By Kyle, Investment Manager@Bing Ventures

The land belongs to everyone who loves life. Unfortunately, the reality is far from this truth. In most parts of the world, a very high proportion of the working class still reside in cramped living environments, while the privileged few control the vast majority of the world’s land resources through various means.

This concentration of land resources limits the flow of ownership and hampers market forces, eventually leading to the solidification of classes. Land wealth is being held by a few, while debt is falling on the heads of ordinary working people through banks and mortgages. This unfair distribution of wealth will usher in a drying up of liquidity. At the same time, the supply-demand mismatch pattern of high housing prices and high inventory will also pull down the real value of real estate.

The suppression of private demand due to high housing prices has led to a bottleneck in the development of the land factor market represented by traditional real estate. The problem is particularly evident in the real estate financial market. The fiat price of real estate assets is generally on the rise, and both real estate companies and residents are borrowing from banks on a large scale.

In this way, a two-way reflow risk model will be formed in which the scale of debt continues to expand. In the end, when the income of real estate companies and citizens who are in debt is not enough to pay the debt interest, they can only continue to borrow new ones to repay the old ones, and eventually their credit goes bankrupt. We believe that Web3.0 has great innovation in the DeFi design of land property rights and the DAO-based governance paradigm of land. The tokenization of land elements will reshape the wealth effect of land ownership and start the next high-growth cycle of the real estate industry.

The crisis and turning point of the real estate industry

Once the real estate industry is highly leveraged, debts become a problem. In other words, a solvent party can never be a stable creditor under the current model. Even if the government’s financial department can forcibly undertake debts, it has to transfer this part of the cost to the price of currency devaluation and inflation, which will open a Pandora’s box of full-blown crisis at any time. A typical case of such an industrial storm was Japan some 30 years ago.

Here’s what went down: residents’ income and savings continued to decline, they were burdened with huge real estate debts and when the real estate bubble burst, their consumption power and purchasing desire sharply declined, economic growth stagnated, and Japan entered the “lost 20 years”. Since the last century, more than 100 of the more than 130 financial crises in the world are related to real estate. Before the subprime mortgage crisis in 2008, US real estate mortgage loans exceeded 30% of GDP that year. The housing bubble burst has become the most likely “Minsky Moment.”

Although the government’s support of mergers and acquisitions of high-quality real estate companies can help ease the progress of thunderstorms, the funds for healthy and benign real estate companies are always limited. This forced capital demand cannot make up for the huge debt gap, nor can it consciously create debt repayment demand. In a longer time frame, the real estate crisis is ultimately a debt crisis, which tests currency credit. Unlike 30 years ago, Japan did not have cryptocurrencies at that time. We believe that an angel wandering in the gloomy sky of real estate will reunite credit and consensus, and bring a different possibility of breaking the situation to a new round of economic crisis.

1.The super sovereign flow of land elements

The current traditional financial market is completely centralized, being under the control of government-regulated entities and multinational financial oligarchs. Banks and financial oligarchs hold the power of the authentication layer. In stark contrast, blockchain is completely decentralized. DAOs offer a new path to modernise organisational and corporate governance. NFTs provide creators with the tools to get better compensation. More and more companies continue to add hardware services to the blockchain, which will reduce transaction fees and improve security. These will eventually prove to be meaningful.

External innovations that accompany land have expanded at a similar rate. In 1926, Keynes argued that it was the government’s responsibility to maintain full employment and to make the investments necessary for growth. Half a century later, the vast majority of neoliberal economists have abandoned Keynesian doctrine as well as the need for an active, intervening government. They believe that the self-regulation of the capitalist economy can automatically achieve equilibrium. A hundred years later, blockchain gave birth to crypto liberalism.

There are many governments and multinational corporations firmly encouraging sustainable economic growth. But classism, xenophobia, nepotism and closed elitism will eventually lead the entire traditional financial system towards corruption because real estate protectionism cannot be effectively curbed. Governments and multinational corporations are fundamentally and naturally opposed to cross-border land trade. We have to pursue the efficiency, transparency, and obvious coercion of cryptocurrencies.

