Propy’s Mission to Transform the Real Estate Industry
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Propy was the first company to put a real estate transaction on the blockchain, but for this ambitious startup that success was only the beginning. We’re joined by Natalia Karayaneva, the founder & CEO of Propy, who describes her goal to take real estate paperless using smart contracts in the blockchain ledger.
Natalia, welcome! Let me start out by asking where the inspiration for Propy came from. I’ve read that this was partially driven by your frustrations with how time-consuming and fraud-prone real estate transactions can be — was this your motivation to create Propy?
Yeah, absolutely, and thank you so much for having me here today, Tim. I’m very excited to talk about Propy, and how we incorporate emerging technologies like blockchain in our mission.
I originally started in this industry in the European country of Bulgaria, where I was building resorts and selling them primarily to foreign investors. Working in real estate, and dealing with all of the frustrations that come with it, I kept asking myself why technology has drastically changed how we’re buying everything today, but not real estate. Could we make that process better?
Throughout history, real estate has arguably served as the most stable store of value, and one great differentiator between real estate and other major asset classes is liquidity. However, the time lag for acquiring real estate is rather old school and the industry is very fragmented — which leads to an anxious, expensive, and even risky purchase process.
After seeing how hard all those transactions were for my customers globally, not only in Bulgaria, but these were customers from areas like the UK, Middle East, and the US, I just wanted to see if I could make that change happen.
Blockchain has many applications for creating a distributed ledger that effectively notarizes transactions, especially in terms of combatting fraud. Was that the primary reason to use blockchain for Propy?
Blockchain helps eliminate fraud, but it has many more applications than just that. Basically, four years ago when I’d just moved to Silicon Valley to launch Propy, we wanted to make the process easy for the home buyer globally. We had a mission and a model for our business at the time, but I wasn’t aware of blockchain technology yet.
Back then, I was networking professionally in Silicon Valley looking for expertise in cross-border payments & transactions, and at the office of PayPal I was introduced a few engineers that were working on blockchain. They explained its potential to us, and we incorporated it into our model to use Ethereum smart contracts to automate the entire flow of the real estate transaction. So really, we use blockchain for primarily for settlement.
From what I understand, Propy has three independent products that can be used to together: a Listing Platform, Transaction Platform, and Blockchain Title Registry. Do all of these share blockchain technology, or are the first two more traditional online SaaS apps?
Let me step back a little bit to explain this: the Propy platform basically has two layers. First is the protocol layer, which is a decentralized registry that’s used as an infrastructure for all our products. This layer records transactions on the blockchain and provides us with immutable timestamps for each step in the transaction.
Above that is a second layer, which is the application layer. This provides a friendly, easy to use interface for our enterprise clients, who don’t interact with the blockchain directly. Our products are all built on this application layer, but they all utilize blockchain as well, but in a transparent manner.
So you just mentioned our title registry, which is being utilized in some locations, but isn’t our main product. Our primary focus is on a transactional platform that helps agents & buyers close transactions — and we recently subdivided even this product into three separate components, for offer management, a consumer transaction interface, and a transaction management platform. These components all interface with the blockchain, but it isn’t the main selling point of the technology for our customers.
I understand that Propy has an ERC-20 based token that is used along with smart contracts in your platform. Can you explain a bit more about what this is, and how it’s used in the transaction process?
We don’t offer any ICO products to our customers. However, in every single transaction that is being processed by smart contracts, our platform uses a utility token called Propy that unlocks the smart contract. This is something that buyers, sellers & agents don’t interact with directly, though.
You can think of the way we use the smart contract as being like escrow. When you have a signed purchase agreement and the movement of money, then the e-recording happens automatically. However, it’s important to differentiate that the smart contract is not a purchase agreement, and it doesn’t replace the traditional paperwork. We follow all the rules, we just help all those rules to come into a code.
Basically, it means that once we have all disclosure signed electronically, a purchase agreement signed, and the payment receipt received on the platform, then we can move forward and enforce electronic recording on the county level. So as of today, we do not replace any party involved in a traditional transaction.
In the future, that may change — for example, our software was able to function as an escrow agent for a transition in Ukraine. In that case, a smart contract held the seller payment, which was in cryptocurrency at the time, until the ownership transfer was done via a local notary.
The government approved this transaction and received the recording of the ownership transfer from the local notary — and it was all done online. Then they logged on to Propy and confirmed the transfer of ownership after other relevant paperwork was executed on this platform. We believe that this is the inevitable future.
Now in terms of the paperwork that you’ve mentioned, I understand that Propy integrates with DocuSign for recording electronic signatures. Do the electronic documents being created get stored in the blockchain, or are they stored in a digital archive at another location?
That’s a great question. We love DocuSign, and we see how the industry participants are excited that we have this tool integrated. Basically, when documents are signed through our DocuSign integration, we store a digital hash for the Docusign PDF in our blockchain, while the document itself is stored in our archives on AWS.
Now in the future, we’d like to move that to distributed storage, perhaps a kind of IPFS-enabled solution. We’ve also looked at having agents and market participants take control over this data themselves. Everything would be encrypted the way IPFS works, which makes this an idea to explore where the industry itself can actively participate in storing the data in a safe environment.
It seems like Propy is a big step towards a paperless future for real estate transactions, but it also sounds like it may save a lot of time & money on compliance audits, too. Is that something you’ve looked at?
That’s a great question. This is something we’ve just recently developed in the last six months, and we’re very proud of our customer’s brokerages being able to utilize it once a transaction has been processed on a property.
Obviously, we have all the paperwork stored on Propy platform, so an auditor or the transaction coordinator of a brokerage can go check all the documents that were created & stored.
