#DappCon22: Day 1 - Mortgages For Crypto Natives, Josef J

Transcript

we are back with Joseph J of pondao to speak about mortgages for crypto natives so take it away Joseph thank you [Applause] hey everybody um lovely to be back in Berlin um it's great to see another dapcon happening um so my name is Joseph and I'm going to be talking about what we built upon and specifically about a use case which is kind of a holy holy grail for us so uh who am I um I guess I'm in crypto for quite a while um I I got aware of Bitcoin originally through Silk Road and I don't say this

uh because I would like to flex like you know look at me how long uh I knew about Bitcoin because I've wasn't really in crypto back then uh but I mentioned it for one reason uh which is um I was I was a social user I I used to buy drugs online and crypto was the way that enabled it and I think it should be fine to talk about it I think like you know occasional uh or political usage of psychedelics should be normalized and I actually believe if that if more people try psychedelics would be living in a much happier Society uh so that's a point number one um but I've been I've been around a couple communities I've been part of the

Institute of kryptonarchy and Prague which you might have heard of um I've been working with the ethereum foundation for the last four years uh I also with Mario uh who created the the bordeaux.wtf uh merge tracker we started Border hikerspace in Prague so if you are in Prague please to buy and say hi and finally uh since last year I've been working on Pawn um which is um generalized lending and borrowing uh protocol for any token on ethereum so today I'm not going to talk about Pawn but about a much larger topic so I would like to start with a short intro

what are mortgages um what are mortgage is good for uh who are crypto natives um then if you've been to Etc in Paris uh you might have seen the talk crypto native economy so I'm going to do a quick Refresh on that um then I want to talk about the issue of like how does a crypto native get a mortgage because it's not as easy unless you you know you've been lucky and you've made it um and then I'm going to do a little little show of Pawn but uh it won't be too heavy so what's a mortgage you can find basically two definitions online uh one of which says it's a pledge which runs until your debt uh which uh is kind of the sad one uh the

other one and the correct one is um is a pledge which disappears upon repayment or default and like most of most of the most of the um you know borrowings and and loans and crypto kind of behave that way because like all of them are over collateralized uh you've seen you know you've seen it with the recent uh crashes of block five and Celsius and these projects which you know didn't have clean books um but the D5 protocols all worked I mean like you know we don't we don't the depth in crypto so far don't overflow into your regular life which can happen like if you get a regular uh regular

loan um you know you can you can fall into this like spiral Spiral of that if you can repay but mortgages are kind of fine like those um have a you know have a default option uh or you can just like repay them and um and be gone also mortgages traditionally are used in the context of real estate financing so I guess most of you are pretty familiar with the concept um you can get like 5 10 15 maybe 30-year term contract and uh basically purchase something that you otherwise wouldn't be able to uh with your regular income and you can repay it over the years

um and if you stop paying you basically just lose you know lose the item and lose the deposit um so it's it's a pretty you know known concept um there are differences between countries and jurisdictions uh but I guess like the the Baseline is pretty similar everywhere who are crypto natives now I I can't quite see you but I would be interested to to hear from you who uh if you feel you're a crypto native could you please raise your hand right we are getting into majority here when I started with talk we've seen like 20 of the folks uh but this is my attempt for definition

um and for me a crypto native is a is someone who um you know has been living the the crypto dream or like uh has been living in the crypto context so has significant Holdings in crypto in terms of like you know the net worth uh let that be Let It Be coins tokens nfts uh you name it uh but crypto natives tend to look at these um assets as as valuable and and want to generally accumulate those is AVID defy user uh I don't think that if you only use like Bitcoin for like huddling or occasional payments doesn't really make you crypto native makes you an Enthusiast but I think there is like more needed for you to actually like lift the you know the

dream of Financial Freedom um one significant point is that crypto natives don't understand the concept of bank holidays um it's you know it has been always kind of a mystery to me uh why transfers don't happen over weekends or why does it take like three days uh in the 21st century um so I guess like most people in ethereum or just generalized like um blockchain space tend to be crypto natives some bitcoiners may fall under definition uh but most that basically just uh you know sit on bitcoin and wait for for it to rise like are not crypto natives in in my opinion um what's a what's a crypto native

