Jerry Chu on tokenizing real estate at Lofty

Transcript

what if you could buy and sell real estate instantly just like stocks or crypto now you can in December lofty introduced the world's first liquidity pools for Real Estate taking another step closer to their ultimate goal to build the NASDAQ of real estate for the first time in history anyone can directly buy and sell ownership in a house not a fund or a right with the same experience as buying or selling a share of Apple or Tesla stop in today's knowledge packed episode we're joined by Jerry Chu CEO of lofy to discuss how tokenization of real estate is not a distant future but a current reality

we'll also discuss how you can lend your usdc against real estate properties and earn additional return and will explain how lofty's platform enables anyone to invest just $50 in a home with strangers online through a Dow LLC gmgm welcome to web3 Academy your one trusted source to capitalize on the next big phase of the internet I'm jbird and I believe that tokenized real estate is going to change the world that's why I'm carving a path for doers to confidently build and invest in web 3 GM Jerry welcome back to web3 Academy great to see you again likewise thanks for having me again it's

been just over a year since we had you and I'm so excited to have you on now because just recently in December just over a month ago you guys introduced the world's first liquidity pool for Real Estate this is absolutely huge I think everybody needs to be talking about this I I'm gonna pump up your tires for a second here because I can't understate how big of a deal this is when we had you on the show just over a year ago back in December I remember you said the line that your objective was to build the NASDAQ of real estate that's right you have just taken a massive step towards that so congrats to you and the

whole team right off the bat let's talk about what has happened what this launch has been like and why this is such a big deal for the world yeah absolutely so I think first it's important to know that it's not so much the technical aspects while although impressive and I'm very proud of our team's work and the fact that it's even a world's first that makes this really unique and interesting I think the really important benefit of this really is the the end result the value it provides um our users and any potential users of the platform in the future and so if you think about real estate transactions right because again these are not virtual land they're not some you know Meme coin or some virtual

tokens they are actual physical ownership in individual specific houses or or properties right and so if you think about the property market for hundreds of years it's basically transacted in the exact same way with little to no innovation on top of that right and so you know you could probably pinpoint hundreds of years ago there would be lawyers drafting up documents you know in the wild west of the US when people were claiming land they're like I'm selling you my barn or like I'm selling you these Acres of of farmland or whatever is the case and that pretty much is kind of how it's still done today if you think about it right you po house you whether it's for you to personally live in or for you to invest in you typically view the property you

have agents and then afterwards you negotiate on price and then if there's a agreement on price it's all paperwork it's all just paperwork Leal contract and eventually the deed is recorded by you know your local County and and held by the government and then that's it you're now recogniz as the new owner of this property and that's the process and for the vast majority of people that we've spoken to in the past even ones that are very experienced have done many transactions everyone hates this process I don't know what else to say like nobody enjoys it especially as technology has evolved and gotten better right because believe it or not the stock market actually started out the same way you know Wall Street was a group of people literally under a tree

like selling stock certificates to each other in person like hey who wants to buy these ones like what's a right it started out that way but today how that market function is drastically different than how it started whereas real estate is largely the same and so for the longest time not just us but a lot of people have sort of envisioned like what if you could take that process that real estate transaction and and sort of level it up and basically add technology to it so that you have a similar user experience as essentially buying a sherff stock or you know Sher of Apple on your Robinhood app right like wouldn't that be pretty phenom and not just the The Experience would be at least 10 times better because it's so

much more efficient you could lower the cost by huge amount right because of all these added sort of frictions and the time and these legal paperwork and people have to draft it up and make sure that you know you didn't sign the wrong things and and legally it all works out there's a lot of cost you know and that's why title and closing tends to be pretty expensive right for mortgages properties whatever is the case and so the benefit of what we build here is essentially for the first time in the world and you can't do this outside of ofy anywhere else you are able to buy into bu ownership and sell that ownership in a specific house specific property with his own address you being the owner not a fundless someone else is