2.Crypto liberalism promotes individual sovereignty

Liberalism has given leverage to financing land, which have long been controlled by governments endorsed by citizens. That is to say, the balanced model of “government + liberalism” allows land to circulate in the market and become a form of wealth. But the middle layer of government is the black box of power. Most people outside the box have no way of knowing its true operations. Therefore, liberalism is often prone to collusion with capital or power-seeking when the government lacks self-regulation.

The emergence of blockchain gives individuals the opportunity to monitor the black box of power. In a perfect state, if all governance decisions and implementation acceptances are run on the blockchain, ordinary people can view all public funds running on it. That is to say, if ordinary people want to buy or trade fixed assets such as real estate, it is completely feasible to empower and trade on the blockchain with complete transparency.

At this time, we will find that many classical economics theories will be easier to reach the optimal solution in the encrypted world. Because in the economics of crypto-liberalism, smart contracts replace the real management agency of the government, and the public chain replaces the traditional civilised framework of the country, which is limited by the geographical location. Crypto liberalism came into being, and it is against this background of order reconstruction and civilisation optimisation that the flow of factors and production efficiency have been further improved.

Blockchain has changed the international trade between countries and the so-called “factor endowment of a country”. The right to distribute factors may gradually be transferred to DAO organisations that are more convenient for citizens to exercise their rights. Both are mutually beneficial. The success of a DAO depends on whether it can schedule resources faster than other organisations and allocate them reasonably.

3.The country’s real estate credit bankruptcy

If real estate debt is confined to real estate, it seems that crisis cracking is very easy. But the economic system is not a fragmented entity, especially as the main force of fiscal revenue, real estate is more sensitive to the conductivity of the overall economy. The key to credit reconstruction in the real estate industry lies in the secondary damage of currency credit after debt restructuring. Therefore, there is only one chance for real estate to save itself. This irreversible risk of clearing can further destroy productivity incentives. This risk transmission is tantamount to walking a tightrope.

The exacerbation of the land market raises concerns about local solvency. Credit pressure will be transmitted to the production and trade fields, and policy tools can slow down the transmission speed and scale of credit default risk; on the other hand, available monetary tools and fiscal policies are essentially means to mobilise supply and demand. If the market cannot further increase their income, the supply and demand pattern will also fall into a state of shrinking, and market confidence will further decline.

Real estate affects the whole body, so it is more likely that land elements are uncontrollable in the current state of supply and demand. How do we rebuild credit? The first is to seek new value endorsements for money and debt. The value fragments of the land element cannot be reintegrated through self-digestion of debt, because neither the debtor nor the creditor has long-term motivation in this regard, and it is contrary to economic common sense.

The contradiction between macro-level land property rights and micro-level redistribution

1.Lessons from the failure of real estate transformation in the Web2.0 era

People in the Web3.0 world often regard the ecology of different public chains as a multiverse. In my opinion, different DAO organisations are more like multiverses. People form DAOs due to different survival and life orientations. In order to achieve group purposes, they often present a multi-dimensional arrangement.

Just imagine, the cities in the traditional world are all arranged on the platform of the earth. But the DAO completely changed the definition of urban settlement. Crypto natives can live in different DAOs simultaneously in the crypto universe for different purposes. People can live in different dimensions and planes at the same time, all for the purpose of making individual lives better.

The former Internet companies once promised to decentralize power from a few users, but today, we see that Internet giants such as Tencent, Ali, and Byte have actually re-centralized power to a few people. It is no exaggeration to say that the false promise of Web 2.0 is completely bankrupt. Build monopoly power and charge users high fees per transaction. The existence of Web 2.0 middlemen declares the failure of decentralization.​​

The DAO movement is democratising organisational governance. Through the DAO, all investors can vote on the organisation’s decisions. DAO democracy is definitely not populism, and some people try to use this to attack the DAO. Because the DAO’s leadership structure, expertise, and accountability can correct itself, rather than make head-scratching decisions on long-term issues. DAOs force organisations to provide decision-making basis and proof to trustees within the organisation and get a majority vote, which ensures that better solutions can be developed under this system.

