Episode 18: Citadao | Tokenized Real Estate (1)
CitaDAO | Notes and Snippets
Chapter Titles and Timestamps
0:00 - Intro
0:50 - Guest introduction - Joel Lin from CitaDAO
1:11 - Joel's career journey
1.50 - Journey into crypto & Real Estate Tokenization
2:27 - Problems with Real Estate Tokenization
3:03 - How CitaDAO was formed
5:33 - Joel's inspiration to work on Real Estate and DeFi
7:10 - How CitaDAO plans to use DeFi
12:00 - How CitaDAO works
14:46 - How to unlock the Debt Equity from Real Estate Tokens
17:19 - What is SPV (special purpose vehicle)
19:26 - What exactly are being Tokenized?
20:16 - CitaDAO is completely bankless
21:34 - What does the Chainlink integration look like?
23:02 - What stage is CitaDAO platform at?
24:00 - IRL event in Cardiff: Genesis tokenization on-chain
26:58 - Bringing Real World Real Estate on-chain
28:44 - Rent and the Tokenomics
29.52 - The State of the DAO
30:48 - Where the DAO needs help?
33:03 - Interoperability & Composability in DAOs
35:38 - SubDAOs
37:00 - SubDAOs within CitaDAO
40:37 - Outro
TRANSCRIPTION
Humpty : Welcome to Crypto Sapiens, a show that hosts lightly discussions with innovative Web 3 builders to help you learn about decentralized money systems, including Ethereum, Bitcoin and Defi. The podcast is for educational and entertainment purposes only, and it is not financial advice. Crypto Sapiens is presented in partnership with BanklessDAO, A movement for pioneers seeking freedom from the limitations of the traditional financial system. BanklessDAO will help the world go bankless by creating user-friendly On-Ramps for people to discover decentralized financial technologies through education, media, and culture.
Hello everyone, and we're back with another episode of Crypto Sapiens. Today we are talking with Joe Lynn, contributor at Citadel to learn about the Defi real estate ecosystem. We explore Citadel and its mission, not just to tokenize real estate, but build the Ethereum of real estate. Let's get started.
Joe Lynn: Hey Humpty, thanks for this opportunity. Hi everyone. So my name is Joe and yeah, I'm a contributor at Citadel and so my journey kind of began back in 2008 I was actually previously with real estate institutional investors, investing, helping them invest in real estate world past 12 years.
Previously I was with UPS Investment Bank capital. Which is a huge developer in Asia and CBRE so my crypto journey itself began proper back in around 2017, 2018. At a point in time believe STO tokenization was all the hype and sitting on the institutional landlord site we received many real estate tokenization requests to kind of tokenize our real estate by injecting our properties into their project. But I guess when we brought this back to the management team to discuss, there were two very glaring issues that we couldn't get good answers to. One is how we could legitimately enforce our rights to redeem the property, the real estate token. And two, how we could exchange the real estate token for liquidity in the secondary market. And obviously, because we couldn't get a convincing answer from any other project, we didn't really go ahead with any of them. But nonetheless a couple of folks legal folks and myself, we got together and we started brainstorming on a legal structure that will solve this problem at least the right to redeem the underlying title with the real estate token. And we kind of come a number of jurisdictions all around the world. And we found that it was back in October 2020, so quite a bit of effort was put in there that we had a breakthrough, and we found that within the Commonwealth legal framework there is essentially a pathway, gateway, building this structure. We managed to get a prestigious law firm with more than 100 years of experience specializing with state law to issue a legal opinion that validate the legitimacy of our structure.
Took this to a family office, they got their legal counsel to look into it they were confident about it, injected their real estate portfolio into this project, so they're willing to exchange their title date for real estate token. And as a result, this is how we kind of begin. We subsequently reached out to members of the Defi community invited them to build the do together, and the response was overwhelming and very supportive. So today is a little more than one year since the genesis of the Citadel Project. Yeah. And so we have come a long way and we are very excited to share with you our journey to introducing real estate on 3.0.
