TwinX by BLockEstate - The Dual Token DeFi Protocol for Real World Assets

The dual token DeFi protocol for real world assets

TwinX

TwinX is BlockEstate's innovative DeFi investment model based on the tokenization of real world assets (RWA).

The model uses two token types – the Asset Token (AT) and the Yield Token (YT) – to enable investors to participate in projects backed by real assets. This structure allows investors to participate in returns from Real World Assets and trade their rights to these profit shares. Operators or managers of assets (RWA) gain access to new capital markets and great flexibility for their investment planning. The sale of Asset Tokens finances the investment project and enables the issuer to successfully develop the project. In return, investors receive profit distributions.

Interplay of the two token types

Functional Overview

The TwinX model is based on two different crypto tokens that interact with each other. The underlying asset is managed by a specific business entity, the so-called Special Purpose Vehicle, which is responsible for the organizational unit of token issuance, the economic use of the asset, and the distribution of profits to investors.

Important parameters of the investment project with regard to tokenization are:

Required investment amount:
The investment amount includes the costs of the project as well as a buffer for reserves and liquidity.
Calculated duration:
The planned duration is used to calculate investment and profit.
Yield estimation:
The estimated profit results from the calculated regular and one-time income over the calculated duration of the project.

The two token types: Asset Token and Yield Token
1. Asset Token (AT):
  This token represents usage rights to the underlying asset. If the SPV generates profits based on the underlying asset, this usage right includes the proportional claim to these profits (Yield Token). Asset Tokens can be designed as NFTs. Holding AT tokens proves the profit claim of a holder and entitles them to receive regular distributions of Yield Tokens (YT).
  - Sale value:
    The value of the sold Asset Token corresponds to the total investment amount.
  - Usage right:
    Each AT entitles the holder to participate in the use of the asset to a proportional extent. In exercising this usage right, the holder of an AT receives regular distributions in the form of Yield Tokens.
  - Tradability:
    Asset Tokens are freely tradable, and ownership of an AT is a prerequisite for participating in profit distributions.
  - Non-Fungible Token:
    The Asset Token can be designed as an NFT and offers an integrated dashboard functionality focused on the essentials.
2. Yield Token (YT):
  This token represents claims to profit shares. The initial value of the Yield Token is calculated based on the estimated profit of the project and the number of tokens. The real value of the YT results during profit distribution from the actual returns generated with the help of the asset.
  - Initial value:
    The initial value of a YT is determined by the estimated profit divided by the number of tokens.
  - Profit distribution:
    Holders of Asset Tokens participate in all yield distributions to the extent of the percentage share of Yield Tokens in the total token supply (Total Circulating Supply) that the holder of the Asset Token owns.
  - Tradability:
    Yield Tokens are freely tradable as ERC20 tokens on decentralized and centralized exchanges (DEX, CEX).
Two-stage profit distribution in the TwinX ecosystem

Profit distributions to investors are not made directly in the form of FIAT or stablecoins pegged to it, but through a two-stage process:

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Yield Tokens are regularly distributed to those wallets that hold Asset Tokens, depending on the size of the share defined in the AT. At any given time, the total supply of all available Yield Tokens of an asset corresponds to the total claim on all profits generated by this asset. The amount of Yield Tokens held is therefore a kind of unit of measurement for the amount of an investor's profit claim at a given point in time. The actual distribution of profits takes place at fixed defined times, which essentially follow the project operator's classic accounting dates. The amount of distributions in the form of stablecoins to investors corresponds to the distribution of the yield tokens of the holders. Holding an Asset Token remains a prerequisite for being considered in these profit distributions, as the Asset Tokens serve as proof of entitlement to participate in profit shares.

Application areas and investment strategies

Use Cases

There are two main use cases for how the tokens can function within a project:

Sale of Assets:
In this scenario, the real estate asset is sold after a certain period, and the proceeds are distributed to the AT holders. During the term, the AT gradually loses its value as the underlying asset is monetized. The profits are distributed once after the sale.

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Usage Revenue:
Here, the asset is not sold but continuously generates income through its use, e.g., through rental. In this case, the AT retains its value, and the profits are regularly distributed to the YT holders.

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A combination of these two scenarios could make it possible to maximize both short-term income through usage and long-term profits through a later sale of the asset. This opens up flexibility for structuring investments that can be tailored to the specific needs of real estate projects and market situations.

Benefits for investors and issuers

Unique Selling Proposition

The TwinX system offers numerous advantages to both investors and issuers/project operators, making it a win-win situation.

Investors receive regular distributions in the form of Yield Tokens and can react flexibly due to the free tradability of the tokens (AT and YT). The investment is backed by real assets, which reduces risk. Additionally, there are no complicated staking or locking mechanisms.

Issuers/operators benefit from the immediate availability of capital without incurring financing costs. The tradability of tokens on NFT marketplaces reduces the need to maintain their own liquidity for buybacks. Additional features such as pre-emptive rights (governance tokens) can increase customer loyalty to investors.

The diverse advantages on both sides create a win-win situation.

Advantages for Issuers/Operators

Low financing costs:
Profits are only distributed after the realization of income, thus avoiding costs from external financing.
Low liquidity requirements:
Asset Tokens can be traded on NFT marketplaces, eliminating the need for own liquidity for buybacks.
High customer loyalty:
Asset Tokens can offer investors additional benefits and bonuses, such as pre-emptive rights for subsequent projects (governance tokens), improving customer loyalty.
Immediate capital utilization:
The collected capital can be used immediately without restrictions.