Soon the DAO will be challenging public companies head-on, followed by some countries and governments. Currently, token-based DAOs are thriving to attract people’s trust and funds, and it is believed that more disruptive projects will appear soon. The decentralized crypto world will be far ahead in the future. The government cannot contain this beautiful and efficient wave of innovation. Just as open source software transcends the natural limitations of centralized software platforms, blockchain technology transcends traditional finance. In such a socially turbulent historical period, what is a market economy? Who will define the market economy, these questions may have to have their answers rewritten.

2.Tokenization to straighten out the relationship between public ownership and privatisation of land

What is the difference between a token and a land ticket? Both are products of two entirely different eras. Completely incomparable in terms of financial transparency, ownership clarity, liquidity infrastructure, and tradable scenarios. Of course, land privatisation is not privatisation in the true sense. It is a real estate transformation path with the lowest cost and the highest return.

Of course, this round of real estate opportunities is first built on the introduction of real blockchain technology. There can be no complete tokenization without complete blockchainization. Without complete tokenization, it is impossible to rouse the enthusiasm of the public for fair ownership of land and property. Without enthusiasm, the public will not take the initiative to embrace debt and take on debt, and will eventually move towards another possibility.

Cryptocurrencies offer new ideas for the revaluation of land values ​​and the introduction of external reservoirs for debt transfers. Once the true circular route is opened, real estate will re-emerge with vigour and opportunities. From the perspective of traditional finance, it is possible that the land income only includes that of land rent in the real environment. But the rise of blockchain technology has changed all that. The land income is mapped on the blockchain and has the property attributes of the virtual world. The Metaverse also needs urbanisation, and a new round of “land finance” will burst into life through the redistribution of virtual land property rights. The return of virtual land to the people is not groundless. Using land income as an infrastructure financing channel for cryptocurrency is the best way to resolve local debts. The virtual land sale should not be a castle in the air built separately in the block continent, but should be strictly linked with real assets, so that the virtual economy can truly reflect the true value of the distribution of rights.

3.Real estate supervision empowerment and innovation of crypto policy tools

In order to sell real estate as an NFT, the first step is to obtain the necessary regulatory consent to ensure that it complies with regulations. This requires engaging policymakers and legal advisors with experience in blockchain technology. Pure traditional financial practitioners are often vigilant and hostile to such innovative paradigms. As everyone knows, the crypto economy has slowly developed into a powerful policy tool.

As with the transformation of new technologies such as the Internet starting in 2000, bias always prevails at the beginning, and the adoption of NFTs and DeFi in the real estate industry will certainly face challenges. First of all, the older generation of real estate developers have their own historical baggage.

Needless to say, older generations tend to be less enthusiastic about new technologies than younger generations. Second, blockchain technology is so powerful that it has a huge impact on many intermediaries in the real estate industry. No doubt there will be more challenges along the way. But when crypto practitioners master this field with high returns, the new “stuck neck” industry dividend will be released exponentially.

Crypto policy tools are not yet widely used by governments, and now Dubai seems to have the intention to further open this gap. Often the government and traditional real estate developers are afraid that the encrypted economy will subvert their existing cakes. This mindset often puts oneself in a weak position subconsciously. In fact, from the overall point of view, the establishment of a real estate transaction market unique to the crypto industry around real estate is a very big blue ocean at present, and the policy dividends released from it will be no less than the wealth effect brought by simple monetary easing or fiscal deficit.

The Second Liberation of Real Estate Wealth

All market survivors go through an evolutionary game of survival of the fittest, and the real estate market is no exception. The DAO mechanism opens up a new design space for equity appreciation for real estate. Different from the previous path of real estate speculation, DAO does not rely on centralized speculators to guide market liquidity, instead, it relies completely on a decentralized incentive system driven by individual rational self-interest. DAOs allow for greater governance efficiency and iteration speed. Therefore, the evolution cycle of the real estate economic system based on DAO is much shorter than that of centralized real estate developers. The faster you iterate, the more progress you make.

DAOs and token-based governance systems will allow the real estate market to self-regulate on a micro-level in order to fund future fully decentralized real estate infrastructure. Ultimately, as more and more real estate organisations become DAOs, the community-tested governance model will expand to the macro real estate market.

