If On-Chain Real Estate is the iPhone, CitaDAO Would Be the App Store
How Property On Chain May Disrupt Real Estate Markets
CitaDAO, An Overview
If you haven’t heard about CitaDAO, here is the TL;DR: it’s a DeFi project that brings real estate on-chain, turning properties into liquid assets. While this article is a bit technical, simpler primer for CitaDAO can be viewed here. Essentially, a process called Introducing Real Estate On-chain (IRO) allows participants to indicate their interest in the real estate by committing stablecoins such as USDC. Once the target amount is reached the property will be transferred to a registered corporate entity to hold the asset in the non crypto world, while an NFT (ERC-721) will be minted which represents the right to redeem this title deed. From that point, fractionalized ownership of the NFT can be distributed in RET tokens (ERC-20), with all the composability of the Ethereum blockchain.
Upon a successful IRO, an NFT (ERC721), a digital right to redeem the title deed will be minted and deposited into a smart contract which will distribute fractions of itself as the RET. RET (ERC20) can be swapped on AMM such as Uniswap and can be used in liquidity pools to earn liquidity rewards. — CitaDAO.io
As of March 8th, CitaDAO has started the first IRO. A commercial building in the UK. To participate, check it out here.
This alone already opens up DeFi to diversifying into real estate, but the fact that the real estate property is available as an ERC20 token, quite frankly opens the floodgates to endless possibilities. In this second piece, I want to explore these possibilities. A good analogy Joel from CitaDAO has brought up multiple times, is that CitaDAO can be seen as the app store for real estate.
Real estate is like the iPhone, and CitaDAO is like the App Store.
The iPhone delivers the infrastructure, but the apps that run on it ultimately add most of the value for the user. By bringing real estate on-chain, CitaDAO makes real estate usable by the DeFi app store.
“We are the App Store for Real Estate. And we will be increasing the use cases for real estate on-chain. We believe that the value of real estate tokens on-chain will increasingly be driven by the use cases for the real estate tokens itself and the underlying real estate will only contribute a fraction of the actual value of real estate. And because of that, we believe real estate today is a very traditional asset class that’s ripe for disruption.” — Joel Lin (CitaDAO)
The App Store of Real Estate
A large variety of applications can be offered on the app store. Apple does not build them (most of them at least) or care too much about which kinds of apps are built, they just provide the infrastructure and the platform to distribute the apps. CitaDAO aims to be the same by offering real estate on-chain.
To drive composability, CitaDAO groups the possibilities into primitives. The process around bringing real estate on-chain is really just the foundation, just the start of all of these other possible things to be built.
The primitives are obviously more of a long shot view, but the CitaDAO team has some quite interesting ideas on how the different primitives could unfold. Let’s talk about the art of the possible.
CitaDAO has two tokens. One for governance and the other to represent every real estate property that is brought on chain. The $KNIGHT token, giving governance rights to its holders, will enable the Token Holders to determine how to govern the platform and the treasury. The RET token is created for every real estate property that is brought on chain and thus reflects a physical building (a unique RET collection for every building).
2% off of RET tokens out of every property brought on chain (via IRO) will be distributed to the treasury, and governance allows decisions on what to do with the real estate tokens. Over time, the treasury might amass more and more RET tokens from the various real estate properties brought on-chain, giving the $KNIGHT token holder broad base exposure to real estate globally.
An even more direct way of exposure to various types of real estate properties might be an on-chain REIT. This way RET tokens from the UK or Australia, shopping malls or office buildings could be grouped in flexible ways to allow the web3 world to diversify into real estate of even more diverse composure. A collaboration with Index Coop, who offers similar index fund type products such as DPI — a DeFi token index — could be a great way to utilise other parts of the DeFi ecosystem and make use of real estate on chain.
I could imagine a much more granular grouping of properties than what REITs offer today giving exposure to UK-only office buildings or Singaporean shopping malls.
Aside from index funds there is another financial instrument that could be borrowed from traditional finance: Futures and Options. Currently mainly available in the commercial real estate market, this is something the retail investor typically misses out on. Here is how it works:
A real estate purchase option is a contract on a specific piece of real estate that allows the buyer the exclusive right to purchase the property.
