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When Web3 lightly skims real estate

W Labs

Read this article in 33 Minutes

Whoever can bridge the first bridge between the virtual world and the real world will have the road to freedom.

原文标题：《当 WEB3 轻轻掠过房地产》下篇——送给身处至暗时刻的朋友们》

Original author: W Labs Melon Field Laboratory

One, on the collapse of an industry

If the timeline back a year ago, that is, in August 2021, the who said in a circle of friends after a year in the top 30 of China's real estate enterprise most private companies, bond prices will fall into the single digits, the report should be a person into a mental derangement and direct criticism to the clubs to death, though, after all, when you unhappy, can somehow also billions of assets, It's a Fortune 500 company, it's a guest of every financial institution.

But this seemingly absurd and strange situation did happen, watching an industry go from party guest to building collapse, bond prices from 95 to 5, in less than a year into such a tragic road to redemption; Compare that to the crypto world, which claims to be the largest Ponzi in history. Bitcoin entered a bear market from a high of $69,000 in November 2021 to $20,000 now. Which is more magical?

Many of my friends who are engaged in the real estate industry are in the anxiety of the darkest hour. What they lose is not only their wealth, but also their health and confidence in their future life. We might as well stretch the time dimension and broaden the horizon laterally, and perhaps evolve a bifurcated track along the seemingly narrower road, leading to a future where anything is possible.

For two or three thousand years land was king

Land in the history of human development has always been one of the most important means of production, is also the source of wealth, especially in southern farming culture of the Eurasian land is the foundation of wealth, the wise emperor in the history of when doing the reform, often give priority to with head of household tax into land land taxes, it means that, people run, run.

In the European continent where modern civilization originated, the feudal Lord system was adopted. Marquis, father and son, the king divided the land to you layer by layer, and you should manage the people and money on the land yourself. When it was necessary to fight, I called you to work together.

Since the Zhou Dynasty, China was also dominated by feudalism. The well field system, which was constantly praised by later reformers of the "Togu Reform" school, was that a square piece of land was divided into nine palace grids, the outside eight were owned by farmers themselves, and the middle one was jointly cultivated and the output was handed over to the state. Even after the first Emperor of Qin unified China, the administrative system was changed from "enfiefment system" to "county system", but there was not much change in the land private system.

From the Qin Dynasty to the Qing Dynasty, each dynasty made flexible adjustment under the framework of private land ownership. For example, during the reign of Emperor Wudi of the Han Dynasty, because the money was running out, the land system was moved to the public system, and the state lifted more wool from farmers. Last five random China period of northern wei dynasty, for example, to attract people, stable morale, was opened to private ownership of the land equalization policy: let all the northern forest, large areas of farmland here, here is your, is similar to American west land clearing.

During the period of the republic of China sun yat-sen also bright put forward the slogan of "the average land ownership", but didn't really implemented, true is too many people are against, the first cooperation of kuomintang and the northern expedition, the original smooth all the way, both parties fight to wuhan will ever break up, the communist party team all the way into all the land reform, and the land reform is belownormal in the kuomintang army officer home land, The army quit when there was fighting in front and their homes were ripped out behind them.

Liberation system is clear, one size fits all, land is public ownership, belong to the state and the collective, this is for later in the 90 s laid the foundation of housing reform, premier zhu rongji in the housing reform to pull up the first wave of the reform of national economy, is the country's land, but let you have the right to use, also can buy and sell. This taught the common people what a commodity economy is, and it's been going on for 30 years now.

Therefore, in the cultural cognition of the farming nation, land is the root of all wealth; In the Oriental Confucian tradition, land is still in the bag of the central government: "Under the whole sky, is it the king's land?" Although it is ostensibly private ownership, I want to move your land, there are various ways. Why is private land ownership well practiced in the Western world? For example, when Magna Carta was established 800 years ago, the nobles rebelled and forced the king to sign an agreement, one of which was "private property is sacrosanct". Even if I break the law, you can lock me up and kill me, but you can't touch my family's legal money and land.

Third, the economic development model and the advance of WEB3

Back to now, it can be said that the Chinese real estate industry overall lockout is a "hard landing", similar to Japan in the 1980 s after the plaza accord of the real estate bubble burst, similar to America's subprime crisis of 2008, are in the process of economic cycle development of downward, in real estate industry as the main body of bearing correction way.

