Conversations with the Coop - Joel Lin - CitaDAO
Primer: CitaDAO is a DeFi platform on a mission to build sustainable yield farms powered by real estate globally. Join Joel as he takes Crypto Texan through the raison d'etre of the platform and the benefits that on-chain real estate brings to the wider DeFi ecosystem.
Have been helping institutions invest over US$2 billion in real estate over the past 12 years
Previously, he was at CBRE, Capitaland, and UBS
Crypto journey began in 2017/2018. As an institutional landlord, many real estate tokenization projects have approached them to tokenize their real estate
However, real estate tokenization projects were not able to give him a convincing answer as to how token holders can enforce their rights to redeem the real estate tokens for the underlying real estate
In October 2020, they had a breakthrough. They found a prestigious law firm willing to officially issue a legal opinion validating the legitimacy of the structure to confer rights
💡 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 this to a family office and they agreed to inject their real estate portfolio in to support CitaDAO's Proof-of-Concept
Relationship To The Family Office
The family office agreed to support the CitaDAO project with their real estate portfolio
Portfolio is valued at ~240 million
The family office has confidence in the structure such that if the Genesis Cardiff IRO is not fully committed by members of the DAO, they are willing to take up to 40% of the tokens
When Did CitaDAO Start?
Started in October 2020 when they had a breakthrough in the legal structure
The team reached out to members of the DeFi community to invite them to build the DAO together
Managed to put together US$1 million in builders funds
Response was very overwhelming and supportive
Their vision is to build a sustainable DeFi yield farm that is powered by real estate globally
There is a floor to the real estate token value. If the on-chain value ever falls below the off-chain value, they have a buyout protocol that allows someone to buy out all other real estate tokens to redeem the title deed and sell the real estate in the real world for a profit
"To help create a yield farm that farmers can actually farm in peace and knowing that there's actual real world assets backing the tokens." - Joel Lin
Capital Inefficiencies In The Real Estate Market
Real estate is a $280 trillion market
However, a large proportion of that capital is locked up and not earning any yield
CitaDAO plans to use DeFi to unlock that capital, improving accessibility, liquidity, and composability
Believes that on-chain real estate will have a higher value than off-chain real estate as there are more use cases for it
"So in future, we believe the value of real estate tokens on-chain will increasingly be driven by the use cases for the real estate tokens itself, with the underlying real estate contributing only a fraction of the actual value of the real estate token and we see real estate today as a very traditional asset class that is ripe for disruption." - Joel Lin
For example, the iPhone App Store increases the value of an iPhone because of the increase in the number of use cases created by the apps on the App Store
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.
What Was Different Compared To 2017?
Back in 2017, there were 2 hurdles:
CitaDAO found solutions to both
The legislative framework has always been there in English/Commonwealth law
In areas that do not follow Commonwealth law, there's no legal framework that allows for the tokenization of real estate
"The legal framework in English law that we ultimately found that's staring right at us in the face, is just that most lawyers, they kind of miss that." - Joel Lin
When real estate tokenization projects tried to do tokenization, they typically consult securities lawyers that are very well-versed with capital markets. But these lawyers lack the real estate background/experience and knowledge of real estate law
Will start to list real estate tokens on DEXes first
Back in 2017, DeFi and yield farming did not exist
With DeFi, liquidity pools can be used as a source of liquidity
Rental income from the real estate could be used to buy and burn real estate tokens, effectively creating a buy pressure on the token itself
The CitaDAO token is never sold by the CitaDAO project team. It can only be earned by purchasing a real estate token and contributing it to the liquidity pool
2% of all real estate tokenized on the CitaDAO platform will accrue to the CitaDAO treasury
The DAO platform is interoperable with other DeFi primitives
The CitaDAO token also grants holders governance rights over the platform
Process Of Tokenizing A Property On CitaDAO
CitaDAO offers a 2-way tokenization bridge
Any landlord within the Commonwealth jurisdiction can list their real estate on the platform after ownership verification
Once verification checks and AML/KYC are performed on the landlord, potential participants from the DeFi community will be invited to commit their interest in fractions of the real estate through the process known as Introducing Real Estate On-Chain (IRO)
💡 A special purpose vehicle (SPV) is a subsidiary created by a parent company to isolate financial risk.
Once the IRO is successful, an NFT will be minted. This NFT allows for redemption of the underlying real estate title deed and the assets of the SPV. The landlord will go through a standard conveyancing process where they give up their title deed for cash and this will be handled by their lawyer
The NFT will be custodied in the smart contract and fractions of the ERC-20 tokens will be deposited into the buyers' wallets
The rights for the ERC-20 smart contract grants holders the ability to buy up each other's share so that they can claim NFT and the legal instrument and, in turn, redeem the title deed
Fractions will be tradeable on AMMs like Uniswap V3
In the event that the price of the real estate token drops below the real world price, arbitragers can buyout other real estate token holders to redeem the underlying real estate
Can Real Estate Investors Pool Multiple Properties Together To List Via The IRO?
Each property is represented by its own NFT
Will CitaDAO Be Looking At Residential Real Estate?
CitaDAO will only be looking at commercial real estate for now
When the DAO becomes fully decentralized, token holders will have the right to vote how they want to run the DAO
The DAO has a social responsibility not to disrupt residential real estate prices as it pertains to the stability of the overall society
CitaDAO wants to conduct themselves in a socially responsible manner
CitaDAO's prime objective is to scale up as quickly as possible, with a target of at least 4 billion TVL by 2023 through the commercial space
There is sufficient commercial real estate globally ~US$30+ trillion to meet this objective
Where Have They Been Able To Find Success?
Have leaders with strong real estate and blockchain project experience on board
Able to leverage their experience, network, and resources to bring together the legal, real estate and crypto communities
Received support from other DeFi projects, enabling the project to compose within the DeFi ecosystem to increase the use cases for Real Estate on chain
Found success in discussions with established lending protocols to accept real estate tokens as collaterals
DeFi will boost the yields of real estate on-chain
Real estate tokens are a good complement to a crypto portfolio of native tokens and stablecoins. It offers a low volatility, inflation-resistant asset that does well in this environment where governments are printing money and struggling to contain inflation
How Do You Think The Index Coop Could Partner With CitaDAO?
CitaDAO’s vision is for Index Coop to enable experienced DeFi investors to construct real estate indexes based on their real estate tokens so that the rest of the DeFi community can get exposure to real estate on-chain by apeing into these indexes
In the long term, they believe that other DeFi projects will leverage on Index Coop's real estate indexes to build their exposure into real estate on chain
Which Blockchains Will CitaDAO Be On?
Ethereum will be their main blockchain because it has a strong community and has been around for a long time
When the high gas price of Ethereum is juxtaposed against the millions in value of real estate, gas price seems to be relatively affordable
Cheaper transaction chains could suffer from spam attacks. This makes them a double edged sword and exposes their project to other attack vectors
"You see things on Twitter, of people saying, these gas fees are so high, Ethereum is broken. And it's actually the opposite which is true. The market and the users have so much faith in the security of the Ethereum chain that they want their transactions in those Ethereum blocks and they're willing to pay a premium, a higher price to get their transactions in there because they do believe in the security of the network." - Crypto Texan
This does not mean that they are not looking at other layer 2 chains. Some of the layer 2 chains they have found are scalable, have lower gas fees, strong community support, and have sufficient infrastructure built on top of it
Where Can People Find Them?
Can find them on their Discord
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.