running not a re anything like that into the specific property with the same speed and user experience as buying a share of Apple on your Robin Hood right so think about that for one second literally you can now pull up your phone or your laptop and if you want to buy a house you can just click a buy button it will quote you a price you say yes I have the money I agreed to this price I want to buy at this price you click confirm and boom you now are an owner and as crazy as it seems if in five seconds you decide hey I don't want to be an owner anymore you can now repeat that exact same process but just click the sell button this time and then boom

you're not the owner anymore and someone else bought it off of you and this could literally happen depending on how quick you click things within the span of seconds now I don't encourage people to day trade real estate because it's fundamentally a different asset but technologically speaking and and the actual practical experience is now you can for for the first time in the world and so really that is kind of what gets us really excited I think we've realized our vision of making the asset class truly liquid for the first time in history so yeah we're really excited to continue to to grow and build this what stands out to me is how you and your team have approached this as a problem that needs to be solved you mentioned it

before you know uh real estate hasn't changed for a hundred years right it's still the same as it used to be it's full of middlemen it's full of wasted cost I mean I bought a house few years ago and I went through this exact process it was not a nightmare it's a bit extreme to say it was a nightmare but it was full of headaches because of all of the different things and then in the end of it all I now have a house which which I'm very happy to have this house but I don't know the current value of that house I can't go and get any liquidity from that house unless I sell the entire house until lofty came along and obviously there's various options there and I think you've taken a lagging

asset class in real estate which is really you know every investor that we know your parents I'm sure anybody listening to this has has in their head I should get into real estate if I'm not in real estate already I should be there there's a great opportunity there and you've taken it and you've opened it up to the world which yes didn't exist before before we talk about how this all works and what the opportunities are for how our our listeners could get involved can you explain a little bit about why you decided to take this course and take this path sure and again I think fundamentally when you're building a

business any successful business is good as solving a problem for a subset of users and and that's how you build businesses and so for us you know the problem we were trying to solve was for a lot of times are existing users that are already using the platform and one of the things we consistently we're hearing is that you've improved liquidity but it's still bad right because the comparison to all these other asset classes like now we have users who have an interest in owning real estate investing in real estate and sometimes you know often case have the funds and sometimes even own properties outside of the platform so they understand how bad liquidity is in the

actual you know open real estate market but when they're using an app they're just so used to the idea like oh if I'm using coinbase or Robin Hood like you know everything is quick and fast right and so for them they're like hey you know maybe instead of nine months it takes for me to sell the house it now it takes me three months to sell you know on your secondary Market but that's still like I wanted to be five seconds like you know why why do I have to wait three months it's still wasn't a good user experience and most of our users are investing for the longterm because that's really where real estate makes the most sense is the compounding because in terms of raw returns in many cases it's lower than you know the stock

market and various other assets you could get into but the tax benefits you get from investing in real estate and the tax benefits you get for collecting rental income right that compounds year-over-year and typically over you know a 10 20 year time Horizon U net net in many cases your real estate assets will outperform other asset classes in this sort of time Horizon so most of our users aren't actually that interested in selling quickly right but it's this psychology and I guess just the way technology has all people just want it they expect it if you tell someone and say hey invest in this fund or invest in this asset class and you just even if

you want to even if it's a life emergency and like you know whatever happens some crazy thing happens you just physically you're not even legally allowed to sell like you're just in this thing for seven years right and even if someone goes into this with a mindset of like hey I'm investing for the long term I don't need this money right away and putting it away for seven years that still rubs them the wrong way they just don't like the idea that they like you they're restricted legally physically technically whatever is the case it's like I can do it if I were to you know want to do it so that's kind of what we realize with all of our users is like they the liquidity still wasn't quick enough wasn't good enough for them and just the idea that hey I'm going to get

into something knowing that it kind of an open-ended answer at the end like if I want to sell out what does that really look like you know time frame could be any amount of time there's really no no guarantees or certainties again that really makes people uncomfortable with investment I think I suspect if you all kind of ask yourselves that question why because a lot of people if you talk to them are interested in real estate investing they understand it's a thing they grow up with from their family you know parents like oh if you want to do well in life you got to own some real so everyone knows this right and it's an easy asset to understand like it's a house you don't need to be like some super Financial engineering Wiz to understand like hey you know buy a house invest in a house right so why if