Humpty : Yeah, that's wonderful. You know, you mentioned a couple of things there that I think we're gonna unpack throughout this conversation and one of them is, you know, tokenizing these assets. Finding way to exchange the liquidity of that and transferring you know, I guess the, the value from digital assets to real world assets. And then of course, kind of legal framework that was necessary I guess, to be able to build something of this nature. So it's, it's really interesting that you have such a comprehensive view of how this could work and should work. So let's start from the beginning, really what inspired you personally to take on this challenge of building a product in real estate and the, at the intersection of real estate and defi.
Joe Lynn: Oh, so, so the thing about it is I have been in the real estate universe, real estate space for the past 12 years. That's a decade right? And, and anyone who specialize in real estate even in the prior equity space you will realize that it is kind of borrowing very low innovation kind of. And that's, and the thing about is today's real estate the way we see and frustrates me a lot, it lets accessibility, it lets liquidity and it less composability. You're looking at 280 trillion market out there, and a whole bunch of debt capital is locked. That means money that's not doing anything.
It's not earning interest, not being invested, not being used to drive the economy. Now, think about in another manner if let's say you're holding onto cash to date, like, can you take the cash? And, even if you were to put that cash into a bank deposit, a fixed deposit, No matter how later is, you're still gonna earn some interest on some of that.
But try depositing your real estate Title D in the bank and asking the bank to give you interest on the equity of the real estate Title D. You're not gonna get anything, right? That's not possible. So that's why I mean by lock capital. Our plan is to use Defi to unlock that capital by improving accessibility, liquidity, and composibility. And we believe that by doing this not only can we drive demand for real estate on-chain, we can increase the capital efficiency and enhance the overall five value of the real estate university. In fact, we believe that in future there will be two sets of prices for real estate, the price of real estate on-chain, and the price of real estate off-chain. And the idea is that real estate on chain will always have higher value than the real estate off-chain because there will be more use cases that we can create for the real estate tokens on chain in the device space. Unlike the limited use cases for real estate chain today, that is constrained by existing limitations of how we can unlock that capital in real estate.
So, that's kind of what motivated me because we saw the potential of. Defi how web3 can unlock all that accessibility, all that liquidity via compostability in real estate and make real estate a very exciting class asset class that we can eat into. Now today, you buy a piece of real estate, right? Let's say and, let's say a house for $1 million, right? And if you go about the traditional way of trying to recover your initial up-lay, initial capital. In that real estate, it's gonna take you at least 20, 30 years to recover the initial outlet which to be honest is kind of inefficient in the way we see.
Now imagine being able to deposit your real estate title D right and un interest of at least 20% API a year. Within five years you can recover the initial outlay that you put into real estate and that is what we think we can do with defi today. Better capital efficiency.
Humpty : Yeah. You know when I think about Defi, I think of two things. I think, well, I think of several things to be honest, but one is accessibility and the other one is disruption and I think that those are two very different, strong, but very different narratives. I think in terms of accessibility, I think of like, how can we enable anyone to participate in this financial ecosystem without necessarily, you know, kind of some of the constraints in traditional finance or limitations of traditional finance. And, you know, I think that there is a lot more freedom. In the way that Defi operates, where anyone can participate in these protocols and can earn, you know, some yield, whether it's, you know, through tokens that they earn or, you know some other mechanisms. Or, but, and the other is disruption, right? And there are systems in place in traditional finance that have worked and do work and have been working for quite some time but No, it's, that there's, they're definitely like to borrow a word from your, they're not very efficient. And they don't necessarily allow for people to really earn on what they own, right? On these assets that they own. And I think Defi has been very creative in finding innovative ways to allow people to unlock that capital. Again, just to borrow, keep borrowing word for me because I really truly appreciate you introducing this language to this discussion so that we can explore it a little bit further.
So yeah, certainly I think as a homeowner, you have invested into this to this asset class that allows you right to have some sort of you know ownership right? To some sort of, you know, real world asset but also some investment opportunity, but the growth of it is very slow and the opportunities are very limited. So I really do like what you're bringing up here in terms of unlocking the opportunities within some of these different, you know, elements that make up your, I guess your property, which is equity so walk me through, let's pretend I am someone who has a property and to quote you, let's say, a million dollar property, and I have an equity about 50% of that, and I want to use that. How could someone leverage that and start using Citadel to be able to unpack that?