It is just that China is in its unique management system and public system, the original adjustment should start early, have been ignored and extended, because real estate in the first 30 years of our economic great outbreak cycle, play the role of national wealth reservoir, not good great unrest. In the words of WEB3, real estate is similar to the national wealth of NFT (Non-Fungible Token) to the Total Value Locked (TVL) in the crypto world, both of which have the characteristics of strong asset precipitation and poor liquidity. Before the popularity of NFT in 2021, the bear market came relatively fast, because everyone's assets are basically tokens, liquidity is good, the meat will be cut, and this bear market at least part of the capital is locked into the NFT, do you think a boring BAYC monkey can sell so quickly?

Sometimes I fantasize about comparing China's rapid economic development in the past two decades with the blockchain bull market that started in 2020, and I find some interesting similarities. The basis of China's 20 years of reform and opening up is:

The shift of manufacturing base to China; Accession to the WTO; The rise of e-commerce; Mobile Internet subverts the operation model of all civil industries.

The result is made in China, foreign trade first, accumulation of wealth, and then part of the wealth precipitation in the Internet field, part of the wealth into real estate (reservoir), so the first ten years of China's rich list of Tuhao, is not engaged in the Internet, is engaged in real estate.

The first half of this path has been pretty much the same for the last hundred years. The first step for a global economic powerhouse is to become a manufacturing plant: From Britain, the birthplace of the industrial Revolution, to the United States around World War I, after World War II, the United States moved to Germany and Japan, in the 1970s and 1980s to the Asian Tigers, and then mainland China rapidly became the backbone of the global manufacturing plant. In the second half of this path, the factors of advanced productivity of that era were added to adapt to The Times, and appropriate application appeared, thus benefiting the whole society, from mechanization, to electrification, to high-end electronics, and then to the Internet.

Compare that to the crypto bull market that began in 2020, which laid several new foundations to distinguish it from the previous bull market:

The rise of public chains; The foundation layer application DEFI ecology establishment; Break the circle application NFT and chain game launch.

If bold guess this is only the first half, and the follow-up should have more practical application lines can be expanded: public chain infrastructure interaction and security; DEFI connects traditional finance; NFT empowerment; The booming development of games, social networking, entertainment and other landing applications under the WEB3 consensus; The breakthrough of AR+VR on hardware and the construction of big ecology drive the metaverse...

Four, WEB3 and real estate

Let's take a break and go back to WEB3 and real estate. Real estate is the most similar category to NFTS in the real world. In addition to the strong precipitate property and weak liquidity mentioned above, they have the following similarities: they have both investment property and practical property (the practical property of NFTS is still under consensus building, and Passcard is one of them). They all need confirmation of ownership; The main categories are non-homogeneous assets; Value depends more on consensus and so on.

A new frontier is emerging. If current crypto circles agree that land in the virtual world is valuable (metaverse land in the Sandbox, monkey land in the Otherside, game land in Illuvium), can the WEB3 surge bring new ideas and changes to land and houses in the real world?

One of the core partners of W Labs participated in a real estate project docking blockchain project in 2016, which was done with vigor and vitality for two years, but came to an end. His conclusion is that all the efforts on the chain, in fact, in the real world, we have to go through the process again, from pricing, right confirmation, liquidation and financing, the chain of the set of skills seems to be just dragon killing, or is a stunt, all the process chain should do a link is not less. How can a real estate industry, which is seriously centralized in traditional industries, have a chemical reaction with WEB3 under the banner of decentralization?

On the contrary, I think that what was not achieved five years ago may not be impossible to try now, after all, the ERC721 standard has not been established in 2016. The revolution of the industry can only be broken after the previous wave of participants are cornered and think about it. From new energy, to electric vehicles, or to the game industry we focus on, it may be the same path.

Let's talk about some ideas that WEB3 might bring to the real estate industry. For example, can we find a balance between decentralization and centralization?

Using DAO (decentralized autonomous organization) to replace traditional developer operation; Soulbound token (SBT) is used to verify the authenticity of the identity on the chain. Use NFT to confirm the ownership of assets; Financing with the idea of blockchain securitization.