We’ve helped to streamline these audits by letting them upload their own checklist to Propy and then compare it to the documents stored online. Our system provides them with all of the information about who signed the documents, along with immutable timestamps for every single action of every single signature available to be tracked online in Propy.
There’s a lot of legal regulation connected with all of this paperwork. Was it a challenge launching Propy as a startup given all the regulatory hurdles and approvals that might be required?
You know, when we were launching our first prototype, we worried whether some agents or counties would request approvals, but surprisingly we didn’t need any legal approvals in any country or state. However, agents obviously need to be following all the rules of the National Association of REALTORS®.
Once the NAR® invested in Propy for agents, it sounded like an endorsement or legalization. After that, we were approved by title companies like Chicago Title and First American Title, and even though we didn’t need legal approval, it gave us valuable approval from market participants that helped us build momentum.
Nonetheless, it never hurts to be cautious with new technology. I remember that for our first US transaction on the blockchain, we had a letter from our lawyers for the transaction participants stating that we are a legal system and blockchain records are also legalized.
Now, you started the company back in 2016, and there was a lot less knowledge of blockchain at the time. Was it a challenge to convince people of the value of this before the crypto boom started to help familiarize them with the technology?
Yeah, absolutely. Myself and our team learned how to apply blockchain to real estate transactions at the end of 2016 — but even back then, there were books available describing potential real estate applications for it.
For us, it was an opportunity to turn theory into practice, and we later learned that we in fact were the first company to record a deed on the blockchain and process a transaction using smart contracts. It was a lot harder to do in practice than the theory made it sound, but we did it, and it put us in the position of being the first mover.
Once we’d processed that first transaction, it led to a lot of media attention, which helped us to attract even more talented supporters, advisors and the approvals that I mentioned to you earlier. Being the first mover was invaluable because it gave us real world credibility in the blockchain space.
It’s important to remember that by this time, there were so many companies capitalizing on the blockchain & crypto hype that it was hard to rise above the noise — and we did that by executing a number of breakthrough transactions, along with small adjustments to Ethereum smart contracts and several other technical details that hadn’t been done before.
Now I do realize that agents agents and brokers don’t deal with the blockchain directly when they use Propy, but in terms of educating them on the technology, has it become easier to explain to them why this solution is important and how it offers long-term value to them?
Education is very important when it comes to cutting edge technology, whether it’s AI, blockchain, VR or even augmented reality. We’ve seen a trend in the last two or three years with agents becoming eager to learn new technology, especially when it empowers them to become more efficient.
Likewise, there is a push to adopt new technologies in brokerages, which have to adopt and to implement new tools in order to remain competitive. Now, with the pandemic, brokerages are becoming even more involved with tech and understand that we have a very big mission to move the industry towards automated transactions, which we view as being inevitable, just as we believe blockchain will be in the industry.
Probably half of our customers reach out to us because of all the emerging technologies we’re working on, and they realize that our goal is not only end-to-end sales automation, but the also creation of new instruments for real estate financing and other real estate derivatives.
Just like the internet created a new way of exchanging information, Propy and blockchain are creating a new underlying technology that enables high value trading for many types of assets, not only real estate.
That’s a great segue for me to ask about your role as an advisor at Arrington XRP Capital. Did this opportunity come from your success with Propy, and are you getting other inquiries now for advisory work?
Yes, absolutely. I was one of the earliest people involved in founding the fund, incentivizing it, and also in introducing advisors, startups, and the technology as a whole, early on. More recently I’ve been advising on investments in protocols and applications, whenever I advise on a first- or second-layer protocol, I bring my expertise from the perspective of an application creator.
In terms of focus, however, right now applications are more useful than protocols. There are so many protocols out there at the moment — and it doesn’t really matter how scalable or effective they are, because we don’t have enough applications that require them and validation for those applications.
In any case, from a big picture perspective my expertise is really to advise on the applicability and practical usage of blockchain, and I have had a number of requests for advising, especially back in 2017 & 2018 because everyone was dreaming to make a token sale, an ICO or a cryptocurrency.
At the time, I had maybe three, four people that I would pick to advise — but typically that entailed just a few calls because I couldn’t commit more time to it. I still sporadically do calls with founders, not only blockchain and crypto, but also with early-stage startups and female entrepreneurs. Whenever I feel that I can bring value or introductions, I do make one or two calls to help peers. Other than that, it’s just too much for me as a founder to take advisory roles seriously.
I’m not surprised — you have your plate full with the existing company at the moment. Now when things stabilize a bit more in your career, have you thought about writing a book, especially considering all of the historic firsts you’ve achieved in blockchain?
Yes. I’ve actually had peers ask me this question — whether I should write a book specifically about blockchain applications in real estate. I’ve definitely given thought to it, but I’m not sure how useful it would be at the moment for market participants, or whether sharing that information will make a big change for entrepreneurs and real estate agents around the world.
However, I do want to share knowledge — so I am very active on Twitter, and I’m also a contributor on Forbes, where I try to showcase what we’ve learned. I wouldn’t call myself a writer, and definitely it’s a hard task for me to write, but when I have something that I learned I’m always trying to put it in writing and share my knowledge with the community.
About Our Guest
Natalia Karayaneva is the founder & CEO of Propy, an innovative fintech startup working to transform real estate through paperless transactions & smart contracts in the blockchain ledger. Natalia has a Master’s in Sustainable Urban Development from Oxford University and nearly two decades of experience in real estate, which she leverages to produce next-generation solutions for the real estate industry. She’s also a writer for Forbes, an advisor to Arrington XRP Capital, and an advocate for the empowerment of women in the workplace. Learn more at https://propy.com/
