Blockchains Get Physical…How You Can Turn Solids Into Liquid
Disclaimer: I am an advisor to this project. I was introduced to it by Dmitry Buterin (Vitalik’s father). I cannot make any claims that it is perfect. All I can say is that I like the idea and team. Thus, I agreed to support. Invest at your own risk.
In the world of chemistry, if you want to turn a solid (ice) into a liquid (water), you need to turn up the heat.
In the world of physical assets, if you want to turn a solid (your house, car, work of art) into liquid (cash), you either need to sell the whole thing or, in you can get an interest-bearing loan. This puts heat on the customer.
In 2015 (the most recent data I could find), US lenders extended just over $156 billion in home-equity lines of credit, the largest dollar amount since 2007, the beginning of the housing bust. That marks a 24% increase from 2014 and a 138% spike from 2010 when new approvals hit a low point.
Every single one of those loans adds a burden to the homeowner.
But what if you could get cash from your home without the interest?
The Liquid Asset Token (LAT) wants to make it happen They offer homeowners (and eventually anyone with illiquid assets) the ability to do is get cash without having to pay interest.
Here’s how it works.
Let’s say your house is worth $350,000 and you live in the US. Let’s say that you still owe $200,000 on your mortgage. That extra $150,000 is sitting there and, if you do a Home Equity Line of Credit (HELOC), you now have more debt to service.
LAT says “wait!” With them, you list your house on their platform and offer the right to buy, say, 10% of the house for $35,000.
Someone who lives in, say, France may want exposure to the US real estate market and, after doing research, determines that your house represents a good investment. The French buyer pays you with $35,000 worth of LAT and then gets immutably documented proof of 10% ownership of the house.
You have $35,000 of cash with no interest and our lucky Frenchman now has a stake in the US real estate market.
Fast forward 10 years and the house is now worth $700,000. Our Frenchman has made 100% return on his investment so he’s happy and you had liquidity when you needed it.
Of course, that proof of ownership of 10% of your house could have been sold and re-sold hundreds or thousands of times in the intervening 10 years with near zero transaction costs and proof of ownership never in doubt.
If you want, you can buy it back yourself as well. It doesn’t matter.
The LAT technology is somewhat proven as it is based upon an existing home equity marketplace, Zalago, that has facilitated 12,000 mortgage offers and more than 1000 deals from 7 banks and 25 investors in the past six months. Their ICO is coming up in August.
We will probably see a lot more projects like this soon extending to every physical item in our world.
Art is a perfect example that comes to mind.
Imagine that you own an expensive painting (or a painting that you think will appreciate because the artist seems like an up and comer).
All you need is 51% of it to ensure that it stays on your wall. You could tokenize the rest of it and sell it to people who want exposure to the art market or that artist.
When you start to think about it, the possibilities are pretty much endless and it’s exciting.
We had an initial wave of digital tokens representing physical assets, but it was mostly in the form of gold by organizations like Vaultoro and Digix. Now, we are starting to see the first flowerings of platforms that allow you to leverage the assets you already have.
As these platforms mainstream, you will have the option for much greater liquidity so you can deploy your wealth as you see fit. Others (and you) will have greater diversity in their investment portfolio. There are plenty of issues and challenges, as Addison Cameron-Huff points out clearly in this article.
Still, it’s a much better alternative than paying interest.
Turning solids into liquids in a blockchain world turns up the heat on the existing intermediaries who make a living by charging interest. Regular people are going to feel a lot cooler.