DeFi Mortgages - Case study

Transcript

Thank you. Um, I'm I'm also excited to like uh, in a long time to speak about something that's real and tangible and that actually happened on a not just about theory. Um, so uh, my name is Joseph. Uh, I've been around for quite a bit. Uh, does anyone remember Pawn as a project? Awesome, a few people. So, um, long story short is that um, I've I've I've been through this journey of growing up. Uh, and uh, so was Pawn and it was the our initial project um, that enabled universal peer-to-peer lending and an instant-based fashion um, where we started experimenting with all sorts of different loans. But the reason for why Pawn has started was uh, the fact that I was um, I was in a similar situation as

the gentleman before me and I had a I had an issue to get a mortgage from a traditional finance because I was too entrenched in crypto. And Pawn was started as this potential solution or pathway to solution and uh, finally end of last year we kind of graduated uh, from from Pawn to Own uh, to start focusing on one of the painful painful parts of being in crypto, which is getting access to something else than crypto, something real, something tangible. Um, which in our case was real estate. So, my story is that no bank would touch me. I I tried to get a mortgage, I failed uh, several times uh, just because of my affiliation. And this is a story of what we created to to actually fight that.

So, is anyone familiar with Bordel? Less people than than Pawn. Uh, but Bordel uh, is a hacker space. Um, last year I would say it was a hacker space, but now it's a uh, uh, soon-to-be hacker space again. Uh, founded in 2020, essentially during COVID, uh, in the basement of Paralelni Polis. Um, some of you might have seen uh, this tweet. Um, I think it was from Bankless. Um, that was around the merge and the picture down here is actually original Bordel basement with bunch of guys from the get theme testing the merge.

Um and it was our little sanctuary. That's a that's a popular word. Um uh in Prague where we just had fun. And we were hacking on bunch of things and uh did some crazy experiments. Um but it was like a small community space where like-minded people could meet. Just a traditional hacker space, right? Um the other part of the story that is that around the same time uh I faced these rejections from TradFi. So, um during LisCon in 2021, um I talked about how to get a mortgage as a crypto native. Talking about the the ways you can achieve a similar type of um type of exposure to a mortgage-like loan if you're a crypto

native. And it took me a bit to to actually build something tangible. So, the story of Bordel actually ended in 20 uh 23 when we had to uh leave the space and uh shortly after Paralelni Polis was closed. Uh but in 2025, uh there was a new wave of enthusiasm. Uh especially thanks to Mario essentially keeping the whole idea of Bordel alive uh during the time when we didn't have a physical space. So, we started talking about opening up a new Bordel. We started talking about, "Okay, let's let's be crazy a bit. Let's actually put all of those ideas to work and let's raise a DeFi mortgage. Let's Let's try to buy a physical space uh that we can call uh our own

uh somewhere in Prague." So, we um um got down to work, started building prototypes, started playing around with a bunch of ideas, uh built a UI in early 2025. And it took us a bit to actually get things started and and actually make the uh to actually make the move. Uh the target was that around Devconnect in Buenos Aires, we're going to launch the very first DeFi mortgage. Um so, how does a DeFi mortgage look like? Um, anywhere any anyone here from TradFi? No. So, usually the TradFi people hate me. I always say a DeFi mortgage and they tell me like uh, how is this a mortgage if it's just on crypto and it doesn't like how does it touch real estate? The point here is what we wanted to create was the most decentralized

version of what we could. Um, and it's obviously like hard to build something that's decentralized and connected to the real world um, legally uh, also. Uh, so we wanted to recreate a mortgage-like experience, mortgage-like exposure, mortgage type functionality um, with just using the tools that we could access uh, in in DeFi. So, what we needed was a fixed rate, it's a guaranteed rate that doesn't wreck you uh, in in price swings. Uh, something that gives you long-lasting assurance um, something that limits your risk especially against getting liquidated because that's a that's a big pitfall.

Like you can take a DeFi loan but then uh, either does the thing that it just did last week and boom, it you're wrecked. Like all of your plans um, are in the trash bin. There's we wanted something that there's no human factor either someone that could uh, rug you. Um, and we also needed for for this to be actual DeFi it had to be open. So, it had to be composable with the rest of DeFi um, and we didn't want to care about um, any permission setup or KYC as well. Our goal was to raise 250K uh, for 5 years at 2.5% uh, interest rate uh, which obviously is is very low. So, what you can get currently in the Eurozone something between three 3.8 4.7 uh, percent. So,

this obviously isn't a commercial rate here uh, but serves the purpose of the of the case study. So, what we did was uh, that we created and like we leveraged the smart contracts that we built for our pawn previously because they were made in a way where we could leverage them for for this particular case. And um there is a the whole um setup of smart contracts where we enabled crowdsourcing on both sides. Crowdsourcing on the side of the borrowers and crowdsourcing on the side of the lenders. This is a pure DeFi mortgage, so it actually doesn't directly touch real estate, but it sets up the the um um the setup uh in a way where the lenders are protected um and the borrowers can buy the real estate.