Once a buyer has an option to buy a property, the seller cannot sell the property to anyone else. The buyer pays for the option to make this real estate purchase. The option usually includes a predetermined purchase price and is valid for a specified term such as six months to a year. However, the buyer does not have to buy the property, whereas the seller is obligated to sell to the buyer within the terms of the contract.
Yet again, CitaDAO could rely on already in place DeFi infrastructure such as Dopex and TracerDAO, a decentralised options exchange, who might consider offering RET in the future. Shorting real estate tokens could help RET holders hedge their holdings in choppy markets.
One thing often debated in web3 is a fact in real estate: utility. Living in it, setting up shop or working are all things that can be done if you own or rent real estate, so why not also allow RET holders to utilise their buildings, even if they only hold fractions. This is really a long shot, but who knows, maybe someday a certain amount of RET tokens could be staked to mint an NFT that grants access to a shared office space or an apartment, effectively allowing holders to ‘pay rent’ without using fiat.
The building of a new property typically involves developers, providing the funding and engineers and architects who construct the actual building. The developers take the capital risk and thus have exposure to the majority of profits while the engineers and architects who put in the largest amount of work get paid a fixed salary without any major upside potential.
Having a funding mechanism in place via tokens could enable engineers and architects to team up in forming development DAOs to claim a piece of that share, developers used to own. Such a DAO could consist of RET holders of a certain property and they could jointly create a proposal to renovate or build out a property seeking funding and then going on to deliver the actual work.
Who knows where this is all heading, but it could get quite interesting if at some point land itself could get tokenized to then build completely new properties giving the community of owners the freedom to choose what to develop from scratch.
DeFi might cut out the middleman. In this case banks. With every IRO a piece of real estate could be unbanked, distributing more value back to the community.
If you buy a house, chances are you need a mortgage (a loan for a house). In most cases the house will serve as collateral for the mortgage meaning if you are unable to repay your loan the lender can use the collateral to pay back the debt. In tradfi most lenders are pretty happy with this concept. After all, the house, once built, has a value and can be sold off to pay back the loan.
RET, representing a piece of real estate, could easily be used to do the same in DeFi, giving holders a great way to to utilise their token. Knowing DeFi, I could imagine all sorts of more advanced trading strategies evolving out of this — like collateralizing RET, borrowing and selling ETH in anticipation of a bear market.
RET as Collateral
A perfect place for this to happen could be Rari Capitals Fuse Pools, the open interest rate protocol enables anyone to create a lending and borrowing pool and set their own terms. Aave in comparison only creates pools for major assets that are chosen by the community and as such adding new RET token types after an IRO could be an intensive if not impossible task. Setting up own pools would allow any type of RET token to be used as collateral and borrow against it.
The interesting aspect here is that even though RET is an ERC20 token, it should be somewhat uncorrelated to other crypto tokens. It is backed by a real physical building which may even be inversely correlated, and provide some hedge against price movements of ETH, SOL, AVAX etc. So if the crypto market tanks, RET holders might have a slightly more stable experience.
It could well and truly evolve into some kind of safe haven. Most of DeFi runs on dollar pegged stablecoins (~50 billion daily trade volume) and if investors want to take chips off the table, they will likely hold stablecoins such as USDC or USDT. These are dollar pegged and as such inflationary. A free floating RET backed stablecoin could be a nice alternative. Potentially using some of the mechanisms of Olympus DAO to create a stable reserve currency by accumulating RET.
The possibilities of having real estate on-chain are endless. CitaDAO is providing the app store for real estate and, like Apple, probably only has a vague understanding of what will happen next. I doubt when launching the app store, Apple had a ride share hailing app like Uber or social media applications like TikTok, Snapchat or Instagram on their radar.
The economic-, liquidity- and utility-primitives only give a framework and direction of what this space could evolve into. What the community will make out of having real estate added to the DeFi matrix is a whole different story. For the whole of web3 it is exciting to see more and more asset classes coming on chain proving the usefulness of this technology.
Florian Strauf is a technical writer exploring and visualising the tokenomics of various web3 projects.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
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CitaDAO Delivers Real Estate On Chain, DeFi Style by Florian Strauf
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