everyone knows about this has some interest you know beyond the money issue why a lot of people haven't really pulled the trigger and I suspect is probably because of that liquidity answer of like hey if I were to buy this house like it's kind of tough for me to get money out of it like it's you know if I were to invest in this like what if I needed the money like six months later like I don't plan on it but what if something comes up and I I do right I suspect that has a big component to play in Psychology so when we realized that we kind of knew like hey number one is is always our vision just for the cool factor is like what if you can make real estate like truly liquid but the real second thing was talking to the actual

people and users you realize this is truly something that people want like regardless of whether they take advantage of it right like lots of people buy index funds and don't sell for like decades at this point right but just the idea that like they could is really important for them and so that's sort of our aha moment and when we realize that we kind of realize this is something that's going to be really difficult technically to build that would work financially for everyone and you know it would deliver the results we wanted to deliver for our users it would be really challenging but given the massive payout how big of a game changer this would be it was worth the investment knowing that it's something

that our users really wanted so that's kind of how we bet pretty much everything on this and when you say you bet everything you mean you from a resource allocation perspective from a like business priorities and business objectives perspective you bet the house it sounds like you put everything into building this which I'm sure took engineering wise and technically quite a bit of time and effort and yes you didn't you didn't know because there's no you're the first there's no one else doing this so is it going to work let's talk a little bit about how's it gone so far it's been just over a month I think about 40 45 days that this has been live and Market what have the results been like yeah I

mean it's basically met or exceeded our wildest expectations in pretty much every way imaginable so for the record every property will have its own liquidity pool right and so there's over I think 140 properties on the platform at this point technically we've tokenized even more but some have been sold like it's it's a market like the owners that voted to sell the properties and and you know take profit or cut their losses whatever uh the situation may be and so live on the market we have probably around 140 So eventually every property there'll be 140 pools I think at this point we've only launch or rolled out you know maybe 20 of them roughly give or take and we've already had over half a million dollars locked in you know total value locked in there

we facilitated I think all combined maybe half a million dollars worth of liquid orders of of money exchanging hands amongst all the properties that have the pool so far and again this is a small fraction of our marketplace right now so our biggest goal right now at focus is to keep innovating and building the technology because no matter what you do no matter how much you understand your users when you actually launch something in people start using it there's always little things you get wrong people like oh well this is a little confusing or like you know the UI here like doesn't really make sense so there's always improvements to be made so our biggest goal is to to do that but at the same time just launch all the remaining pools um as quickly as

possible and once we do you know it's again I think it's a game Cher for anyone interested in in investing and buying real estate but financially speaking also and this will come as a shock to a lot of people who are familiar with crypto companies and web3 companies is that even before I roll out all the pools maybe if we're just 50% saturated we would independently be profitable like this is like funding wise like this the company would be able to stand on its own two feet very very easily so that is financially really exciting for us but the goal long term really is to expand the technology so that it's not just for investors my hope is one day when you're buying your

actual home to live in with your family or selling it this is the technology that's underneath it and how you end up doing the transaction but instead of having co-owners and sharing the ownership you would just Own 100% of it you would just transact 100% of it that is the the end goal I want to talk a little bit about how you guys have set up this automated Market maker or as you're calling it a proactive Market maker and liquidity pools want to talk a little bit about the setup up and how our listeners could get involved and lend or stake their assets and what that sort of looks like and how that works so we can explain that but I do love we'll

come we'll come around to the overall vision of putting all homes on chain uh because I love that overall Vision so much that comes from that from a transparency transparency from a movement of information from access of the whole world really to this incredible asset class before we actually before jumping into explaining the how of the pmm and liquidity pools let's just take a step back here how big is the real estate asset Market as a whole and then maybe can you give us an idea of if if there's like sort of segments within that that you are targeting so we can sort of scope I mean

