassing $300 trillion. Yet, the adage "more money, more problems", becomes increasingly relevant. Despite its importance in the global economy, real estate is characterized by notorious illiquidity. This illiquidity stems from the inherent nature of real estate transactions, which are complex, time-consuming, and often stymied by regulatory hurdles. For example, 80% of commercial real estate capital is concentrated in 60 cities. This concentration leaves thousands of potential markets underserved, highlighting the disparity in investment distribution while underscoring the potential of democratizing access to real estate investment across a broader spectrum of markets.

This concentration exacerbates the already pressing global housing crisis. A shortage in supply, combined with the rising cost of housing, has led to housing prices increasing at least five times faster than incomes in many regions. Since the 1980s, average gains in housing values have vastly outpaced income growth, leading to a widening affordability gap. This situation has been further aggravated by spiking mortgage rates, dramatically increasing the cost of homeownership. The premium to own a home over renting is nearing all-time highs, with regional divergences becoming a primary theme. These divergences have become more pronounced in recent months as commercial real estate faces its own set of challenges.

Simply put, the traditional real estate investment landscape is wrought with inefficiency. The inherent illiquidity of physical real estate properties results in highly inefficient capital lock-in for owners. Property owners often find themselves in a bind, unable to release capital without selling their property outright—a process fraught with delays, costs, and market dependency. Parcl was founded to directly address these multifaceted challenges by creating an index that tracks real estate pricing dynamics and providing traders a platform to gain exposure to real-world market prices via a perpetual prediction AMM.

The essence of RWAs lies not in the assets themselves but in their utility—without tangible real-world utility (RWU), RWAs hold little significance. It's crucial to understand that RWA is merely the framework; RWU is the actual product that users interact with and derive benefits from. Parcl’s model is underpinned by the seamless integration of RWAs with RWU.

The Parcl Solution

Traditional pathways to real estate exposure—such as direct property ownership, REITs, and fractional ownership—each come with limitations. Direct ownership demands substantial capital and comes with high transaction costs. REITs, while offering a more accessible entry point, often focus on asset types rather than geographic markets, diluting the investor's ability to make location-based investment decisions. Fractional ownership attempts to lower the barrier to entry but still doesn't address the liquidity concerns inherent in real estate transactions. 

Parcl’s core mission is to enable individuals and institutions to engage with the market in a way that was previously impossible. One of Parcl's key features is the facilitation of direct short selling with up to 10x leverage, a concept previously absent in traditional real estate markets. This capability introduces a new dimension of risk management and market speculation, allowing investors to express nuanced views on the real estate market.

This is achieved through the creation of a synthetic real estate market, utilizing perpetual futures contracts denominated in dollars per square foot. With a Total Value Locked (TVL) surpassing $100 million and Open Interest (OI) exceeding $90 million, Parcl is the most liquid venue for real estate exposure. Built on Solana, the platform ensures transactions are efficient and incredibly cost-effective. This approach opens the door to a broader audience, from individual investors to institutional players, who can now engage with the real estate market in ways that were previously out of reach. 

But who exactly benefits and why?

Who is Parcl For?

A New Path for Aspiring Homeowners

TL;DR: Parcl enables new possibilities for wealth accumulation while presenting a viable alternative to combat the pressures facing homebuyers in today's volatile market.

The dramatic rise in mortgage rates post-COVID has placed home ownership financially out of reach for many prospective first-time buyers. As average 30-year fixed rates exceed 7% nationally, monthly payments are over 12% higher than the same period last year while home prices themselves remain near all-time highs. Simply put, the premium for owning versus renting property continues to grow.

Kellan Grenier via Twitter/X

Meanwhile, rental markets have not offered much respite, with rent growth outpacing income growth across the country. This situation places an undue burden on households already grappling with inflation, complicating things for the over 35% of the U.S. population that now comprises renters—the largest proportion since 1960. The real tragedy in this scenario is the erosion of homeownership as a pathway to wealth building. Historically, real estate has been a cornerstone of net worth accumulation for generations, offering a low-volatility asset class with returns ranging from 5-15% annually. However, the barriers to entry in today's real estate market are dauntingly high, making it increasingly difficult for individuals to gain exposure to this vital asset class.

