While the euro was trading at around $1.18 a year ago, it is now at near parity with the US currency. To protect itself from this exchange rate risk, which devalues the savings of Europeans, the tokenization platform RealT offers an innovative solution, while allowing to generate returns by exposing itself to the American real estate market.
The dominance of the dollar against the euro
Since 2021, the euro has been on a downward trend against the dollar.
The recent parity between the two currencies will have escaped no one’s notice and this has resulted in a drop in the euro of more than 18% since its last weekly high:
The reasons for this devaluation are multiple and complex. The fact that many commodities are traded against the dollar and that their prices have risen sharply in recent years is one reason for reflection. The different strategies of the US Federal Reserve and the European Central Bank with regard to key interest rates also play a role in the current outcome.
For European citizens, this creates a vicious circle. Indeed, the cost of living is constantly rising with galloping inflation and to make matters worse, it is increasingly expensive for industries to exchange dollars for foreign supplies. As a result, savers are seeing the value of their savings melt away.
This raises the question of diversifying into other currencies. Just as with various financial assets, the possible decline in one or another thus reduces one’s exposure to risk.
In the world of cryptocurrencies, stablecoins are a possible solution to get through such periods. But there is an even more versatile alternative: RealT.
Indeed, the way the platform works allows exposure to the dollar, but also to the US real estate market. This offers protection in the event of a fall in the euro, while generating a more than decent return thanks to the dollar rents that investors can collect.
Protecting yourself from a fall in the euro thanks to RealT
RealT is a platform mixing blockchain and real estate founded in 2019 by Remy and Jean-Marc Jacobson. After many years of investing in real estate, they used their expertise to create a tool to invest in real estate in a simple way, starting at $50.
RealT buys properties through specially created companies. Users of the platform then buy tokenized shares of these companies that own the properties in such a way that: one company equals one specific property. Thus, by holding a company share in the form of a security token, an investor actually holds a share of the associated real estate.
As the property is put up for rent, a user of the RealT platform then receives a portion of this income. He can thus expect a return of 10% per year on average. The advantage of this is that these real estate investments are made on the American market and therefore, by extension, in dollars. Thus, someone who started investing in January 2021 with a euro equivalent to about 1.2 dollars, would realize a capital gain of 20% if he or she were to switch back to the euro. This additional gain is then added to the average 10% base return.
If you want to know how the platform works in more detail, here is a full tutorial on RealT.
Choosing U.S. real estate wisely
Of course, there is no guarantee that after such a fall the euro will continue to fall against the dollar, the trend could just as easily be reversed.
Nevertheless, it is important not to underestimate the currency risk and the impact it can have on the economy on a daily basis. In this respect, it is wise to diversify your capital into foreign currencies.
The value of this approach will depend on one’s expectations regarding the need for liquidity. This strategy will obviously not be suitable for someone who wants to be able to switch back to the euro within the hour to recover funds. But it will be quite relevant for an investor expecting an attractive return, combined with the low volatility of the real estate market.
In this respect, the US market is an interesting choice. Especially since RealT does not select the geographical areas of its investments randomly. A large proportion of its properties are indeed concentrated in Detroit, Michigan.
This is an industrial region that suffered greatly after the subprime crisis in 2008. This led to a significant drop in real estate purchase prices. The subtlety in this state lies in the fact that rental prices were not as impacted, which allowed for significant returns on investment.
Rémy and Jean-Marc Jacobson and the RealT team have been able to capitalize on these opportunities. While the region is enjoying renewed appeal, real estate prices are trending upwards. In general, RealT will always look to make investments with similar strategies, on properties with long-term promise.
The platform has its properties revalued every year. Thus, although there is no guarantee, it is not surprising that the value of the tokens held by an investor climbs after each revaluation.
Beyond a protection on the euro/dollar pair, RealT also allows to aim on the long term by exposing oneself to the American real estate. All this while staying on the blockchain, which allows cryptocurrency holders to diversify their portfolio very simply.
A more complete strategy than with stablecoins
Those accustomed to decentralized finance (DeFi) protocols will certainly be able to find more attractive returns than those offered by RealT. However, this translates into increased risks such as hacks, smart contract bugs or possible anchoring losses of stablecoins (like with Terra’s UST).
RealT’s tokens, on the other hand, have legal recognition. In fact, a contract must be signed when they are purchased in order to record the sale of the portion of the property in question. If this does not eliminate all risks, it is at least a good compromise between yield and security.
On the other hand, RealT can generate additional returns through its RMM platform. Built in partnership with the Aave protocol, it allows you to deposit your fractions of real estate as collateral to be able to borrow liquidity, while continuing to receive the rents.
Thus, it is a capital optimization that has nothing to envy to other strategies with stablecoins. This financial arrangement is in addition to the three variables we mentioned earlier, on which RealT allows you to make your capital grow:
- Protection against the fall of the EUR/USD ;
- Valuation of the price of the property;
- Long-term rental yields.
Of course, as for any investment, an asset can move in both directions. Therefore, it will be necessary to manage your risk according to the criteria of your investment plan. Nevertheless, the RealT platform offers a real opportunity for anyone who wants to hold a store of value capable of generating returns, without being as volatile as the cryptocurrency market.