economy so I've tried to kind of look at um how much what's what's the actual like economic demand for using uh on-chain space and paying transactions on chain so the whole distinction of like you know mortgages for crypto natives combines two things combines this like sphere of like people who are in crypto and um um just like trade crypto regularly or use it uh and people who are kind of still in the mindset of like getting a regular paycheck in your bank account uh and um just getting um uh you know like doing the regular thing just having a regular job getting paid regularly uh but crypto natives like

would tend to you know be employed by Dao just like earned crypto uh don't really need a bank account for a good part of what they do um so I I try to like filter out everything um everything from the intro like blockchain economy and just focus on things that happen on chain so if you look at simple like uh and now this is this is just um ethereum mainnet if you if you look at just how much money is paid uh in transaction fees uh so in the past 12 months um the the value that was burned for transactions or like paid to minors or burned this doesn't include block rewards uh was something over 10 billion dollars if you look at the protocols

that are on chain that actually are smart contracts and um just accumulate fees on chain uh which you know doesn't doesn't involve like any you know software as a service products and that kind of stuff so this is like only the stuff that happens on chain we are looking at another like 13.4 billion dollars uh this is these are things like you know ens fees uh open CPS because those also happen on chain um um unit swap liquidity provider fees and so on um so all in all like we are looking at something um you know for the benefit of the doubt that will tend to uh rounded numbers but we are looking at something over like 20 billion dollars in Unchained demand

um and to me like I I think it's actually like a lower bound of what the crypto native economy really is but it's already something you can you can build on top of so uh now we are looking uh at like roughly you know 20 billion dollars that are like purely crypto native that don't require like any off-chain stuff that don't require uh having a bank account and can solely live in in crypto so what's the what's the problem of like um crypto natives getting a mortgage I think there are you know multiple lenses you can look at the problem so one the first one would be social um the social issue is that bang Titus so if you if you you know if

you are in crypto if if you don't have a regular working contract you work for a dow you earn your money or like even if you have a contract and you are paid in crypto let that be even stable coins uh that's not enough if you come to a bank and say like hey I have a decent income could I get a mortgage um for the bank you don't have anything um you know unless there is money actually flowing into your bank account it's it's not good enough and this was exactly my case I came to a bank you know getting uh getting into 30s I was like I shouldn't probably just Bank on crypto being big I should probably uh you know buy a house or a flat or whatnot uh I came to your bank and said

hey I have a contract uh I'm I'm an adult now I'm making money so could I could I get a mortgage um and I can prove all of the transactions happen you know I can print out the list of transactions and you can verify them as you want again I can sign anything and the guy started laughing at me was like well you don't actually have an income like to us like you're you know a person who's like high risk doesn't have an income uh and all you have is uh imaginary imaginary money um so so yeah well if you if you are in crypto you're probably also having issues with like all of the AML stuff even though like you don't do anything shady just the mere fact that you're

touching crypto uh already kind of puts you into the box of like that person can be trusted um well you know we can can say like Banks and we can hate them back but well the issue really is like all of these assets are novel there's like high risk associated in them uh and therefore they are not like easy to reason about um and you know like Banks won't consider your nfts uh to be uh to be valuable the next issue is well you know we have we have we have a generational Gap uh Millennials are screwed like Millennials are the biggest productive cohort or proactive demographic uh worldwide although there are also the

smallest in terms of the net worth that they that they possess this is natural right like you know people live longer people tend to like keep their wealth um but it also creates like these issues that we are seeing today with the with the housing market where like uh you know Millennials can really can really afford their own uh uh homes um unless they they have like super above average income or unless they inherited like a lot of money or you know made in crypto uh but if you're a millennial you want to get a mortgage well yeah you you will have a tough time and that's not just Millennials this will only get worse so Millennials GNC's and I think this is also bound to who are the crypto natives like those are the people like looking

for Alternatives and like being born into a setup where you actually have like options of choosing a bank account or just doing things the crypto weight because what the are bank holidays the next issue is economical so um to mortgages move market prices um over 80 percent of all of the real estate purchases are made through mortgage financing so um if you you know like there's only like 20 of the real estate that really is being paid in cash which is like uh companies or are just High net worth individuals but otherwise like being a regular person you'll actually have to get a