That's that's what I mean by the the means to an end. So, first uh we had to establish the terms, the the LTV, the the rates, and so on. Uh and we created um a cross-funding vault, which essentially is a 4626 uh vault that you all know and uh if you use DeFi, very likely use as well. Uh where people could deposit USDC at this promised rate of 2.5% um plus if they um contributed enough, they would uh get exposure to some perks from the physical space, like membership, like uh hosting your uh server, uh like being able to host an event at the hacker space, etc.

Um we didn't want them to uh incur any loss or opportunity cost during the crowdsourcing period, so this was open for 90 days, and the funds from the vault were proxy deployed to Aave to earn some baseline yield. So, even during the waiting period, they weren't using against the variable rate of what what DeFi provides. That's kind of the composability aspect. Um then the second step is for the borrowers to actually put down deposit. Uh so, it's not the DeFi mortgage is not really about locking the house, but you can imagine using something like tokenized real estate as well instead of um the wrapped Ether ETH that we use here, but we set up a uh safe wallet uh where the contributors, the kind of founding members, have crowdsourced wrapped Ether

ETH as the collateral, and we locked it and as as soon as we collected enough money, we locked it at 75% LTV uh using the pawn protocol. So, uh this is where we are at now. Uh we essentially executed the loan. Um the collateral sits in the pawn protocol. Um it's wrapped in a 5 ETH, so it still uh generates some uh generates some yield on on its own. Um and we triggered this loan essentially pulling the money from Aave through the proxy vault into the into the Gnosis Safe for the safe wallet.

Um and uh now we have essentially a stablecoin loan, which we can use to buy uh the particle property. Um and um once once the property is purchased, then the perks unlock for all of the lenders. In this particle case, we had over uh 40 47 lenders. We had actually 47 lenders uh for uh to to contribute to the Bordel case. And on the side of the borrowers, we have six people. Um so, once the loan is executed, then there is a grace period of 6 months to get uh all of the paperwork done. And the fixed rate uh request is is triggered.

Um so, after 6 months, um the borrowers have to start repaying the loan. So, this loan won't get liquidated on a price dip, uh but it will get liquidated if you stop making repayments. And for the entire duration of the 5 years, if you miss one single repayment uh by like 1 cent, then the smart contract allows anyone to liquidate the entire collateral. Uh which, I mean, in this case means that um the entire collateral will be transferred to the proxy vault that was in the beginning, and therefore the lenders will get their own share on the on the collateral.

Um so, in order to fight this price uncertainty, uh the entire collateral remains at risk until the very last repayment. Uh we didn't want to include an oracle because, well, we don't know if there will be any oracle function in 5 years. Um and we also didn't want to create uh this structure where you could lose everything um in order to get the real estate because it wouldn't actually serve the purpose of getting the mortgage. Um so, um so then after repayments start flowing in, then the the lenders can claim the the yield, the perks, and boom, everybody's happy.

So, how did it go? Uh on day one during the Ethereum culture day um during Devconnect, we raised 80K um in like one shot. I was I don't know, like four or five people contributed and boom, we were at 80K. Um for the next 2 months, not much happened. So, we raised like 5K for duration. We were trying to communicate. We were trying to build up the structure. Uh we were slowly giving up on um on making this happen. Then day 70 came around or roughly 17, and we found it. We actually found a place that we could afford with the money. Uh we we knew there were other places that we kind of looked at, but nothing was actually perfect. Like some some places were were kind of dirty,

wet, would like require a lot of investments for the hacker space to to exist. Um but uh on the day 70, we found a perfect spot um which cost like 150K, um was actually dry, 70 m squared, was perfect. And it kind of kick-started the enthusiasm again. So, uh within next 14 days, we went hard. We started actually reaching out to everybody that we knew. And boom, uh actually 12 hours before um the the expiration of the loan, we raised it. We raised 180K, which was the minimum from the uh from the 250 that was the target goal.

And that money still enabled us to to actually execute this entire thing. Um and again, it wouldn't be um wouldn't be possible without the 47 people who contributed as as lenders. And a lot of people actually got excited in the in the last days. Um uh which which kind of made it uh actually made the process fun rather than uh being super super stressful. And like the worst case scenario, you know, like everybody would just get their money back, right? So, what what did we find? Uh we're getting a bunker. We're getting a 70 m² bunker in Prague. Uh it has everything that you can dream of, right? There is a decontamination shower. There's a massive ventilation system uh in case of uh like chemical attack.

Uh there's a proper bunker door. Uh sorry. Um and then an escape hatch. Uh like everybody needs an escape hatch, right? In this environment, in this economy. Um so, we're now in the process of sending out the paperwork. Uh a lot of that has actually already happened. The important part here is um Oh, getting back. The important part here is um the the legal structure um was com- kind of completely inv- invented out of nowhere. So, this is this works empirically in Czech Republic. I think a similar structure could actually work anywhere across Europe. Uh but what we did is that we established um a stocks company.

And then people who contributed to the collateral formation uh received shares in that stocks company um based on their contribution. The whole point here is that we had a bunch of crypto natives who wanted to crowdsource money to co-share, co-own a hacker space, but none of them wanted to just sell their crypto and lose exposure to crypto, which was kind of the initial motivation. Uh so, this way uh we simply created a structure that enables them to co-own the space.

