The possibilities being opened by the development of cryptocurrencies and the programs behind them get a little more breathtaking every year, as new methods of making financial contracts without the use of powerful third parties are beginning to corrode the social orders those parties protect and depend on. Decentralized Finance, or DeFi, is quickly taking hold in the cryptocurrency world and is poised to supplant the older forms of finance in favor of a more democratized and decentralized system. This system can’t be controlled by powerful firms that act as gatekeepers keeping the undesirables from taking part in finance activities.
Smart contract blockchains, like Ethereum, enable developers to create decentralized applications that essentially act as loans, investments, and asset exchanges utilizing cryptocurrencies. Sid Coelho-Prabhu of Coinbase describes the differences between DeFi applications and their traditional financial institutional counterparts on Wall Street:
At their core, the operations of these businesses are not managed by an institution and its employees — instead the rules are written in code (or smart contract, as mentioned above). Once the smart contract is deployed to the blockchain, DeFi dapps can run themselves with little to no human intervention (although in practice developers often do maintain the dapps with upgrades or bug fixes).
The code is transparent on the blockchain for anyone to audit. This builds a different kind of trust with users, because anyone has the opportunity to understand the contract’s functionality or find bugs. All transaction activity is also public for anyone to view. While this may raise privacy questions, transactions are pseudonymous by default, i.e. not tied directly to your real-life identity.
Dapps are designed to be global from day one — Whether you’re in Texas or Tanzania, you have access to the same DeFi services and networks. Of course, local regulations may apply but, technically speaking, most DeFi apps are available to anyone with an internet connection.
There is currently over $600 million invested into DeFi, and it is one of the fastest growing sectors in the cryptocurrency economy. One of its most exciting applications, in fact, is just celebrating one year of operations – RealT.
RealT is a company that provides a decentralized real estate finance exchange – in short, it buys up real world real estate property, divvies up its ownership into equal percentages, and sells those percentages as security tokens whose value is tied to the value of Ethereum. For every security token you own, you get a corresponding percentage of the revenues that the rental property brings in, creating a passive income stream that you buy in and out of almost instantaneously.
The company has made some impressive strides over the last year, starting with a single property (9932 Marlowe) and consistently increasing its holdings over the months to include 7 distinct properties. The company recently began working with Uniswap Liquidity Providers to ensure that each property had a significant liquidity pool of tokens, so if a flood of new investors came in or decided to opt out for whatever reason, there was plenty of shares to go around.
RealT recently launched a Uniswap incentive program that provides income to those liquidity providers who provide the crypto necessary to retain the 15% liquidity pool they keep for every property, with providers receiving a .3% fee from all trades on Uniswap, rental property income from the company’s real estate holdings, and a liquidity subsidy from RealT’s share of the rental property.
The company is also working to streamline its asset delivery system by reducing the amount of human input in the system. RealT describes the problem as a clash between two worlds:
In the background, there is a stack of technologies that we’ve stacked together to generate an efficient asset delivery system. In the very beginning, this delivery system took us multiple days to get a token delivered to a customer.
Now, we are down to under 24 hours for all orders, and under 4–8 hours for 90% of orders.
Here’s how the process looks:
- A user comes to RealT.co, adds a token to their cart, and checkouts/pays
- Documents from HelloSign are sent to their email inbox; customer signs
- RealT also signs the documents
- Then, RealT goes to our token-management system, and adds the user to the whitelist for the property they’ve purchased
- Then, RealT sends the token to the users Ethereum address!
The largest friction in this current system comes from the two different worlds that RealT is operating in. The legacy world, and Ethereum. There is a division between these two worlds that most crypto-companies struggle to gap. As a result of the division, token delivers are not immediate, but rather take a few hours for the manual processing.
To rectify the current issue, the company plans on eliminating the crucial step of having both the user and someone inside the company needing to sign the legal documents:
In order to speed up this process, we want to reduce as much human involvement as possible. The ethos of the cryptocurrency world is that computers are better at managing value and exchange better than humans.
In the next update of the RealT asset delivery system, RealT will be removed from the signing process, by pre-signing the documents.
HelloSign will be able to directly integrate with our token delivery system, and be able to execute a delivery of tokenized real estate upon signature from the customer.
Increased liquidity and a streamlined path to asset ownership are not even close to the only items on RealT’s to do list, but the company is striding to make the transition from legacy avenues of property ownership to more efficient and democratized crypto-based avenues as seamless as possible. We’re expecting some great things in the next year from them, and the new horizons cryptocurrencies provide us are looking brighter by the day.