CitaDAO x Bankless DAO AMA
Primer: CitaDAO is a DeFi ecosystem powered by real estate. Joel Lin, a CitaDAO contributor, speaks to the Bankless DAO community about their project and answers questions from the community.
Background
Entered crypto in 2017
Back then, he was with an institutional landlord
Plenty of real estates tokenization projects requested them to inject their properties into their projects
There were 2 important questions that the real estate tokenization projects could not answer:
There needs to be a way for landlords to legally enforce their rights and be able to redeem the real estate token for the underlying real estate
There needs to be a way to exchange the real estate token for liquidity in the secondary market
Got together with a few institution lawyers to brainstorm on a legal structure that confers the right to redeem the real estate with a real estate token
In October 2020, they had a breakthrough. A prestigious law firm officially issued a legal opinion that validates the legitimacy of the structure
With a family office supporting them with real estate, they reached out to members of the DeFi community
The response was overwhelming
Why Real Estate Tokens?
Inflation is here to stay because of the loose monetary policies of governments all across the world
Because of the pandemic, the rich got richer and the poor got poorer
Rich people are able to hedge against inflation by having exposure to real estate
“In the real world, what happens is that the wealthy are able to hedge against inflation by apeing into real estate.”
- Joel Lin
In a typical crypto native portfolio, only two options are available:
Native cryptos, which are highly volatile
Stablecoins, which are subjected to inflation
Believes that there is a 3rd asset class that’s lacking on-chain — real estate tokens serve as an inflation hedge without sacrificing volatility
The high yield of DeFi is unsustainable and has already started to decline. Money will chase quality productive assets on-chain and real estate will be used to meet this demand
With DeFi, the capital in real estate can be unlocked with improved accessibility, liquidity, and composability
Believes that there will be two prices for real estate:
On-chain price
Off-chain price
Real estate on-chain will have a higher value than real estate off-chain because there are more use cases for it
Real estate is like the iPhone, and CitaDAO is like the App Store which enables real estate in the real world to leverage the use cases generated by other DeFi projects to increase the value of real estate on-chain
“We believe that real estate today is a very traditional asset class that is ripe for disruption.”
- Joel Lin
The CitaDAO Platform
CitaDAO enables a two-way permissionless tokenization bridge for real estate
Landlords will be able to independently list their real estate after ownership verification
The DeFi community will be invited to commit their interest in fractions of the real estate through a process called Introducing Real Estate On-chain (IRO)
If the IRO is successful, a bridge would be formed. An NFT representing the legal benefits of the real estate will be minted and custody in the smart contract
Fractions of the smart contract, in the form of ERC-20 tokens, will then be deposited into the buyer’s wallet. The ERC-20 tokens are the real estate tokens that will be tradable on AMMs 24/7
The CitaDAO platform also allows anyone to delist the real estate. They have a buyout module where a real estate token holder can buy out all other real estate token holders and redeem the underlying real estate
This acts as a floor to the on-chain value of the real estate tokens. If the on-chain value is lower than the off-chain value, anyone will be incentivized to buy out the real estate tokens, redeem the title deed, and transact it in the off-chain space for profit
Both the real estate token and the CitaDAO token are not security tokens. Hence, they could be listed on exchanges globally to improve their liquidity
Committing Early To The IRO
Will be rewarding for those who committed early to the IRO
Example:
USD $20 million property
Landlord puts up a USD $1 million commission
Commission gets shared with all participants upon a successful IRO that lasts over 10 days instead of real estate agents
Each day, the reward pool is distributed among all the participants on a pro-rata basis
💡 Check out a more detailed example of the IRO rewards here.
CitaDAO Token
Only way to get the CitaDAO token is to LP the real estate token with USDC in a liquidity pool
Project Updates
Currently discussing the introduction of mortgage on-chain with protocols like Rari Capital
CitaDAO has integrated Chainlink to bring real-world valuation of their properties on-chain on a regular basis. Valuation will be provided by respectable real estate firms like JLL, CBRE, Cushman & Wakefield, etc.