mortgage in order to uh to get real estate now if you're a crypto native and you were lucky and made it now you're facing another issue so well you won't get the mortgage because you didn't have the proof income uh you you know might have made it in crypto but now you will have to choose uh you may keep the crypto and just like you know wish for the best and wish that you will make enough to to be you know to be able to make the purchase of a of a house and like one worry about it um or you will have to you'll have to sell your crypto and tax it and then like go and pay for the housing cash but doing that means that you're essentially

just losing exposure to the asset of the future this is like you're you're kind of betraying your own uh your own faith into this new ecosystem taking over the financial industry so um so it's a it's a tough choice like today you cannot really like back your mortgage with with crypto uh and again it relates to you to to the uh social issue pricing of these assets is hard so um you know until today all the loans that we saw in D5 are all of them are over collateralized you've seen like liquidation uh liquidation spikes um because all these systems are kind of still adjusting to what's happening in the market then

um there's a technological issue so uh you know you have a lot of D5 protocols now uh but they mostly work on kind of a white listed pulled model uh where you have to do a lot of due diligence before you allow using a particle asset as collateral um and uh you need like large pools of liquidity for those systems to work then you also have like you know the requirement for tooling so if you actually wanted to just build a generalized lending protocol uh where you would allow like literally anything uh to be to be used as collateral you would need to have this like on-chain Oracle setup so you can like liquidate and uh you can protect the the lenders um which again

[Music] um is related to the pricing um and finally uh like if you're you know if you if you wanted to um if you wanted to actually build a mortgage service for crypto native and allowing crypto natives to use their digital assets as backing for something that lasts like 5 10 15 years um you'd be looking at like blocking a tremendous amount of value in just a black hole and uh you wouldn't actually be able to use those assets because like what you're currently seeing is that um the the defile lending and borrowing just means like locking those assets in

some pool and if it's actually uh you know if it's not actually like managed by like an admin key then well yeah it just sits in a black pit uh if it's not actual D5 and it's just like a random um random like you know staking Collective what not you're actually risking those assets if you use them as collateral uh so you cannot really um have your cake and eat it too you cannot use those assets uh while those are being used and you know it wouldn't really be practical to lock something uh for as long uh and not be able to use it so finally getting to the Shilling part um so we've built a pawn as basically like a pawn shop for any token

um I hope like things will start actually coming together um but uh what we want to do with Pawn is allowing people um that are crypto natives who hold digital assets not to have to make the tough choice of actually having to sell them we want to allow um 5 10 50 a year term mortgages and Loans which don't have exposure to um to price based liquidations where the lenders actually take risks um and behave as regular like mortgage providers uh where you can use those assets while they're locked where you can literally use any token which has a market uh which doesn't require a

whitelist it doesn't require uh someone else like approving that you can use the thing that you feel is valuable and other people feel is valuable as collateral um and yeah this is what we are building towards so today uh what we have is essentially a generalized peer-to-peer lending protocol where you can use any erc20 721 or 1155 token as collateral and you can get a loan in any erc20 there's no white list there is no liquidation risk because it's like literally super simple you either default or you pay back uh it's a it's a mortgage type of setup today all of these are short term and most of the borrowers are used using using Pawn for

speculations but again we want to build something which is stable enough where you can set up a loan for lasting like five years 10 years and you can actually do something feasible with that um it's all fixed costs fixed interest although there will be like sub products will you'll be able to adjust these things um and of course well because well thanks to um uh you know off-chain sign blobs and these kind of stuff that became popular and also useful lately you only need one transaction so there isn't really like a huge difference between using a pulled protocol and uh and a peer-to-peer one um so some some of the some of the cases were

um you can already use like valuable nfts such as like board apes or nouns whatnot recently we had a first uh Cloud Nation based uh Bond issued on Pawn uh which was uh uh which is Nation tree token um and um again all of those are super short term and like you can tell you can say well you know 100K in the loan isn't really like something I could buy a house for well maybe not in Germany maybe not in in the Western Hemisphere but uh basically in you know any other country on in the world you can already you can already uh buy um a pretty decent home with you know being lucky once and having like a