Um but if they comply with the terms of the loan, also to keep their crypto. So, the incentive for them is to make sure the place works, generate some revenue, um and actually uh is able to repay the loan because the loan um stores their private ETH that they would otherwise lose. Uh so, although there is no direct like legal connection between the loan and the property and the stocks company, uh there is a very strong incentive uh for the stocks company uh being owned by the people who have a personal stake in the DeFi loan.

Funny thing happened, and nobody nobody actually assumed something something like this would be possible. Uh but, that's kind of the magic we live in. Uh we promised a rate of 2.5%, but what the lenders are actually getting is 5%. And the reason being that uh somebody made a mistake. So, the the way the uh the proxy vault to the lender vault uh works is that uh you use the deposit function uh which kind of drains the USDC that you approve.

And then it mints you the shares the lender shares in the vault, which is kind of the representation of your share on the repayment and the principal. Uh but, the very last person that uh enabled the loan um uh instead of using the deposit function, they just went and and did the the classic crypto mistake and they just transferred uh USDC to the to the contract address. Um which means that they effectively donated the money to the lenders. Um the way the contracts work still enable us to execute a loan, which is fine. So, we just basically borrowed a full 180K.

Uh but, this particular person won't be getting their shares back uh or like their repayments back. Um so, even though we didn't promise the 5%, we actually made it quite competitive um uh mortgage from perspective of um like long-lasting uh long-lasting yield um income, uh which is very competitive to like, you investing in like real mortgages in Europe. So, what's the current status? Um, as I said we uh we are almost done with the paperwork.

We're missing one one last signature on uh, the share stake over in the in the stocks company. Uh, we also because it's still an active bunker, uh, we, uh, we just passed like some of and this is this is actually be before it happened. So, uh, by now the revisions for the ventilation system for electricity and so on, they're all done. Uh, so that's kind of the legal side of the paperwork that needs to happen with the physical space and, um, tomorrow, uh, we're getting the last signature uh, on the on the paper and then next week, uh, we should be actually, uh, able to, like, finally sign the purchase contracts and, uh, hopefully move in next month.

And, um, that's that's a case that we started. Uh, what we want to do as own as to fund more community spaces. So, if you have an idea, if you have a project, uh, please come talk to us. Uh, we want to help more communities to own their physical physical um environments. Uh, so if you're building, um, um, a hacker space, if you're building, um, um, a working space or a communal living, um, project anywhere in the world, uh, we want to be part of it. And like, we want to help you to not only use the stack that we created. By the way, everything that we use for the boreal loan is public and open source.

So, you don't even need us to make it happen. You can just go there. There's no fee that you have to pay. Like, you can go there, you can make the loan, uh, you can, uh, fork the repo with the front end and you can run with that. Uh, but if you want to do something something cool, come talk to us and we want to help you do that, uh, uh for free. We will even like help you find the lenders. Um uh just to make sure that we can prove that these systems can work anywhere in the world and that you don't actually need to default to TradFi to do something in the physical world, something that's tangible.

Um and I believe we have like 30 seconds for questions. >> Thank you very much. In fact, I'm going to ask I'm going to scan the QR code. >> [applause] >> We have a few a few minutes for questions. I'll use the minutes to scan the QR code because I always have an ice cream type of space always thought for builders. It has to be ice cream though. >> That's awesome. I'm down. >> Great. Does anybody have a question here for Joseph? We have a few minutes, so you don't have to think it completely in a rush. >> Hey Joseph.

What about funding loans with other coins flash loan such as Bitcoin which, you know, some people may hold for a long-term perspective. And what about also kind of getting the cash in the bank? But presumably in this instance there's USDC and then it's kind of for you the the home purchaser to find your way to get that into cash. >> So, um So, the question number one is uh Bitcoin. I mean, this is all EVM contracts, so we can do wrapped Bitcoin, tBTC, and like essentially the uh the the wrapped versions of that on EVM. Um We're not like empirically interested in in writing um

like um Bitcoin script and like porting this directly to to Bitcoin. Uh also because the the way it's written now it enables, I guess, like the less decentralized versions, but the more commercially ready versions for uh doing this with something like tokenized real estate um um uh where it kind of becomes like even more mortgage like or even more tangible for a lot of people who are outside of the space. Uh and the second question, the way we uh the way we did it now was that uh we essentially just went through a traditional exchange. Um and uh I think we ended up paying something like um I don't know, a few hundred bucks uh in in terms of the fees uh for turning this into fiat.

Uh so uh the the purchase itself actually happens in fiat. Um it's I mean it obviously was not a huge amount. It was like 150k roughly. Uh so we passed all the checks. Um nobody was hiding here at the time of uh setting up the company. It's like physical people building a company, transferring capital to the company, uh which is all normal. So uh we we actually didn't hit any road road blockers on turning USDC into into fiat. >> Okay. Thank you. Thank you very much, Josef. It's uh it's uh we had the time only for one question. So thanks a lot.

>> Um I was actually >> [applause] >> Thanks. I am Yeah, like these spaces in in at least in Buenos Aires, in Argentina, are are are kind