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What is a liquidity pool, and how is a real estate investment made liquid?

In addition to high returns, ease of investment, and the ability to invest from as low as €100, one of the most valuable aspects of investing with Reental is liquidity, which refers to the ability to divest your investment if you wish to withdraw your money.

Liquidity is a differentiating factor in any investment, providing investors not only with monthly dividends but also the ability to access the principal capital of the investment at any time.

This is a significant advantage that has not been traditionally available in real estate investments, where the selling process to recover capital can take weeks or even months.

It's estimated that an asset's value can increase by as much as 20-30% simply because it is liquid. This demonstrates how important liquidity is for investors.

So, if liquidity is so important, why haven't we been able to enjoy this benefit until now? The answer is straightforward and, as often is the case, technology plays a crucial role. Blockchain technology allows us to capture the value of a property in tokens, making them easily transferable between parties in seconds and from anywhere in the world. Moreover, new tools have emerged that enable you to sell your token without needing a potential buyer. Instead, you can do it yourself from your computer.

You might have heard us talk about it in previous posts – that key term "liquidity pool." But what exactly is it?

A liquidity pool is a tool born from Decentralized Finance (DeFi). It's essentially a place where at least two types of tokens are deposited. On one side, there are tokens representing the property, and on the other side, there are tokens representing fiat money (euros or dollars), represented by a stablecoin (a token equivalent to the dollar that can be transferred like any other token).

You can visit this pool with your property tokens or stablecoins and exchange them (perform a swap) for the other type of token. It's like an immediate exchange of collectibles.

In summary, you can buy or sell property tokens without needing a buyer. The significant advancement of this tool, besides allowing you to carry out operations without a third party, is that it's a new way to create a market. Depending on the remaining quantity of each type of token, their prices fluctuate. This means that the market isn't governed by buy/sell orders like in traditional financial markets. Instead, an algorithm from Automated Market Makers (AMM) adjusts token prices based on the pool's stress level – higher demand leads to higher prices, and vice versa.

Intriguing, right? If you want to learn more in detail, I recommend reading a comprehensive article by our colleague Arnau on Uniswap, the pioneering protocol with significant usage today.

Stay with us to stay informed about the latest developments and learn more about DeFi and how to make the most of your money. Welcome to the Reental community! 🚀

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Investment in crypto assets is not regulated, may not be suitable for retail investors, and the entire invested amount may be lost. It is important to read and understand the risks of this investment, which are explained in detail at this location.