Accessibility Of Real Estate Tokens
CitaDAO is a permissionless platform
The only limitation is that CitaDAO is built on Ethereum and participants have to take gas fees into account
“We believe that DeFi is built for everyone. It's built for the people, by the people.”
- Joel Lin
There are many reasons why they selected Ethereum:
Ethereum has AML solutions that prevent compromised wallets from committing to their IRO
Has the highest on-chain liquidity
Easier to find Ethereum developers
Most of the valuable projects are built on Ethereum. They need to be on Ethereum to ensure composability between projects
If they bring real estate onto sidechains, the aggregate real estate value could be larger than the sidechain value
They are also currently looking at other EVM-compatible chains
What Does He Envision For The Composability Aspects Of Real Estate Tokens?
Thinks that minting stablecoins with real estate tokens is very exciting
Could also have stablecoins that are pegged to a portfolio of real estate tokens
Have thought of a futures/options primitive to allow individuals to hedge against a falling real estate market
Another area for composability involves developers who do not own their own land collaborating with real estate token holders to scale up and share the profit with real estate token holders
Could also have an architects guild putting up proposals to develop buildings to real estate token holders, with the profits shared with real estate token holders
Their Legal Structures And How They Plan To Tie The Real World To The Tokens
The real estate token represents the right to buy out all other real estate token holders
The moment the buyout order goes through, the token holder gets issued the NFT that allows the holder to redeem the title deed to the property in Commonwealth Law
💡 A special purpose vehicle (SPV) is a subsidiary created by a parent company to isolate financial risk.
A new Special Purpose Vehicle (SPV) will be set up to transact with the landlord and the title deed will be transferred into the SPV. A new SPV is used in order to ensure all prior encumbrances or violation of any law that could be in the previous vehicle is discharged.
Difference Between The US And Commonwealth Countries In Their Legal Structures
There are two major systems of law globally:
Commonwealth Law
Civil Law
The legal instrument they are using is not recognized under US law
US law is more recent compared to English law, which dates back to older times
They have studied the legal structures across multiple jurisdictions and their consensus is that Commonwealth Law is the best
Have received many requests on US properties. They have been engaging with their lawyers and one of the interesting ideas they have come up with is to bridge via Commonwealth countries into the US
Currently in the POC stage and they would not be looking at non-Commonwealth countries for now
Will Owners Of The Real Estate Be Able To Display Other Blockchain Assets On The Buildings?
Their first building hosts a bank. He doesn’t think that they will be happy to have people hanging a Bankless DAO flag outside their building
Their second IRO will be turned into a Hacker House. Besides being leased to other tenants, the building will also be open for community usage
“So it [2nd IRO Building] could be an NFT gallery, you could have flags of different DAOs hanging up from the top of it. If I could share a picture of what it looks like, you'll see that it looks like a castle.”
- Joel Lin
When Is The First IRO Set To Happen?
Originally planned for it to be in January 2022
Shifted it backwards as they wanted everyone to be familiar with the IRO process
Currently going through a testnet phase for the community to familiarize themselves with how the actual IRO would work
The landlord has communicated a price of USD $20.69 million (including transaction costs)
The landlord has studied the structure in detail. They are willing to underwrite the property and subscribe to 40% of the tokens if the remaining 60% are taken up by the community
How Do They Incentivize The Property Manager To Do A Good Job?
A sinking fund will be set up to ensure that capital expenses are paid for
Property managers are established firms (e.g. JLL, CBRE, Cushman & Wakefield, etc.)
What Happens If The Real Estate Token Price Crashes?
When the building is acquired, it consists of 100% equity. All creditors and debt would have already been paid off
If the on-chain value falls below the real-world value, it could be redeemed and sold for a profit in the real world
Airdrop To The Bankless DAO Community
Will be giving everyone that holds 10,000 BANK tokens an airdrop
Will have a website where users can check how much CitaDAO token they are eligible for
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