The real estate sector may have recently glimpsed its potential future. Because in Columbia, South Carolina (USA), the real estate agent “Roofstock” sold a three-bedroom single-family house on the NFT OpenSea stock exchange. The buyer paid a good US$175,000 for the house. A corresponding payment service provider processed the purchase with the stablecoin USD (USDC).
The background to the deal is particularly exciting, as the buyer financed their home using a decentralized lending market. This process might even become the mainstream way to buy property and a driver of mass adoption.
Real estate financing with crypto
USDC Homes, a lending service operating out of Polygon, was used to finance the property. Buying the house on OpenSea could be paid for in full directly with ETH, but like in the physical world, not everyone is able to make such sums all at once.
Users can therefore apply for a “crypto loan” on USDC Homes. Both the application and the creditworthiness of the user are verified “off-chain” by an insurer and other data providers. If successful, the user joins the USDC Homes Pool from which to borrow funds to purchase the home. Those who prefer to earn a return themselves can provide cryptos for the pool, as is common on other lending platforms. It works on the DeFi platform “Teller”.
According to USDC Homes, the advantages are obvious: users can buy real estate with crypto quite easily and only pay once. The process is also much more efficient, as many intermediaries and therefore a long list of applications and documents are eliminated.
The Roofstock company manages the properties and issues an NFT on Ethereum, which represents home ownership after purchase. The loan creditor, the debtor and the pool operator hold the access keys to a multi-signature wallet (multisig). Only when the buyer pays off the house plus interest does he have exclusive access to the wallet and NFT.
Ownership can therefore only pass to the buyer with confirmation from the creditor. According to USDC Homes, at least the creditors are sufficiently protected. However, the buyer bears the security risk of their digital property after full payment. But what if his wallet is hacked or otherwise compromised?
According to Sanjay Raghavan, Web 3.0 Business Manager at Roofstocks, NFT is only transferable to users who in turn own a non-transferable (soulbound) NFT. Roofstock only gives it to registered members who have verified their identity beforehand. If lost, ownership can be confirmed and a new NFT assigned. Thus, no one has to undress first.
Buying a house is not as decentralized as on well-known DeFi platforms. For buyers and brokers, however, the process is much more efficient in some places. In addition, users have a chance of return through the cashier pool, which is otherwise reserved for the traditional financial sector.
The final question is whether users will have any real incentive to buy homes with crypto. Will mass adoption lead to crypto-home purchases, or vice versa?
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