Whoever can bridge the first bridge between the virtual world and the real world will have the road to freedom.

Five, where does the money come from?

Real estate is an "alternative investment" segment of the financial industry, centered on cash flow and leverage.

In the previous decade, Chinese real estate developers used two sets of leverage, "operational leverage + financial leverage", to the extreme. A project could create infinite ROE (Return of Equity). Why? As an example, a piece of land price of $10 million, developers take down, 30% down payment, $3 million through trust, private or private financing (financing "before") to pay for, and then began to development and construction, the construction fund construction contractor can also advances, engineering to a certain stage, development bank loans down, to continue building, Reached the pre-sale conditions, buyers of the purchase of money (including bank mortgage) also came.

So the developer calculated, as long as: before financing funds + builders advance + development loans + house purchase money > Land payment + construction payment + other expenses, and finally there is a surplus, which is the developer's net profit. Since the developer has zero cost, his rate of return can be infinite.

The unique Chinese model of "no capital, no profits" is not sustainable, but who can resist the temptation of consecutive wins at the casino? Evergrande Group from the crisis, each fast turnover developers, because the battle line is too long, no cash flow, basically are down.

Take a look at the cash flow of some WEB3 projects so far: project approval, institutional financing, ID0 and IN0, project operation has expenditure and income (transaction commission), so as long as: institutional financing +ID0+IN0+ project income > The cost of operation + institutional return, is net profit.

Did you feel anything? That's bigger than real estate, right? Is it hard for the project team to lose money? Some malicious project side is more malicious, in order to escape the organization to collect money, said that the money in the wallet was taken away by hackers, anyway, hackers caused the disaster. By analogy with Chinese real estate, this kind of quick money mode of WEB3 project is not sustainable for a long time, but at present, WEB3 is still in the early stage, everyone is exploring while seeking evidence.

If the basic process of real estate is added to the WEB3 system, can it become like this only from the perspective of the financing line?

Step 1: Overseas project: set up the "Metaverse complex" project to obtain preferential policies and land prices; Step 2: INO. NFTS are sold to institutional and individual investors, with the holders of the rights to the "metaverse complex" (securitisation of rights) receiving the first tranche of capital to cover the cost of land. The developer team holds Trands NFT, representing a certain proportion of the project property rights, bound to SBT, non-transferable; Step 3: ID0 financing. The issued token represents part of the project's usufruct (usufruct securitization). At the same time, the token can be used for consumption and payment in the actual scene of the "metauniverse complex", such as paying the property fee, similar to Musk's agreement to buy Tesla with Dogecoin. In this way, a second tranche of funds was obtained, which was mainly used to pay for construction and operating expenses; Step 4: Take part of the token to the financial institution of the crypto circle to pledge and lend out the stablecoin U to obtain the third fund and pay the remaining costs and fees.

The above four steps can be combined to operate, and the token and NFTS can be traded on the digital trading platform according to local laws and regulations, and the financing and exit links are all open.

Six, how to reposition the roles of each party?

Since the publication of the last article, the real estate community has discussed a number of issues, the core of which is: The development and right confirmation of the real assets need to be confirmed by the local government. In reality, a legal entity is required to represent all stakeholders of the project. This role was previously set up by the developer as a project company.

The actual work of this role does not need to be modified too much, the professional work of six lines (design, approval, construction, marketing and sales, administration, finance) is still given to professional developers to do, just... In the original business model, the developer is the party A, but in the WEB3 business model, the developer becomes the Party B. Who is the party A? Party A is a DAO organization composed of all NFT holders. Here's an example:

A metaverse forward looking developer was ready to buy a piece of land to try the "metaverse complex", and after having several alternative plots of land, started to raise NFT from institutional investors and initial DAO community users. The developer team itself holds a percentage of the Genesis NFT. NFT stands for project ownership. After the land right is confirmed, it is put into an entity legal person company A. The DAO community is a decision-making organization of all NFT-holding users. It has developed the basic law white paper of DAO, has its own rules of procedure, and has its own decision-making mechanism.