Advantages for Investors

Regular distributions:
Investors receive Yield Tokens regularly, promoting their motivation and satisfaction.
Freely tradable tokens:
Both Asset and Yield Tokens are freely tradable, offering investors flexibility.
Special rights and bonuses:
Holders of Asset Tokens can receive additional rights, such as pre-emptive rights.
Backed by real assets:
The investments are backed by real world assets (RWA), minimizing risk for investors.
Profit distribution in stablecoins:
Profits are paid out directly in stablecoins, without the need for token locking or staking.
Integrated dashboard:
If Asset Tokens are issued as NFTs, important project data and value forecasts can be displayed directly in the NFTs' dashboard, providing additional transparency.

A combination of these two scenarios could make it possible to maximize both short-term income through usage and long-term profits through a later sale of the asset. This opens up flexibility for structuring investments that can be tailored to the specific needs of real estate projects and market situations.

Game theory and trading strategies as drivers of a dynamic market

Decentralized Finance with Real World Assets

The Best of Both Worlds: DeFi and Real World Assets

The TwinX ecosystem leverages the typical dynamics of Decentralized Finance (DeFi) by combining the freedom and flexibility of the market with the security and solidity of real assets. The free trading of AT and YT on decentralized (DEX) and centralized (CEX) exchanges offers investors significant speculative opportunities. While the Asset Token (AT) acts as a more stable store of value mechanism linked to the underlying real estate project, the Yield Token (YT) provides room for greater volatility and speculation.

At the time of profit distributions, the market price of the Yield Tokens is repeatedly determined based on the actual profits achieved. However, in the time phases between these distributions, investors still have sufficient room to make speculative assessments of business development through qualified evaluations of the market, project progress, framework conditions, and other parameters, and to trade on the secondary market based on these assessments.

On the other hand, the stable nature of the Asset Token (AT), especially when issued as an NFT, allows for some protection against excessive volatility, as the value of the AT is linked to the real asset and its intrinsic value. This structure offers a balanced risk-return ratio, where risk-conscious investors can invest long-term in AT, while speculative investors can simultaneously bet on short-term gains by trading YT.

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The token structure of the TwinX ecosystem opens up a range of game-theoretical possibilities. Strategies emerge such as hedging with the stable AT, speculative trading with YT, tactical maneuvering during profit distributions, and exploiting information asymmetries. Investors must continuously weigh how to align their risk appetite and expectations of market development with the actions of other market participants.
Stability vs. Volatility: Strategic Decisions between Asset Token and Yield Token
- Asset Token (AT) represents a stable value linked to a real asset such as a real estate project. Investors who prefer long-term stability tend to hold AT to preserve the intrinsic value of the asset.
- Yield Token (YT), on the other hand, offers room for speculative strategies as it not only distributes profits from real assets but is also influenced by expectations and market forecasts. Here, trading YT is attractive to profit from short-term price fluctuations.
Game-theoretical Implications:
- Investors must make strategic decisions whether to hold the more stable, lower-risk AT or focus on the more speculative YT. This decision is based on individual risk appetites and market outlooks.
- As AT is relatively stable, it offers a hedge against losses, while YT promises speculative gains. This balance creates different risk groups in the market, often portrayed in game theory as cooperators (AT investors) and free riders (YT speculators).
Profit Distribution and the Game of Expectations
- At the time of profit distributions, the value of Yield Tokens is redetermined based on actual profits. However, between distributions, there is a phase where speculations and expectations dominate the market value of YT.
- This presents a classic "Buy Low, Sell High" strategy: Investors who believe future distributions will be higher might buy YT at a low price and hope for value increases. Conversely, investors might decide to sell YT before a distribution if they have negative expectations about future profit distribution.
Game-theoretical Implications:
- This leads to a coordination game, where investors try to align their actions based on the expected actions of other market participants. Those who make the correct assessment of profit distribution early can achieve high profits. However, investors who misjudge could suffer losses.
- This speculation dynamic could promote a herding strategy, where investors make decisions based on market movements or trends rather than on well-founded information.
The Balance between Asset Token and Yield Token as a Strategic Portfolio Decision
- Since the Yield Token (YT) can be used in DeFi applications such as liquidity pools or lending, investors have the opportunity to generate additional returns. However, there is also the risk that they might miss the timing of profit distributions if their YT are not held together with AT in the same wallet.
Game-theoretical Implications:
- Investors face the strategic decision of how to use YT in the time between distributions. They can try to maximize returns from DeFi applications while ensuring they move their YT back to their wallet in time for profit distribution.
- This could lead to a "Chicken Game"-like behavior, where investors try to use the DeFi advantages for as long as possible without missing the optimal time to return the YT.
Volatility and Market Reactions: Influence of Pump-and-Dump
- The ability to freely trade Yield Tokens opens up potential for speculative investors to employ pump-and-dump strategies, where the price is artificially inflated to later realize profits through a quick sale.
Game-theoretical Implications:
- Since profit distributions are tied to the ownership of Asset Tokens, this can serve as protection against extreme volatility and pump-and-dump strategies. It reduces the incentives for purely speculative investors, as no profits can be realized without AT.
- These mechanisms promote a more long-term and stable market strategy, where investors are more focused on sustainable profits rather than short-term market manipulations.
Free Trading and Market Forecasts: Information Asymmetry
- As Yield Tokens react to forecasts and market events, an asymmetric distribution of information arises, where investors with better market knowledge have an advantage over others.
Game-theoretical Implications:
- This leads to a classic "Market for Lemons" scenario, where less informed investors might make poorer decisions and suffer losses, while informed investors benefit from this information asymmetry.
- Investors must decide how much risk they want to take given incomplete information about future events and distributions.