you said five 500,000 right now is really small compared to the entire real estate market yeah yeah absolutely the $500,000 value is really meant to illustrate the Boost in trading and the liquidity and lock so I think I should have provided a reference point which was prior to this with our existing secondary Market you could still buy and sell tokens peer-to-peer with other people the issue was people wouldn't agree on the price so someone might say like I want to sell it for $50 and someone wants comes and says I'll buy for $40 and then those two orders just never go through because people are Anonymous there's no way to discuss it and be like hey you know let's get to a better price but in reality if there was

a market price at the center right where it's like hey would you guys be willing to buy and sell at $45 you know both party would yeah I'll go up$ five other ones like I'll come down five right and that's that's an efficient market and so prior to the launch of the market makers we were doing maybe a quarter million dollars in monthly volume from these secondary yeah from the secondary market so we're basically essentially doing double that on a monthly basis with just 20 pools launched from the market orders that's really sort of the illustrations like like you know you see that Improvement and change so there's that first but overall I mean what I pitch investors is you know they typically always tell you

like hey talk about the market size how big could this really get and for real estate I almost don't really even talk about it it seems a little unnecessary because it's universally known that it's just so large it is by far the largest asset class the largest value sort of Maintenance and creation engine not just here in the country in the US but around the world like if you analyze the world economy a dis a disproportional size of that is actually just real estate so to give you some idea the US housing market in just single family homes that people are like buying to live in you know and ually is something like $40 trillion now just in this country yeah trillion not

billion trillion like one trillion is 1,000 billion so This Is 40 trillion so they excuse on some idea right then if you go into the submarket and that doesn't includ commercial properties right we're just talking about sing yeah just single family so if you add in commercial that's a whole another beast but within single family not everyone owns or buys houses just to live a lot of people use it as you know a lot of older folks use it as like a retirement vehicle like to get passive income and as an investment vehicle and so if you look at single family houses that are used as Investments now this is an estimate but the idea is roughly about like $ 1.5 trillion dollars worth of

transactional volume annually so this is like repeating so every year there's about $1.5 trillion dollar being exchanged hands here right not that total value of all the rental real estates that that exists just the amount that are actually transacting so that's how large that market is so really a lot of times it's like you know most people start a business and they say well the market sizes in the hundreds of millions are the low billions and this case it's almost like it's too big it's almost not worth talking about it's more like can you actually capture even a tiny percent of this Market realistically speaking right our goal is that buying and selling real estate lofty and also even the intern period when you're just

managing it and you're holding it right this entire process will be so much better and more enjoyable on lofty that eventually at some point it just doesn't make sense to not do it on lofty anymore and the goal is really to like take that entire $ 1.5 trillion dollar market just like you have no reason not to do it on our market and that's the end goal and that's hopefully how this how big this gets I I love it I love that line it's giving me like Elon Musk Vibes not to Pub your tires too much and put you next to Elon Musk I know that would bug me if anybody did that to me but his view it will become a time where it doesn't make sense not to drive an electric vehicle so he went all in and he's he's built

that and you're saying the same thing there will be a time when it doesn't make sense and look I don't think you have to convince me or any of our listeners of this we're onchain Believers onchain Maxis so I think yeah I completely agree so okay let's go to a bit about how this works so you've created this pmm proactive Market maker incredible first time in history gives people this opportunity to buy and sell a house the same way they would buy Apple stock or Tesla stock to use Elon Musk example you know and we talked about previously all the challenges that are involved in that completely liquid market and how long it takes to achieve

a sale so how have you created this how are you making these liquidity pools who is contributing to this liquidity pools and what does that look like and I think what I'd love you to not just explain it but also maybe not Financial advice to our listeners but also explain it with the with sort of the angle of if our listeners are interested in participating in this what does that look like for them absolutely that's a great question so right off the bat like we didn't technically invent the proactive Market maker conceptually this is a wonderful thing about software blockchain no exception there's a lot of Open Source stuff out there and people really build on top of each other's knowledge and and it just makes it

