DeFi Meets Real Estate as Aave Readies Crypto Mortgages

Real estate Defi

Decentralized lending protocol Aave is getting into the business of tokenizing the most expensive purchase of most people’s lives: home mortgages.

Specifically, Aave announced yesterday that it’s working with RealT, a company devoted to the tokenization of real estate, to let people stake their tokenized real estate as collateral to take out loans.

It’s the latest in the “money lego” trend of decentralized finance, which involves sticking different DeFi protocols together to create something new. But what should not be lost in the excitement is an understanding of the risks: a buggy smart contract or hack could cost someone their home.

How tokenized mortgages work

Tokenizing real estate is nothing new. Instead of buying a whole house, which is very expensive, users can buy shares in houses. Tokenized houses “can be traded in Uniswap and anyone can buy even a piece of a property,” Stani Kulechov, founder of Aave, told Decrypt.

Houses for everyone!

Florida-based RealT has taken things one step further. In addition to letting people buy tokenized shares in houses, it wants to let people use Aave’s decentralized lending protocol, which currently supports a lending market worth $1.7 billion, to stake these real estate tokens as collateral for loans.

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When I came up with Ethereum, my first first thought was, 'Okay, this thing is too good to be true.' As it turned out, the core Ethereum idea was good - fundamentally, completely sound