Joe Lynn: Well, that's a very good question. And I have the perfect answer for that. So, to understand how you can do you will have to kind of understand how we work. So our platform, and we believe we are the only one that out there that does this is a permissionless two way tokenization, which, or realistic. Which means that in order to unpack that equity, you do have to give up ownership of that whole property by selling it to spv. Okay. And, effectively getting like cash in return for that. Now, if you are hoping to keep any of that as equity that you, you have to do it by way of real estate token, So the very first step you need to do is to convert your title D into the real estate token. And the platform allows you to do that by way of listing your proper after the typical due diligence, ownership verification checks a bit like how you will list your property on Zillow at point in time. After you listed the Defi community will then be invited to participate in what we call interest fractions of the property to a process called IRO known as introducing real estate on chain. So during this IRO process, you could choose to either give up all your equity and collect it or in cash, or you could choose to keep some of it in real estate tokens and unlock the rest in cash up to you. Right? But the key is to, to convert everything to tokens first.
Once the IRO is successful the breach will be formed, NFT that represents the economic legal benefits to the real estate will be minted. This NFT will be casted in a smart contract and fractions of the smart contract, which is ERC 20 fungible tokens. These are the real estate tokens. They will then be deposited into the buyers wallet, and this tokens will then be tradable on the AMA.
Now with these tokens in. You can unlock that equity a few ways. One, you could put that into a liquidity pool payer with USDC and, and farm and liquidity Mine. The Citadel Governance Platform took. Which I can explain little bit better how you value. So that's how you get your 20% APY and, and that's how you kind of recover the initial capital you put into the reverse it focus in five years or less. Alternatively, what we have been doing, we have been speaking with some of the learning protocols out there. The likes of money, the likes of very capital cream, for example. And, and they're keen to look at the idea of collaterized real estate token, the key to making this happen was actually the chain link, which which we managed to integrate with Chain Link last month, literally December, right? So now with the chaining breach, we are able to bring real work valuation of real estate on chain to set up liquidation strategy, RTV ratios, and so and so forth now you can literally obtain your mortgage off your univers estate on chain if no longer do you have to wait like 30 days, fill a whole bunch of documents, declare dots yourself to the banks inside out before they will even give you money. This is a five minutes, totally a non-process whereby you deposit your view it's token, enjoy the learning pool and outcome. The USDC, UST Bitcoin to whatever the other token is, right? And that's how you can unlock that liquidity.
Humpty : So I'm gonna rewind a little bit here because there was a lot here that you brought up, even terminology that you know, maybe our audience is not familiar with particular I'm not familiar with. So I'd like to learn a little bit more. You started off by saying the process is, starts with giving up ownership, and selling it to the SPV. What, what is an SPV?
Joe Lynn: SPV special purpose peaker, it is set up to ensure that you, that the real estate token holders get clean title of the underlying title D. Now anybody who have experienced dealing with real estate globally will understand that title deed are not as clean as they always appear to be. Most time. The only way you can. Absolutely tier and clean. Title deed is to transfer the Title D because during the transfer process, any existing incumbents, any existing mortgage loans slash lands on the Title deed will get removed because the last thing you want to do is to go into a title deed thinking that you have controlled the tighter deed only to find out later.
That somebody else have a claim over that same Title deed because the landlord took the Title deed and went to apply for and went to collector and said like maybe to 30 different individuals, Right? And that's the last thing you want, right? So the only way to answer that, you are the only one that have the legitimate chain to the title deed is to transfer title deed into a brand new clean SPV
Humpty : got it. And so during this transfer who are you transferring it to? Is it to a smart contract?
Joe Lynn: No, it won't be a smart contract. It would be legitimate company in holding company. So it's a special purpose. So it is, it's a legitimate company in the real world space set just to hold a Title deed of that property.
