On-chain alternative investments

Introduction

Alternative investment is funds invested in alternative asset classes, i.e., asset classes other than equities, bonds, and cash. Besides their diversification benefits, these investments have other advantages, such as being an inflation hedge. Alternative assets include, but are not limited to, commodities, real estate, collectibles, hedge funds, and private equity.

Alternative asset classes have not been popular with retail investors. Being opaque, unregulated, and illiquid didn’t help either. DeFi and NFTs can change all this by tokenizing alternatives and making them more affordable and accessible to small investors like us.

Real estate

The largest of all financial markets, real estate has been available to institutional investors and high net worth individuals for a long time. Fractionalized real estate platforms are going to change this. They increase liquidity and accessibility in otherwise illiquid market.

Fractionalization can revolutionize the real estate investment market by allowing small investors to have a share in high-end real estate or other high-value real assets, such as jets and yachts. Several platforms have been launched recently where any investor can purchase a share of a listed property.

CitaDAO

CitaDAO is a fractional real estate platform developed on the Ethereum blockchain. It works in the following way. After verifying the ownership of the property, the landlord lists it through the process called Introducing Real Estate On-Chain (IRO). If the IRO is successful, i.e., if the received funds are enough to buy the property, an SPV (special purpose vehicle) will buy the real estate. After which the property is tokenized, and IRO participants will get RET (Real Estate tokens). Any NFT holder can use Buyout Provision and buy out all other RET holders, thus being the only owner of the property.

If the IRO fails, all the accumulated funds will be redistributed to the investors who sent them.

LandShare

LandShare makes real estate investing as affordable as it can be: the minimum investment amount is $50. How does it work? For each to-be-tokenized property a legal entity is created which converts its shares to special tokens (Asset Tokens). Investors receive their cash flows from the real estate in the form of BUSD, the stablecoin issued by Binance (LandShare has been built on the Binance Smart Chain).

LandShare intends to offer crowdfunded house flipping services, too. House flipping is buying a house, renovating it, and selling it for a profit. However, since most investors cannot afford to buy a house, even a distressed one, with cash, crowdfunding will make it more accessible to small investors.

Another feature that can make LandShare more attractive to investors in the future is auto-compounding. If you don’t cash out your rental yield but buy more Asset Tokens with it, your rental yields will compound over time.

Lofty.ai

Another marketplace which facilitated the purchase and sale of real estate is Lofty.ai. Once the property is listed on the platform, investors can buy part of it; and once it is sold, investors will start to receive return which is equal to (sale price of the property — selling fees) / investor’s percentage in that property. If the property is not sold out until the deadline, the listing will be cancelled, and investors will get back their investments.

Lofty.ai is built on the Algorand blockchain. Algorand has low fees for transfers and high transaction throughput rates.

Farmland

Farmland is a stable, low-volatility asset class which tends to appreciate over time. Thus, it’s also a good hedge against inflation. Besides capital appreciation in land value, farmland also offers landowners to earn regular cash flow by renting it to farmers.

LandX

Though there are multiple agricultural commodity futures traded actively in financial markets, it’s very difficult for lay investors to get “real-world exposure to farmland”. LandX is a DeFi protocol bringing agricultural commodities to retail investors. They link farmers with investors through perpetual commodity vaults.

LandX benefits farmers by providing them with capital. Once farmers commit crop share of their land, xTOKENs are minted corresponding to the crop quantity they committed. Farmers can sell their xTOKENs to investors thus getting capital to fund their business. Investors receive daily yield from xTOKENs than can be converted to USDC anytime.

This is how LandX works in a nutshell. For a very good coverage of the protocol, you can refer to the article below.

https://frogsanon.neworder.network/articles/landx-the-perpetual-commodity-bonds-protocol

Commodities

Mettalex

Mettalex is a decentralized exchange bringing commodity markets to DeFi. Mettalex will benefit holders of physical assets hedge their price risk, and speculators take leveraged positions in the otherwise illiquid markets. Other beneficiaries of the exchange will be liquidity providers who will receive fee and market maker spreads for supplying liquidity to autonomous market makers. The protocol will hopefully solve some problems, such as liquidity and transparency which traditional commodity markets have.