ReFi with DeFi

2020 appears to be a year cursed by the gods in the Homeric sense, with each month opening with yet another potential or realized disaster: wars, a pandemic, an economic depression, and even super volcanoes and asteroids lining up to take their shot at us. Society and its trappings are becoming more strained by the day, with many forecasting the doom of many traditional forms of wealth accumulation with its passing.

With instability rising all across the west, many are looking for alternatives to traditional financial systems to hedge against the seemingly inevitable conclusion of the chaos. While the more conspiratorial among us are looking into gold, silver, bullets and K-rations, while the more tech minded are looking for a more innovative method of storing their value.

Enter decentralized finance, or ‘DeFi’ for short. DeFi utilizes innovations in technology such as cryptocurrencies to provide alternative means for people to store and invest their real-world cash in such a way that they can detangle themselves from a centralized global banking system. Cryptocurrencies by themselves may act as the investment mechanism of choice for many users, but much more interesting options have begun to reveal themselves as developers begin to dig into the possibilities opened by this new field of finance.

DeFi is still an extremely young industry and marketplace, with the first white paper on the concept released a scant three years ago in 2017. Nicholas Krapels, editor of FinNexus, describes the strides DeFi has made since its inception in a recent medium article with the following:

“The concept of decentralized finance, or DeFi for short, has only been around since the launch of the MakerDAO project. Although the project had been incubated since 2014, the release of the MKR formal whitepaper did not occur until December 2017. The first issuance of their DAI stablecoin, which are essentially tokenized US dollars backed by Ethereum, occurred at that time as well. Today there are almost 50 million DAI in circulation and there are often months where DAI volume exceeds $1 billion per month.

Those statistics still underscore that the DeFi industry, as a whole, is really young. But even though it is still a newborn, it has already seen some tremendous development. According to DeFi Pulse, the total value of assets locked up in various DeFi platforms, almost all of which are currently on the Ethereum blockchain, recently crossed $1 billion, which represents a 350-plus percent growth rate compared to the year prior.”

Decentralized finance also provides users the option to invest their crypto holdings in more traditional real-world investment options that provide a wide range of benefits such as stable valuations, asset growth, and, most importantly, passive income. RealT, for instance, has provided a real estate DeFi option, allowing users to buy up portions of a rental property using their proprietary tokens and gain access to the monthly rental income commiserate with the percentage of the property they own.

As the DeFi and Ethereum environments change, so the companies that operate within them must adapt and change with them. RealT has recently revamped its payout system to better service its investors and reduce the level of ‘gas’ price payouts (the price of an Ethereum transfer) they need to make.

We’ll let them explain the new system:

Step 1. Each property receives their own deposits of USDC (U.S. Dollar Coin, a coin tied to the exact price of a U.S. dollar), which comes from the rental payments made by the tenant of the respective property.

Step 2. An off-chain process takes the account-balances of every RealToken-holding wallet, and calculates how much USDC is to be paid to each wallet, on a per property basis.

Step 3. All Property Wallets make a USDC transfer of the calculated RentOutput value from Step 2, to a single central wallet, the Disperse Wallet, where the funds are prepped for final dispersal.

Step 4. The collective RentOutput amounts from all individual properties coalesce into a single bulk-transfer of USDC to all RealToken-owning wallets. Regardless of whether you own just one RealT property or all of them, users receive all of their rent with one single payout transfer.

Step 5. Users are able to see the breakdown of their payout on a per-property basis on the RealT website in their user account. Inside the Portfolio section of the user account, RealT property owners will be able to see which properties paid how much rent for any given payout period.

To summarize what these changes mean, RealT has:

  1. Created a one-month buffer so that rental income would not be affected in the event that a tenant is late with a payment. Your passive income keeps on coming, and a report can be generated that displays the tenant’s payment history, creating a kind of tenant credit score that helps determine how worthwhile an investment a property is while that tenant remains.
  2. Switched up the payout schedule to once every 3 days rather than once a day, reducing the number of gas payments investors need to make to gain access to their rental income
  3. Changed the payout currency from Dai to USDC, reducing the amount users need to pay to transfer coins into actual dollars

RealT allows for unprecedented access to property ownership, an age-old repository of wealth, with none of the drawbacks from traditional means of property ownership such as illiquidity and time between rental payment dates. The company is additionally constantly adapting in real time to changes in the crypto business landscape, making the necessary changes to its model that save its users the greatest amount of money possible and maximizing their returns.

As we hesitantly tip toe into the second half of 2020, afraid to wake whatever monsters are left over after the rampaging misfortune of the first, we all should take note of whatever safety mechanisms exist that we can use to slow our descent. Decoupling ourselves from a massively complex international finance system that seems on the brink of collapse might mean the difference between remaining afloat and being swallowed in its undertow.