The effectiveness of DAO governance is conducive to empowering real estate and increasing opportunities for secondary capture of value. A real estate parcel with better public facilities (schools, hospitals, parks, etc.) tends to be more valuable. In fact, assuming that the population is completely mobile, the secondary capture of real estate value should be precisely the profit that DAO can focus on mining in the public interest. Assuming the public good is worth DAO funding, the growth in real estate value should outpace the cost of buying it for people. If this increase serves as a tax, it’s a win-win for both the government and the average home buyer.

DeFi+NFT+DAO establishes a real estate tokenized transaction paradigm

For a long time, the outside world has held a wrong understanding that the encrypted business paradigm of DeFi and NFT is typical of economic bubbles and financial Ponzi schemes. Perhaps before 2020, people who hold such a concept may still be objective and rational investors. However, with the test of time, when DeFi and NFT gradually become the cornerstone of the encrypted economy, to hold such a notion is to then rest on your laurels.

One of the disadvantages of traditional investment in real estate is that the transfer of property ownership lacks the basic conditions for high-frequency trading. This dilemma is mainly due to the fact that real estate, as a major asset class, lacks the transaction basis for fragmented property rights and the corresponding market liquidity.

At present, the purchase of real estate requires a lot of title identification work, and the process is complicated and time-consuming. The emergence of DeFi and NFTs can greatly simplify the transaction process. It’s easy for a buyer to take ownership of a piece of real estate in minutes. At the same time, by using blockchain and NFT technology, you can achieve a higher level of security and data integrity, the transaction security of buyers and sellers can be protected, and assets can be transferred more easily.

In traditional markets, especially in some countries with high housing prices, small buyers are often unable to pay in full at one time for a major asset class that is just in demand such as real estate. Often they need a loan like a traditional bank to fulfill their housing needs. But with the advent of DeFi, buyers can easily borrow using DeFi products or NFT products, skipping the complex materials and high loan interest rates that most traditional banks require when taking out a mortgage.

(1) Propy

Propy is currently the largest real estate-focused Web3.0 protocol in the cryptocurrency market, focusing on automating real estate transactions and making the closing process faster and more secure. After becoming the first company to launch a real estate NFT in 2021, Propy sold a home worth around $650,000 for 210 ETH in Tampa, Florida, USA.

In addition to providing the holder with proof of home ownership, real estate NFTs created through Propy can also be used as proof of collateral for cryptocurrency-based lending. Blockchain real estate platform Propy has partnered with crypto investment management firm Abra, and Propy clients can now get home loans using cryptocurrencies as collateral.

Although Propy has adopted blockchain technology in the transaction process, its product is still focused on paperless remote settlement for real estate brokers, agents and real estate title companies. Propy also did not change the middleman’s trade barriers in the transaction structure, so it’s still not the best web 3.0 design.

(2) Parcl

Parcl is a digital real estate synthetic asset protocol built on Solana. The Parcl protocol allows users to invest and trade in specific geographic real estate markets, enabling targeted investment and hedging strategies in this traditionally opaque and closed asset class. It does this by allowing the creation of synthetic “Parcls”. Parcls are linked to a proprietary valuation index (Parcl Price Feed or PPF) that represents the median price per square foot/meter in a specific geographic location in the real world. PPF continuously tracks changes in the underlying price of real estate assets represented by each Parcl geographic boundary, with real-time price updates flowing into smart contracts through oracles. Parcl requires no minimum investment, high liquidity, and low transaction fees, enabling investors to trade their favorite properties.

Parcl, a Solana-based real estate digital investment platform, announced the completion of $7.5 million in strategic financing, with participation from Archetype, Dragonfly, Not Boring, and Solana Ventures. The strategic focus of the project is in the real estate data area. This is a huge market of opportunity. Traditional real estate data are often difficult to assess and lag and other defects. Web3.0 technology has great potential in this field.

Parcl takes a unique approach to providing up-to-date real estate price estimates at a geographic level. At the same time, they launched neighbourhood-level price feedback based on the concept of community and integrated it with the Parcl protocol to provide users around the world with low-barrier exposure to liquid real estate. The project is creating a best-in-class global residential real estate dataset to reveal market trends and facilitate the flow of global real estate assets.