Humpty: Understood. Okay. All right. I'm following you so far. So the other thing that you were talking about was right, you're converting this title into a token and you were talking about let's see, what did I write here? Oh, yeah. So you're able to convert everything into a token. When you say everything, are we talking about the equity, all of the equity, or are we talking about the entire property. And so you're tokenizing it all, including whatever, maybe the bank may own.
Joe Lynn: The, the title deed of the property, that's one, and all the assets of the spv, that's two. So you get, you will be, you will be, you'll be linked claims to all of this, and you will have superior claims over anyone else.
Humpty: Okay. All right. So. I guess my what leads me what, The question that leads from that is how permissionless, and I'll clarify what that means in a little bit is this process, so do we, does this process need to have some sort of permission from the bank that's holding the title or, you know, is this something completely separate from that?
Joe Lynn: That's a good question. So one thing that happened during this entire. Transformation process from titled it to tokens is that we remove the bank completely from the system. Mm. In our platform, no bank is involved. Literally Bankless.
Humpty : Okay. That's, that's very interesting. So does that mean that the, that this special purpose vehicle then is the new owner buys out the bank's share of that, of that title, you know, in other words, like we were talking about pretending that his million dollar home has a 50% equity, the other 50% would still be owned by the bank. Does that get bought out then?
Joe Lynn: Yes , you have for the IRO to be successful, a hundred percent of the building have to be bought. The bank have to be redeemed.
Humpty: Yeah. Okay. That's very clear now. Thank you. And I appreciate you walking me through here and helping me understand this process a lot more clearly. So you talked about Chain Link and I think Chain Link definitely has become one of those protocols that is incredibly valuable to the defi.
So what does that integration with Chainlink look like? You know, how, what, what is the data that you're currently pulling from Chainlink in order to allow for this protocol Citadel to work?
Joe Lynn: So what we are pulling from Chain Link is real work valuation of the property on a monthly basis. So there will be at least two or three value. Lights of your global values like jll c b ment, field banks that will be appointed to the property. They will be doing a monthly valuation and that money valuation will be factual chain link dump on chain or any permission protocol, standing protocols to pick up so that landing pools could be set up. And yeah, that's, that's actually quite interesting. You could, you won't be used to set up stable coins, right? For example, imagine, imagine locking up the real estate token and being able to mean stable coins back by real estate tokens based on the real world valuation of the real estate itself.
Humpty : Mm-hmm. . Okay, That works. So, Just generally now what, I guess what stage is citadel at? Like, is it completely operational? You know, are you launching soon? Like what is, what is someone able to do on the platform today?
Joe Lynn: So we, we have come a long way and January is gonna be an exciting month for
we will be we will be teaching in January. So look up for it. So the tokens will be available. The set platform tokens will be available for those who earn it to to enjoy the fruits of their contribution to the project. Especially those who this called channel, they, they earn the most on that way.
And then the next, the next one we'll be having after that is our first IRO and that's gonna be very interesting because this IRO so we have a pipeline of buildings, all the real estate buildings, 240 million across, eight assets all lock in, already ready to go. And all of this portfolio with the most significant one to do our genesis tokenization on chain. It is BC Bank building in the capital City of Whales in UK. So it's located in college, right? And, and, and that is very interest. Because for the longest time banks have been discriminating against the Defi community, have cases where myself and friends, the moment we mentioned that the source of fund came from crypto or something that our funds get frozen or our accounts get kind of lock or, or close. Yeah. And it's, it's very frustrating like, so it will be interesting this time around to start collecting rents from the bank and, and see what they're gonna do about that.
Right? So, and, and, Yeah, and what's gonna be even more interesting is, is the fact that this, if you look at from this point of , like the. Is it can, it can be symbolized as the banks paying homage to the defi space, to the defi community, the crypto community. And I don't think they can run away from not paying rent. Right. So that, that will be quite interesting to see what happens. Yeah. And it's their main branch building in the capital of mills. I don't think they're gonna give that up.
Humpty: That's really interesting. Yeah. I mean so this sounds like this really big event happening did you say at the end of the end of January?
