Beyond Real Estate on the Blockchain
We have seen an increasing interest in understanding how to apply Blockchain technology to Real Estate. Here and there we are experimenting, discussing and even trying to get the flaws on all the possible use-cases; always with a “Yes, but…” in mouth.
Last week news was on How ANZ and Westpac just successfully used blockchain for bank guarantees applied to a commercial property lease in Australia. Hence, the discussion of the week was among promoters and detractors of decentralization and third-party Trust. I can elaborate my opinion on the issue another day, but for now, I ask:
What if you can relax that mindset for a while? What if you just open your mind and let your prejudices behind? Here are two formidable cases to start with:
Doing 1031 Exchange between cryptocurrencies
For those of us who have been involved in 1031 Exchange Transactions, we know that Theory and Practice are two different animals. Not in the legal sense. I´m talking about logistics and hard work.
On a previous post, I gave a brief review of imbrex. One of the things I like about the project is the way the team have been managing to get things done. The first time I learnt about them, my thoughts –and comments- were “OMG!! What are they thinking about? They believe They can accomplish everything at a time!!” As I started to interact with the team, I realized They understand that walking step by step is the right way to go. They know that Legal and Regulations matter, that Technology is here but not yet out there, and maybe the most valuable asset: They know that Listening to the Community is now a Must for the project’s success.
Having said that, imbrex roadmap contemplates several stages. In my understanding, the chronological order represents the level of friction. From less to more, starting from the MLS at level one. Wise and realistic.
I’d take their video Three Phase Approach 3/3 to make my point in their own words.
Here is is a transcript of Stephen King’s video explaining Fractionalized Ownership (min 5.05)
“What Fractionalized Ownership basically says is, let’s take something like the Chrysler Building, which has a 3-Billion-dollar market cap today and let’s go out and create, through a decentralized application 3 Billion — we’ll call them CHRY token — and value them at 1 dollar each. And let’s Token sale them. So now you go, and you purchase this Chrysler Building, and anybody in the world can own a very small amount of this iconic building in NY, and you have this custodian which is a legal entity which performs legal, accounting, brokerage, title recordation, etc. and they are compensated in these CHRY token. Specific in the Smart Contract they are only paid upon successful completion of the duties outlined in the Contract.”
The only new thing here is the Tokenized aspect of the Crowdfunding structure. I’ve been involved in Crowdfunding projects in NYC in the past. Of course, in fiat. As a matter of fact, the execution of this type of crowdsale structures demands a huge amount of knowledge and research on compliance and regulation as Stephen points out.
Now, let’s move to the exciting part of the video. Here’s where we go Beyond Real Estate on the Blockchain. Here’s Stephen on 1031 Exchange (min. 5.27):
“…So, we started to look at this from a regulation point of view. We´ve spent a lot of time on the accounting side of things, both for tokenized ownership and also our listing service and the economics there are involved with that. We worked with several accounting firms and several law firms mostly in the US. And with tokenized ownership, even crypto in general, we found some very cool things you can do including doing a 1031 Exchange between currencies. Basically, raising funds for a Real Estate project in Ether and instead of having a 45% tax consequence, like there is in the US right now, you would basically 1031 that crypto asset into something like BTC and you can temporally avoid that large tax. Now, there´s a lot of more going into right now; I can make a whole video on that … “
Doing 1031 Exchange between cryptocurrencies is something worth to wait for! Can it be done some day? I hope so. Let’s see if we can go there, as I’ve said, open your mind and let your prejudices behind. That’s especially true for the next case below.
A Virtual Real Estate Market
These days when you are bored …
“The Decentraland team submitted a proposal for the creation of a secondary marketplace for real estate within Decentraland, modelled after real-world counterparts Zillow and Trulia. The proposal calls for the ability to perform both auctions and offer fixed rate pricing. Listings are to contain screenshots from parcels, their coordinates, and details about the content hosted within.
Participants in the governance processes of the Decentraland district could choose to monetize the market many different ways. Some options include:
Charge a listing fee to post
Extract a brokerage fee from all transactions
Host auctions for premium placement or sponsored listings.”
The Game of Land Ownership? LAND is a non-fungible digital asset. So, Why not?
A lot has been said about regulation, legal matters and land registry. And here is a team of developers saying: Come on! Just let’s play with Real Estate!
I decided to reach the team at Decentraland. We had a fascinating chat. I just realized after my contact with Ari Meilich that sometimes being an expert does not bring happiness. Seriously! They have been building this amazing virtual world where you can find beautiful city proposals, smart business opportunities and great partnerships.
Do we have to go around thinking about what Chapter 718.111(12) (c )(1) has to say about a unit renter because you are a Landlord in Florida? NO!! Do we have to know what the Land Code of Ukraine states regarding the purpose of a parcel, so you avoid a risk of rejection when purchasing land if you don’t possess Ukrainian citizenship? NO!!
They just use common sense, and they are fast enough to address a solution when it’s needed. To illustrate the idea, during our conversation, I brought the following proposal: Instead of just leasing my land, I would like to partner with a developer. The Developer would build his content on top of the land, but I reserve my Air Rights for leasing. Do we have the top height measurement from the land above? The answer was fast enough: not yet, but we solve the issue implementing an Z- axis for height.
That’s it! Fast and accurate.
I found it beautiful! A Real-Virtual-Estate world based on common sense and community feedback, where you use an ERC-20 token called MANA to acquire Land Ownership; and commercial transactions occurs on District0x marketplace, which is at the same time under Aragon’s Governance. What a Stack! (thanks Luis Cuende for the Stack lesson)
So, maybe, instead of waiting for someone -or many- to solve the Hyperledger vs. Public Blockchain uses dilemma on commercial leasing in Australia, or spend hours of research trying to identify which one of the Land registry implementation models around the world have tested the best; we can relax. Get some MANA. Start playing the game of Real Estate and who knows, maybe by then we would have enough sales proceeds from our tokenized property to apply for a 1031 exchange in the future.
That’s what I call going Beyond Real Estate on the Blockchain.
This article is part of the trilogy Real Estate on The Blockchain. The first one called Real Estate on The Blockchain. Don’t Rush! covers the first attempts and my personal view on the path of adoption. Then, Tokenizing Real Estate on The Blockchain illustrates tokenization from the theory to the practice. The trilogy ends with Beyond Real Estate on The Blockchain featuring a use-case hypothesis and a Virtual Real Estate market.