What if you could put your Bitcoin (BTC) or Ether (ETH) as collateral to buy a house?
That’s essentially the idea behind real estate company Propy’s upcoming sale, a condominium in Honolulu, Hawaii, being sold for a starting price of $250,000. If desired, the potential buyer will be able to take out a loan from Propy to acquire the property, provided that they provide 100% collateral in bitcoin or ether and also pledge the property.
“This is a great proposition for Bitcoin holders,” Propy CEO Natalia Karayaneva told CoinDesk in an interview. “This is not a taxable event. They get a loan and buy real estate with it, instead of leaving Bitcoin, paying taxes, and then buying real estate.
This is a two-year loan with 10% annual interest. If the value of the given cryptocurrency falls by more than 50%, the buyer will face a margin call; in a worst-case scenario, crypto holdings could end up being liquidated and real estate resold at auction. However, if the price of the cryptocurrency doubles, the buyer could end up repaying the loan simply from their earnings. Interest payments, as well as the loan itself, can be repaid in bitcoin, ether, or USDC.
Another important aspect of the agreement is that the property has been tokenized. Launched in 2017, Propy aims to chain real estate transactions, thereby accelerating settlement times and liquidity. In the case of the Hawaiian property sale, scheduled for January 29, a potential loan would be processed immediately and, once repayment is complete, a buyer would automatically be able to get their crypto back.
“This is not only a milestone; it’s a glimpse into the future of real estate,” Karayaneva said. “We demonstrate how blockchain technology can simplify home buying, replacing the traditionally lengthy loan approval process with an instant and efficient solution.”
Buy real estate on-chain
Based on the Ethereum Layer 2 Base solution, Propy has not regularly tokenized properties, at least for now. Most often, the company simply uses smart contracts to speed up real estate purchases and reduce attorney fees. “The main business comes from normal consumers. They don’t even know that we use smart contracts in the back-end, but they appreciate the speed and transparency of the whole process,” Karayaneva said.
When tokenizing a property, the company creates an LLC for the property in the county registry and then creates a token, a process that takes about two weeks. Upon acquisition, the LLC is amended to reflect the change in ownership and the ownership token is transferred to its new owner.
Currently, according to Karayaneva, purely crypto-native transactions represent only about 5% of the company’s volume. One such deal, for example, involved TechCrunch founder Michael Arrington turning his apartment into an NFT. Propy also auctioned off a 17th-century Italian mansion on the blockchain in 2017. “We haven’t done a lot of these transactions yet because we needed the loan product to be able to scale,” she said . “People need a mortgage or a loan to gain exposure to real estate. »
Propy also offers escrow services in collaboration with Coinbase, the aim being to support the crypto community in making real estate purchases in crypto. For example, the custodial service helps Bitcoin holders avoid wrapping their holdings in ERC-20 tokens like wBTC.
Once a good has been tokenized, nothing prevents the buyer from possibly reselling it to another native crypto without necessarily going through Propy. If the token is sent to a new wallet, the buyer will automatically receive a link to provide Know-Your-Customer (KYC) information; their name will subsequently appear in the LLC as the owner of the property. And the buyer can also unwrap the property from the LLC and own it in the traditional way – a process Karayaneva called “unchaining.”
“Our main goal is really to put on-chain as many real estate assets as possible,” Karayaneva said. “Imagine performing an on-chain exchange between an on-chain real estate asset and a Bitcoin asset, or another crypto asset. …It’s a $300 trillion market. Imagine if it becomes liquid.
Read more: Propy partners with Abra to offer Crypto-backed property purchases