Joe Lynn: Yeah. We are targeting at the end of January, right? Oh yeah. So back to, back to progress, Right. Our smart contracts have been audited and tiered by bdk. And, it's available for inspection. The audio reports available for inspection on -our website. If you want to do. We are currently going to be introducing the community to our testnet, to familiarize them with the platform so that when the actual IRO will take place. Everybody will be familiar with how to use it and we really hope to make this success because this is not going to be just a tokenization of any building, purely going to be taking out the main branch of HSBC of one of the biggest banks, traditional finance banks in the world in the capital city of Wales, UK Right? So that's gonna make a health statement. And we will be setting hopefully the trend for 2022, where it's not just Metaverse real estate that we are looking at is real-world real estate that we are bringing on chain. And imagine the amount of TV we can bring on chain with all this real estate. Yeah. So, that's, that's, that's what we've been looking forward to and that's the stage progress for CitaDAO.
Humpty: Yeah. That's excellent. So let, let's go back to this experiment, right, or to this, this I guess beta test of how this will work at the end of January, at least where you're projecting it to, to kick that off. You know what, what, So when this IRO kicks off, this is going to be a real building, it sounds like, right in, right in the heart of this, this city. You know, so what's gonna happen if this is successful? This is then going to tokenize this deed and people are going to be able to own a piece of this and maybe even earn rent from, like, as a dividend from, you know, the, any, any money earned from, from the people that are inside of this real world building.
Joe Lynn: So the thing about okay, so glad you touched a bit on. The rent here will not be distributed as dividend. In fact, it will be used to to buy back the real estate token on a regular basis and burn the real estate token. So it's a bit like stock buyback and there are tax benefits to this in some jurisdictions for example, like Singapore capital games are not considered taxable. So effectively You get that, that, that secondary advantage from there right? And, and the real estate, the vendor itself inherently provides liquidity, secondary market liquidity for the short term versus token holders looking to it, It supplements the, the, the, the, the liquidity pools.Yeah. So, and it will help to support the price of the ERC token itself.
Humpty : Wow. that's some deep tokens. Y 'all got going there on this project. So, what is like the sentiment on the community so far? So, this is CitaDAO, right? So this is a decentralized, autonomous organization. So, what's the construct of the organization as a DAO and, you know, how are people today able to participate in the DAO and how do you see people joining the DAO in the future and being a part of this you know, this project.
Joe Lynn: Yeah. So, we are very young now. As you can probably guess by now we are probably like years away from where BanklessDAO is. If BanklessDAO is BanklessDAO 2.0, we are probably, we are probably around like 0.1, 0.2 at the initial stage, and what we do need support and help with is building our own DAO infrastructure, our own DAO policies, our own DAO protocols because we have been getting very strong flow of participants who really wanted to contribute towards the DAO and we do, we do want to onboard them. It's just that at this point in time, we don't have the necessary infrastructure to do it efficiently and effectively. So anyone who have the experience building a DAO, or I mean, or operating a DAO and you want to try getting challenged by building a DAO from scratch we welcome you to join us in the process. Yeah, so that's one. Obviously, engineers are welcome especially front-end engineers. Our back end is all secured already, so right now the only staff left is integration of the front end with the back end as much as possible. So, we do welcome financial engineers. And more importantly, I guess, is the community that we want to grow here. So, marketing community team members especially the marketing ones that is familiar with how to grow DAO community-based fire integration with other DAOs like banklessDAO stuff, for example. We welcome you to join. We believe that the future of DAO is not one DAO universe. In fact, there is strength in unity, and the more down we can string together, the stronger we become against any kind of cfi efforts, right? Because then the systematic risk is even higher. And so, yeah, so we welcome those who appreciate how DAO operates, the importance of building DAO together, the partnerships, and everything to join our community, to help us build more relationships with other DAOs
Humpty: yeah. You know, for me, one of the more interesting things about web three is its composability and interoperability and I think that that's true for you know, Defi, I think it's proven that Defi summers for me is proof of the fact that its composability was a huge reason for its success, right? We got a lot of really interesting protocols being born from this, like Lego these money Legos. And so, the same is true for some of these other web three implementations like NFTs and DAOs and so DAOs certainly are very early, very young. They're barely getting, in my opinion, enough attention in terms of what they are and what the valley proposition is to them. But the same will be true for DAOs as it has been for Defi, and as NFTs are discovering is that composability, that interoperability is going to be super important. More interestingly, I think because it's not these legos of protocols, right? Of these like non-sentient programs, but it's of humans, of people with real emotions and, you know, different perspectives that I think will bring, create a very rich ecosystem and environment to participate in. So, I agree with you. I think that there is a lot of value in the Cooperation between DAOs and I think we're seeing just the very beginning of it but you know, I think a lot of people also are heads down trying to build up these really interesting ideas. But as I think some of this, these ideas mature into products you know, that have real adoption. We're going to see that next phase of web three in DAOs which I think is gonna be the most interesting one, where there's going to be this interoperability and this composability between them.