The DAO community elected a governance committee to be responsible for daily management and multi-signed management of the DAO Treasury; Invite the developer team as the developer of the project and the manager of project company A; At the same time, A law firm or a third party management institution has been hired to supervise company A and ensure that the developer team does not do malicious actions (seal management, account management, budget and final accounting mechanism, etc.). In this way, the money is controlled by the DAO community, the assets are monitored in Company A, the money and the material are separated, and the developer is not given the opportunity to do evil. The users of the DAO community are the participants and fans of the project, and it is expected that there will be several groups of people: NFTS holders, token holders, speculators who are interested in the project, and partners of developers and regulators. For the sponsor and the vote will be eligible: community members must hold NFT or more than a number of tokens to have the right to initiate or vote. At the same time, the community governance committee is responsible for the daily communication between developers and regulatory agencies.

In this way, the interests of the three parties are bound together and the mechanism of mutual supervision is formed:

The developer is also A trader and has part of the property rights of the project. However, the company A managed by him only has land and other assets, and the funds need to be applied from the Treasury of DAO. The DAO community represents the owner of the property rights of the project and is the biggest beneficiary of the project interests. It has hired a professional organization to supervise the developer. DAO community users are both decision-makers and investors. Can initiate votes and vote on major decisions.

Seven, what is the essence of WEB3?

In the original real estate business model, there is always the opposition between buyers and developers, you earn I lose, which is concentrated in the price and housing quality, housing quality is less than the price is higher, the developer's profit is higher, the buyer's loss is big, so we can always see a variety of rights protection events.

In the above hypothetical WEB3 model, the two roles of owner and trader are split between developers. The DAO community is the owner, and developers can hold part of the property rights, but you can't transfer it at will, because of SBT soul binding; Major project decisions are made at the discretion of the DAO community, which also employs regulators to monitor you.

Some developers feel very oppressed, why I do so cool in the original business model, in your WEB3 mode and daughter-in-law? Sorry, if you don't accept this, future users don't pay. Guagge boldly make a prediction, in the future, the identity of the user's consumer and the identity of the participants will be more and more overlap, take the current chain game project, most of the players themselves are members of the community, which chain game development team said not to community, that is a dead end.

In fact, this is not a new thing, Xiaomi mobile phone can do, is not that the "sense of participation" mentioned in the participants is the buyer? The awakening of user autonomy is the biggest difference between WEB3 and WEB2. The good days of predicting that WEB2 companies used so much user private data to make money are gone forever.

Some real estate old leek will say, you said this set is not a few years ago the real estate "crowdfunding model" + "agent small stock trading" + "private fund" mixed model? The logic is similar, but the breakthrough after WEB3 is added is: using tokens to confirm the rights of decentralized private assets, using smart contracts to ensure open and fair transactions, and using application scenarios in which players can deeply participate to complete the consumption upgrade of users. This is the essence of WEB3 as far as I'm concerned.

The original model requires a bunch of text agreements to define the rights and obligations of all parties, and anyone who violates it will Sue, and the chicken flies and the dog flies for years. However, the benefits of WEB3 are yours and yours, all in your personal wallet, and how to implement it in the future has been edited by code, automatically, and no one can change it. The realization of Satoshi Nakamoto's "no trust to execute" spirit.

Eight, the conclusion of this paper

China's annual GDP of 100 trillion yuan, commercial housing sales in the previous three years were nearly 20 trillion yuan per year, but this year is estimated to be about 10 trillion yuan, directly cut by half, which is also a huge blow to the national economy. As a property owner for 20 years, watching a pillar industry undergo such a painful adjustment in a year, I also wondered where the future of the industry might lie.

It's probably too early to talk about WEB3, since the hardware and software are still in their early days. Facebook has been doing it for years, changing its name to Meta and spending billions of dollars without a splash. At present, WEB3 is still ignorant. There are more crooks than users and more hot money than projects, but a certain consensus has been formed, especially in the young world.

Last month, Grug visited Dalifolia, the "Make Sure WEB3 happens in Dali", a gathering of thousands of digital nomads whose consensus is the future. Imagine 25 years ago, when you had dial-up Internet access on a 486 computer, and you could walk around, watch videos and shop on a small screen?

This paper is based on some of the current WEB3 project play, conceived of a model can be implemented in specific real estate projects, wishful thinking or wishful thinking, but the market potential should be large, various research institutions have also cited a lot of data, such as the following 22.5 trillion big cake.