CitaDAO AMA (Nov 30, 2021) - DeFi Ecosystem Powered by Real Estate
Primer: CitaDAO is creating a DeFi ecosystem powered by Real Estate. CRE8R DAO recently hosted an AMA with the CitaDAO team, learning the ins and outs of the project. What is CitaDAO's unique selling proposition? How is their tokenomics designed? All these and more are in our summary below.
Speakers
Joel
Helping institutions invest >2 billion in real estate over the past 12 years
Previously was at CBRE, Capitaland, and UBS Investment Bank
Ethan
Was always in big tech
Was with Uber and Amazon previously
Ran strategy growth for Amazon
Elevator Pitch For CitaDAO
💡 A decentralized platform to create sustainable yield farms powered by real estate globally. They aim to solve the lack of liquidity, access limitations, and lack of composability in the existing real estate ecosystem. We do this by creating composability with other DeFi primitives, DeFi projects that increase the use cases for real estate tokens.
How Was CitaDAO Conceived?
Joel
Started his crypto journey in 2017/2018 on the institutional side
Received many real estate tokenization proposals but none of the projects could give a proper answer when asked about how the real estate tokens could be redeemed for the underlying real estate
Started brainstorming on legal structures
In October 2020, they came up with a legal structure that a prestigious law firm was willing to validate
💡 Family offices are private wealth management advisory firms that serve ultra-high-net-worth individuals (HNWI). They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, wealth transfer, and tax services.
Took it to a family office and got the legal counsel to review it
The family office agreed to inject their portfolio of real estate to support the project
Reached out to members of the DeFi community and invited them to build a DAO together. The response was overwhelming and supportive
Why Did Real Estate Tokenization Projects Fail To Launch In 2017?
Back then, it was too early for tokenization. DeFi was not really a thing
Projects ran into 2 main hurdles:
Regulatory hurdle
Liquidity hurdle
CitaDAO developed a solution to enable real estate token holders to redeem the title deed. The tokens have a floor based on the underlying real estate price
Landscape changed with DeFi summer. AMMs unlock liquidity for real estate tokens, solving the liquidity hurdle for CitaDAO
What Blockchains Are They Looking At?
Will be launching on Ethereum for their proof-of-concept
Currently exploring other Layer 1s and Layer 2s for their V2 release
What Problem Is CitaDAO Trying To Solve?
Real Estate is a very capital inefficient asset class
Their plan is to leverage DeFi and unlock the capital for real estate —> driving demand for real estate on-chain —> increase capital efficiency —> enhance overall fair value for real estate
Believes that, in the future, there will be 2 sets of prices for real estate:
On-chain (higher value because there are more use cases)
Off-chain
"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 only 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
Real estate tokens introduce a tangible inflation-resistant asset class to complement a DeFi portfolio in light of the money printing by governments
Unlike most of the tokens today, real estate tokens have a floor price. If their value goes below the underlying real estate value, there will be arbitrage opportunities where holders can redeem the title deed for the underlying real estate
CitaDAO's Unique Selling Proposition & Competitive Advantage
Had the benefit of hindsight into the challenges faced by other projects
Is the first project that offers real estate tokens that give holders claim to the underlying title deed
Will be introducing a liquidity mining program that offers competitive rewards
Recently integrated with xToken to provide secondary liquidity for their real estate tokens
One challenge that their competitors faced is that they issue low value properties from around $50,000 to $100,000. Consequently, there's very little liquidity that can be offered in the liquidity pool
Their Tokens
Consists of 2 sets of tokens (both tokens are not security tokens):
CitaDAO token for platform governance
Real estate tokens that are unique to each property
CitaDAO token does not have a ticker name yet. Will be released when it's closer to their TGE
The CitaDAO token will not be sold
CitaDAO token can only be earned through mining:
Contributing liquidity
Building composable DeFi projects and increasing the use case for the real estate tokens
As a landlord, to contribute iconic or quality assets on-chain for the community to ape into
2% of real estate listed on CitaDAO will accrue to the CitaDAO treasury. As more real estate comes on-chain, this makes the CitaDAO token more valuable
Another driver of value for the CitaDAO token is the composability of their platform
Possible to recover the original capital put into the real estate token in less than 5 years, depending on the price action of the CitaDAO token
Tokenomics
Token Allocations:
40% allocated to liquidity incentives
10% allocated to rebate pool
15% allocated to community incentives
10% allocated to landlords that offer quality real estate on-chain for the community to participate in
15% allocated to the team
10% allocated to the foundation
The team and the landlords have committed to a 4 years vesting period
Builders who contributed to the proof-of-concept have at least an 18 months vesting period
Project Roadmap
Will be launching first proof-of-concept on 7 January 2022
Plan to scale to over 4 billion AUM by Q3 2023
First asset to be listed is a prime retail real estate in the UK. Property is master leased to a global blue chip bank
Second real estate to be listed is a mixed-use development in Central London that will be converted into a crypto space
Has a pipeline portfolio of over 250,000 square feet, with a total value of 200 million. Portfolio is owned by a high networth family office
What Are Some Challenges That They Will Face And How They Will Resolve Them?