Joe Lynn: Yeah, totally agree. And, who knows why what the future will bring with all this composability and the beauty about all this integration is that sometimes. Two or more DAOs integrate a new product that nobody imagine could even imagine at this point in time. Might even be born, right? A new style is born and that style goes on to form even more systems, more communities, more DAOs that just kind of grow on top of each other.
Humpty: I've seen that happen. I see that happen regularly. I like to pride myself almost as an explorer, right, of sorts where I'm always on the lookout for some interesting ideas or conversations and people and the type of projects that they are spinning up and driving forward. And the one thing that I've seen is even within DAOs you know, there are these people, communities, products that are born that almost feel like they need to be let loose a little bit more and spin out and create something of their own. And so, I think that's where we're seeing this conversation of sub-DAOs also come up. And I know you mentioned that word previously, so maybe a good opportunity to talk about, you know, your thoughts on sub-DAOs and maybe how that could be a part of what CitaDAO is.
Joe Lynn: Yeah, that's, that's very timely. So, speaking of which, we didn't imagine this would happen, right? But after we started, CitaDAO one of our community members actually I mean we were actually sharing on one of our community calls about how we see the future of real estate tokens being a third asset class that will help the crypto native diversify because today you your crypto native portfolio consists of either your native tokens, which are like highly volatile kind of digital asset class or your stable coins which have very low volatility but are subjected to inflation waste right? and we thought that real asset tokens in the future could be a way to, for the Degen’s and the crypto native to hedge against inflation on. Because by right it's supposed to have a negative correlation with stable coins and it's supposed to be low volatility. So, we thought that was very interesting diversification strategy. And the next moment, one of our community members went out there and started this thing called inflationless DAO and started talking to us about integrating inflationless DAO together with our community because their inflationless DAO as a hash against inflation for other DAO on-chain, right? We thought that's a brilliant idea. and we shared this with our community and interestingly some of our community members decided to start supporting it and it's growing. It's kind of like a baby that we didn't expect to be born. I mean, don't take it the wrong way, but it's a good thing and it's now running parallel to us and we'll be very interested to see how it grows in the future to, for all, you know, it might spawn its own set of sub DAOs right?
Humpty: I personally look forward to it because I think that that means that you've given people plenty of agency to create right? And isn't that the purpose of a decentralized organization is to be able to allow people to kind of individuate and add value in their own ways and hopefully, you know, bring that value back to the parent DAO if you will.
Joe Lynn: Yeah. I mean, it, it doesn't just have to be valuable to the parent DAO like it could bring lots of value to other DAO treasuries for all, you know. Yeah. So, we never know where the values are until it fully grew up just that you never know how a kid would turn up. But I mean, that's the beauty about DAOs right?
They are so, they are so humanistic. They're almost like human beings by themselves and rightfully so because this DAOs is a community. Each DAO is a community of human beings that come together, sharing a common vision, purpose, and mission, and like what you call rightfully point out-innovating and evolving in their own individual individualistic way.
Humpty: That's a wrap. I hope you enjoyed this conversation. If you'd like to learn more about CitaDAO please go to citaDAO.io and on Twitter at citaDAO_io. Thanks for listening to Crypto Sapiens. Please give us a follow, like in a five-star review wherever you enjoy your podcast. And stay tuned for our next discussion.