What if you could leverage your cryptocurrency holdings to buy a home? This innovative concept is becoming a reality thanks to Propy, a forward-thinking real estate firm that is launching a unique sale of a condominium in Honolulu, Hawaii, starting at just $250,000. This groundbreaking initiative allows potential buyers to secure a loan using bitcoin (BTC) or ether (ETH) as collateral, paving the way for a new era in real estate transactions.
The Loan Structure: A New Way to Buy Property
Propy’s approach provides an exciting opportunity for cryptocurrency enthusiasts. As noted by Propy’s CEO, Natalia Karayaneva, “It’s a great proposition for bitcoin holders. It’s not a taxable event. They get a loan and buy real estate with it, instead of exiting bitcoin, paying taxes, and then buying real estate.” The loan will be structured over two years with an annual interest rate of 10%.
However, there are risks involved. If the value of the collateralized cryptocurrency drops by more than 50%, the buyer could face a margin call, which could lead to liquidation of their crypto holdings and the potential auctioning of the property. On the other hand, if the value of the cryptocurrency doubles, the buyer may find it easy to repay the loan using their newfound gains. Importantly, repayment can be made in bitcoin, ether, or USDC, offering flexibility to the borrower.
Tokenization: The Future of Real Estate Transactions
A key aspect of this sale is the tokenization of the property. Propy has been at the forefront of integrating blockchain technology into real estate transactions since its launch in 2017. By tokenizing properties, Propy aims to streamline the buying process, enhancing both settlement times and liquidity. The anticipated sale of the Hawaiian property is set for January 29, and the loan processing will be instantaneous, allowing buyers to reclaim their cryptocurrency upon repayment.
Karayaneva emphasizes the significance of this innovation, stating, “This isn’t just a milestone; it’s a glimpse into the future of real estate. We’re demonstrating how blockchain technology can simplify home buying, replacing the traditionally lengthy loan approval process with an instant, efficient solution.”
Understanding On-Chain Real Estate Buying
Propy operates on the Ethereum layer 2 solution, Base, although it has not yet fully embraced regular tokenization of properties. Instead, the firm primarily utilizes smart contracts to expedite real estate transactions and lower legal costs. “Most of our business comes from regular consumers who may not realize that we use smart contracts behind the scenes, but they appreciate the speed and transparency of the process,” Karayaneva explains.
When tokenizing a property, Propy creates a Limited Liability Company (LLC) for the property, which is registered in the county. Following this, the firm generates a token representing the property, a process that typically takes about two weeks. Once the property is acquired, the LLC is updated to reflect the change in ownership, and the token is transferred to the new buyer.
Current Market Dynamics and Future Aspirations
At present, transactions involving purely crypto-native buyers constitute about 5% of Propy’s overall business volume. Notable examples include TechCrunch founder Michael Arrington converting his apartment into an NFT, as well as a 17th-century Italian mansion auctioned on the blockchain back in 2017. Karayaneva notes the need for a loan product to scale up these transactions, highlighting that “people need a mortgage or a loan to get real estate exposure.”
Propy also collaborates with Coinbase to offer escrow services, aimed at facilitating real estate purchases using cryptocurrency. This partnership helps bitcoin holders avoid the hassle of converting their holdings into ERC-20 tokens like wBTC, simplifying the buying process.
Once a property is tokenized, buyers have the flexibility to sell it to another crypto-native buyer without going through Propy. The new buyer can simply provide their Know-Your-Customer (KYC) information to be registered as the property owner. Additionally, buyers have the option to “un-chain” the property from the LLC, reclaiming traditional ownership.
Karayaneva concludes with an ambitious vision: “Our premier goal is to on-chain as many real estate assets as possible. Imagine making an on-chain swap between a real estate asset and bitcoin or another crypto asset. It’s a $300 trillion market. Imagine if it becomes liquid.”
As Propy continues to innovate and push the boundaries of traditional real estate practices, the integration of cryptocurrency into home buying could very well reshape the future of property transactions.