Regulatory challenges will always be there. Their team will always ensure that they are regulatory compliant
Wants to be socially responsible. Will have to continuously ensure that their moral compass points the right way
The liquidity challenge has been resolved as more money flows into DeFi
Current yield on-chain is not sustainable
More institutional money will come into the space seeking quality, productive assets on-chain and they are positioned to deliver it to them
Smart Contract And Platform Security
For smart contracts, their auditor is ABDK
💡 The Introducing Real Estate On-chain ("IRO") is the process where the community determines the type of real estate to be tokenized. Every real estate will need to go through the IRO process, and only assets with sufficient commitment from the community will be tokenized.
In terms of the security of user funds, their IRO locks up funds over a period of 5 - 30 days. This limits the attack vectors that are possible
Another way they protect their community is to research which chains to build on
Property Lease
Their first property is a freehold property
💡 A triple net lease is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities.
In terms of the lease the tenant is on, it depends on the landlord when they leased out the property. For their first property, it is leased out to tenants on a triple net lease
How Will The Property Be Maintained?
There will be a professional property manager appointed. In charge of doing everything:
Sourcing and securing tenants
Facilities management, etc
Real estate management is a specialized skill set. Makes better sense to have established property managers managing their properties rather than hiring people from the DAO
How Often Is The Value Of The Property Appraised?
Has integrated with Chainlink
Will be appointing 2-3 valuers to provide a monthly valuation of the real estate in the real world
The average of the valuation will be picked up by the Chainlink Oracle and be released on-chain for other DeFi projects to leverage on and build their own use cases for the token
How Will CitaDAO Deal With Cross-Country Regulations?
💡 A special purpose vehicle (SPV) is a subsidiary created by a parent company to isolate financial risk.
The location where the SPV is incorporated can own the property and legal title deed in the country the property is domiciled in
The UK is an open market where anyone in the world can own a property in the UK
In the beginning, they will only be listing properties from Commonwealth countries
Will There Be A Whitelist To Participate In The IRO Property?
No whitelist for the IRO property itself
There is a waitlist on their website for people to sign-up to receive up-to-date info on what is happening at CitaDAO
Have They Considered Paying Out The Rental Income In A Stablecoin Instead Of Token Buybacks From The Market?
The real estate token will be classified as a security token if rental income is paid to token holders
More benefits from not being a security token than being a security token
Not everyone wants to receive rental income because it would mean that they have to start thinking of how to deploy that rental income
How Will Tax Issues Be Managed?
Will be based on the local jurisdiction the real estate is located in
As they are not distributing the rental income back to token holders, they do not have to look into cross-jurisdictional dividend tax distribution. This is one advantage of their structure
What Type Of Properties Is CitaDAO Looking For (e.g. Residential, Office, Malls, Industrial, etc.)?
Any kind of property can be listed
The community will be curating the property
Only property type that they will exclude is residential properties. They want to be socially responsible and not inflate residential prices around the world
"The landlord will list it and the committee will decide whether they want to make the listing successful. If the committee decides that they want to make the listing successful, then the property will come on-chain." - Joel Lin
Any Plans To Bundle A Bunch Of Properties Into An Index ETF Sort Of Structure?
Currently in discussion with Index Coop to explore that possibility
Most of the properties in the pipeline are UK properties. Discussing with Index Coop if they could release a UK real estate index token
"And with the composability that you mentioned, it's possible that this index won't just follow the UK property averages, it'll actually far exceed that because these properties will be actually more valuable due to their ability to yield farm and be composable with other DeFi applications and so on." - Fugu
How Does CitaDAO Compare To REITs?
💡 A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.
REITs are products of yesteryears. Were dominant during the securitization era
Has a principal-agent problem. REIT managers typically do not act in the best interest of their equity holders
There are instances of REIT managers abusing their authority to increase fees because their fees are based on a percentage of AUM. This is done through a sales and leaseback scheme where they buy the real estate at an inflated price with the promise that the landlord will lease the property back from them at a higher rent
There's nothing a REIT holder can do about the issue
For CitaDAO, the individual always has the choice as to whether they want to get exposure to a particular real estate
During the IRO process, the community will decide on whether the real estate gets brought on-chain. As a result, only quality real estate would be listed by the community
Any Metaverse Plans?
Do have plans for that, but their core strength is in bringing real estate from the real world to DeFi
Imagines it would be exciting for Metaverse projects that are backed by physical real estate in the real world
Do They Have A Freeze Function For Their Real Estate Tokens If It Falls Into Hacker's Hands?
If it falls into the hacker's hands, the hacker is also unable to redeem the title deed of the real estate as it requires the hacker to reveal himself/herself
If the hacker sells it to someone else, the hacker can be traced and tracked
Price Of Tokens At IRO
At the IRO, one real estate token will be issued at $1 worth of the property
This allows for easy comparisons across different real estates listed on CitaDAO
Redeeming The Property
Property cannot be partially redeemed. It needs to be bought out in full
2-way tokenization bridge is there to ensure that there's a floor price for the real estate token. The real estate token on-chain will never fall below the price of the real estate in the real world unless there's a black swan event
There's a buyout function that allows anyone with the real estate token to buy out all the other real estate token holders for that particular real estate
Once the buyout protocol is triggered, the person initiating it will lock up their USDC and Real Estate tokens into the buyout smart contract
Other Real Estate token holders will be notified and will have to decide whether to accept the offer, or buyout the initiator's Real Estate token at their buyout price to halt the buyout process
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.