This is where Parcl comes in and changes everything. Using perpetual swap contracts powered by real-time market data, Parcl lowers the barriers to entry, making investing in entire cities' real estate markets accessible. Through Parcl, renters can gain exposure to real estate prices without committing intense amounts of capital, while current homeowners can hedge their property without touching their loan structure or selling (and losing a stellar mortgage rate).

A New Paradigm in Risk Management

Institutions like real estate funds, REITs, and property iBuyers have deep-rooted business models tied to physical ownership and fluctuations across localized housing markets. Yet despite multibillion-dollar capital allocations shaping portfolio construction, they find themselves at the mercy of two primary challenges: systemic risk mitigation and liquidity channels proving to be insufficient.

Take private equity giant Blackstone, for example. Its $60 billion BREIT fund faced a liquidity crisis in 2023, forcing the sale of large portfolios of illiquid, on-the-ground properties. Similarly, iBuyers like Opendoor, whose business model thrives on the quick turnaround of properties, inherently suffer from market risk. Avenues to mitigate risks from macro conditions scarcely exist, until now. 

Parcl enables institutions to precisely hedge against systemic risks. Parcl’s trading platform is a perpetual prediction AMM powered by real-time, on-chain indexes guaranteeing liquidity to enter or exit positions. As Parcl continues to roll out global market coverage, funds will be able to craft custom basket hedging strategies that are finely attuned to their actual portfolio exposures. This global reach enables institutions to instantaneously shed market risk if prevailing conditions diverge from their strategic outlook.

Unlocking Liquidity

Hedge funds and quantitative trading firms thrive in liquid markets. Hedge funds are driven by the pursuit of high Sharpe ratios, isolating alpha through strategies like relative value pair trades (i.e.: long Miami/short NYC). Quants, on the other hand, look to use algorithms to identify mispricing. Though these entities may have a different strategy, they both target desirable risk-adjusted returns amidst market turbulence. 

These types of investors are attracted to markets where liquidity is abundant, as it enables the execution of their strategies with precision and efficiency. Their involvement inherently narrows bid/ask spreads, enhancing market efficiency. By combining deep liquidity profiles with direct risk transfer tied to on-the-ground pricing, Parcl opens the floodgates for sophisticated traders to implement their playbook,  enabling efficiencies across the market.

Hedge funds and quants play a key role, as soaring housing costs worldwide aren't just about how expensive homes have become—it's really a liquidity problem at heart. With mortgage rates nearly tripling over the past 20 months, homeowners have little incentive to sell appreciating, leveraged assets locked in at roughly 3% rates. This impasse screams the need for a liquid venue to isolate market price risk. The solution? Parcl.

With Total Value Locked above $100 million and Open Interest exceeding $90 million, Parcl provides the most liquid venue hedge funds and quantitative investors require. 

Final Considerations

Parcl is the definitive real estate liquidity venue, bringing together diverse user bases to enable market-wide efficiencies. From institutional fund managers to sophisticated quant traders, retail investors to homeowners, Parcl levels the playing field by introducing transparency around risk exposures as well as price discovery. Ultimately, democratized access and tailored risk isolation breed stability.

Imagine a scenario where Parcl existed in 2008. At a minimum, it would have increased transparency and would have provided a venue for liquidity. At the time, the real estate market operated like a black box—risk locations and exposure levels were unclear, and the extent of individual or institutional involvement in the market was largely unknown. Parcl's on-chain design instead brings exposures into daylight. This visibility into who is taking long or short positions, the volume of these positions, and overall market activity were sorely missing in 2008. While no one would wish for a repeat of the 2008 scenario, Parcl stands as a tool that could offer substantial utility and stability in similar situations.

Real estate remains the largest asset class globally, with an estimated value surpassing $300 trillion. Yet persistent illiquidity and barriers to access or risk mitigation introduce inefficiencies. Parcl confronts these systemic limitations head-on. By bridging onchain architecture with real-world valuation data, Parcl is the only RWA protocol providing real-world utility to any and all user groups.

Disclaimer: This article has been written purely for educational purposes. This article is not intended to be investment advice of any kind.

Parcl Team
Subscribe to our newsletter
By subscribing you agree to with our Privacy Policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.