valuable valuable nft so what we are building towards is these again these long-term mortgages um and we have a bunch of tooling for that as well so I think that we'll be releasing in Defcon is a self-custody uh self-custody wallet where you can basically keep the collateral uh or use the items that you use as collateral uh while those are being used for backing the loan um we have token bundlers where you can essentially build like uh divide Diversified bundles of whatever asset that you uh assets that you have which again helps you to diversify risks um

and we have a bunch of more bunch of more coming um it's super simple you just combine uh in the case of D5 mortgage super simple you just essentially have an offer on Pawn um for a particle collateral uh you have a borrower that comes with a deposit and let's say they want to buy a piece of decentraland um and again you just use Smart contracts so you basically just in one transaction you combine the deposit uh with the lending offer um you buy the item you lock it in the self-custer wallet so the borrower can still use it um

and the lender ends up with an over collateralized loan with a 50 loan to value that's completely up to the lender um and you basically establish a defy mortgage which can be uh can be repaid uh against the digital asset um and if you can do this with you know digital land you can also uh pretty easily uh do this with uh using a basket of digital assets taking a stablecoin loan going and buying real estate and then just repay your 10-year mortgage against the digital assets instead of repaying it against the real estate which is the thing that you would otherwise uh do in the real world um so what we're building next uh we are

switching uh into Dao So currently the protocol is live is audited it doesn't have any fees um but we'll be establishing a Dao which will uh govern the protocol and eventually will become a lending Union uh for uh creating these loans to other crypto natives uh and it will be a whole bunch of other features as gradual payments and Perpetual loans where you can swap the collateral uh or the uh or the loan amount and finally where we want to get in like five to ten years is enabling crypto natives not to have to sell their crypto and literally just use their digital assets the same way people out there can use their real estate or traditional art and uh get loans against those because those are

you know much easier to price or are just like well established I guess but in crypto we'll just have to do it ourselves um so that's a quick road map um if anyone has any any ideas on the topic I would surely want to talk to you so please uh come to me later and I'm already over time so just going to make this quick uh quick summary uh I think crypto and crypto natives made this market and we should build services for crypto natives I think we are past the point where we should worry about adoption sure I mean education is important we should be allowing other people to enter uh crypto but we are already at the stage where the crypto native economy is big enough for us to

start building for the community itself and I also think we are at the stage of now they are fighting yes and I think all the regulations coming in and all of the you know hardened AML stuff um just shows that the the next stage is is for crypto to win finally and yeah this was it um I think there should be a PO up there uh I'm not quite sure uh but thank you for listening yeah I don't know are there any questions what do you think Ben's Dow did wrong

that you're improving on uh so uh Ben Dao was uh was pool base uh I mean they are they basically used I guess regular regular like lending setup where you just create a pool of of the assets and you make it easy for the lenders um and borrowers to like you know get loans or use Capital uh to back those loans but it creates systemic risk uh and it just like creates a setup where um the loans aren't isolated um so you get like much much larger ripple effect and like what you what you saw there was was basically the the collateral not being really um you know wanted by anyone uh so the

protocol um just created in my opinion just created the impression that it's like super safe because there is a liquidation based on pricing but like once you don't have the market for those liquidations uh it's it's not really used for you know it's not really useful for for the lender so what we are doing differently is that our protocol is like strictly peer-to-peer of course you can have like dials on like both sides of the loan but we don't promise you that we are going to liquidate the position and that we are going to like pay you back as a lender you know the risk up front and that's uh that's what you uh you know set your the desired interest or loan to value um based on so we're basically telling you well as a lender you should know

that this is risky and this may default on you and therefore you set the loan to value in a way where that risk is reflected all right yeah um quick one here thanks for thanks for the presentation have you guys explored integrating a renting system for all the um nfts that are used as collateral um not really so we are focused on rather on the opposite case where you once you you know get a loan against something but you still want to use it as the borrower um and uh yeah we don't well we don't

really have any access to anything that touches the Vault so uh we didn't want to create uh like you know more exposure for those assets that should be stable backing loans um to you know any other use um unless like it's the borrower uh who who uses them all right thank you awesome thank you Joseph thank you