(3) CitaDAO

CitaDAO.io aims to solve the pain points of the existing real estate industry’s lack of liquidity, limited access and insufficient composability by integrating real estate with other DeFi protocols. Its characteristic IRO (Real Estate On-Chain, real estate on the chain) activities. During the IRO, participants who are eligible and interested in the portion of the on-chain property can stake USDC in the commit pool to show interest in the portion of the property. Users who stake USDC will receive CitaDAO’s governance token as a reward according to the stake ratio. Once the number of assets in the commit pool reaches the preset upper limit of CitaDAO, the IRO will be considered a success. Users can claim ERC-20 real estate tokens as well as token rewards.

ERC-20 real estate tokens can be considered fractional ownership of the property, and holders of real estate tokens can form their own real estate investment trusts (REITs) and ETFs individually or in partnership with other members of the CitaDAO community. Based on CitaDAO’s on-chain real estate, users can also build financial products related to traditional real estate, such as futures and options contracts.

Real estate tokens will be distributed to everyone participating in the IRO. Depending on their specific risk profile and strategy, yield farmers can earn agricultural rewards on the CitaDAO platform in a number of ways. During an IRO, farmers can farm yields by locking liquidity in a reward pool, allowing ERC20 real estate tokens to be distributed to interested participants. Yield farmers who want to be rewarded during the IRO must lock their USDC tokens throughout the IRO process. In addition to the ERC20 real estate tokens, they will also receive additional USDC rewards based on pro-rated pool contributions from the daily reward pool.

At present, the source of income of the DAO organisation is still relatively single, and it has not designed more attractive DeFi products based on the real estate industry. However, we can still expect the project to use real estate lending and standardised DeFi products with lower thresholds in the project.

Summary and Outlook

The first law of civilisation in our world is changing from “natural human rights” to “chain endowed human rights”. The emergence of blockchain makes the distribution order of resources more controllable. Not for the first time, humans are coming close to playingGod. Without any messengers or spokespersons, each individual can enjoy the flow and use of all the human resources in the world. It all depends on the whole process distribution of the encrypted world.

The price of land is mainly determined by the relationship between supply and demand, and the price reflects the scarcity of land. Land is the father of wealth, because any increase in wealth cannot be separated from it. Land is a common property endowed by nature and owned by all mankind. Corresponding to the land within the territory of a country, it should be shared by all the people in the territory. Returning land to the people means returning wealth to the people. But at the same time, the distribution of land wealth is often accompanied by a “zero-sum game”, and one party must sacrifice more interests.

In essence, “equal land rights” is more about a relatively fair distribution of land and property rights. However, the development of the real estate industry has led to the fact that the land value-added income cannot be actively owned by ordinary people. This has led to slower growth in the overall wealth of society. If the land appreciation income is only in the hands of a few people, it will cause irreversible damage to the income distribution of the whole society.

The public ownership of land must ensure that the gains from land appreciation go to most ordinary people, which lays a theoretical foundation for the new growth of real estate in the next 30 years. Only when the value-added income returns to the majority can mainstream groups readily accept the simultaneous digestion and transfer of debts and claims.

Blockchain technology has an impact on the real estate industry. Cryptocurrencies becoming mainstream has opened up new opportunities and developed new trends in real estate. Cryptocurrency-backed DeFi collateralised lending and NFT-enhanced unique ownership open up a new paradigm for new models of real estate financing and payments. Essentially, these crypto projects allow real estate investments to be more liquid, diversified and composable, while capturing more income exposure for their intrinsic value. Regular buyers are more likely to acquire land titles by holding real estate-related tokens through DAOs.

In the future, DeFi protocols will be able to mix and match their data on various real estates based on their users’ specific on-chain data and risk tolerance, and fully liberate this element of land in a way that fully unlocks liquidity. Governments should see it as a fiscally complementary source of value that can be deployed alongside more traditional policy tools. It may even be possible to deploy tokenized real estate into more complex financial products, such as derivatives. This will be of historic significance for the further expansion of the breadth of real estate values.