easier and faster for people to build new things right and there's actually another they're decentralized exchange I think actually out out of Asia they're called dodo so they're the ones who actually came up to our best knowledge with the concept of the proactive Market maker right and conceptually the idea was that market makers have existed so they're typically referred to as amm so automated market makers but they typically all use the same fundamental mathematical algorithm known as the Conant product algorithm so they're pretty much it doesn't matter which Dex you're using doesn't matter you know which chain you're on they all work mathematically the same way right and so if you look at a lot of these um dexes and how things have trade in liquidity

pools and before you'll notice that there are some like major flaws there's usually extreme High volatility and that is a byproduct of just how the math works there are severe limitations on how staking works because traditionally speaking with these pools you have to kind of stake both sides right so even when they say you can stake single sided what they're actually doing is they're taking your your funds and they're selling half and buying half of the other pools so from a user experience it feels like your one side is staking but practically speaking you are staking both sides right and there's also a issue of like sort of capital Flight Risk where everyone is always a little anxious because who wants to be the last

person in the pool you're left holding all the bay you know and and really which is the way cryptocurrencies work if they don't have fundamental like real assets backing it they can theoretically go to zero so that's just always in people's mind and so it creates a lot of these sometimes Panic moments you know Capital flights and that messes with the algorithms more and makes prices even more volatile so it it it's why there's all these early adopters but like no mainstream adoption because let's face it that's a bad user experience like you don't want your grandma dealing with that like you don't you know you don't want your high school teacher to deal with that like it's not something that the everyday people would enjoy using and they truly can you know really get

financially wrecked by by that and so dodo's whole idea was what if you copied if you built an algorithm that copied more of what a traditional Market maker in the stock market would do right so Market making isn't unique crypto the only reason you're actually able to buy and sell Apple shares so quickly and so liquid right like feels like it's immediate is because they're these market makers that's all day long doing nothing but constantly buying and selling shares of apple right like and so you're not really trading with another person in their in front of their computer as an individual you're usually trading with the market maker and so over many decades like these market makers have developed very efficient ways to do Market making and

provide liquidity where it's needed the most and the traditional cost and product algorithms don't actually mimic that so they provide liquidity but they're very inefficient at how they allocate that liquidity right and so dota's idea was basically like what if you know you could come up with a mathemat new algorithm that more closely mimics what these traditional market makers did and therefore it's more efficient lower volatility provides the bulk of the liquidity where you know the price actually makes sense and and so pushes more people to transact at that sort of fair market value so that was really their idea but they still built it number one is on a different chain waties built on algorith

so they built this I believe on ethereum and so different chain and they're using it again against mostly cryptocurrencies right so when we found this we're like this is exactly what we were looking for because we know we're building this and taking the concept of amm into real world assets and it doesn't make sense and it's not going to be a good experience for people if you're on like you know a minute or hour you know basis right like that's that's going to cause a lot of headaches for people and so we were looking for something outside of the traditional algorithm and when we found this we're like hey this is sort of perfect conceptually for what we're doing but because it was on a different chain and because it was still buil to be used for cryptocurrencies we had to

make a lot of our own adaptation so that it actually works with you know real estate assets it works with tokens that need you know need the owners to be kyc and things like that so that's where a lot of the the work happened but at a very high level you know what what this pool and the amm does is that there's now a market maker instead of a company it's now an algorithm and is buying and selling tokens of a specific property and that supply and demand of trading with the sparket maker generates a liquid spot market price so before you had to set your own price right like in my example you know what do I sell at what do I buy at now you just come and it will just quote you a price like you would see like oh this is what a share

of Apple is worth today like and then you all you have to decide is am I okay with that price am I willing to buy and sell at that price and if the answer is yes you just click a button and it will just go through at that price right and you know the unique thing here is where mechanically speaking is this Market maker getting the assets needed to make these traits well that's where the liquidity pool comes in right so I think the best way to think about deposits of two different types of assets so one side is the property token so the ownership in the property the equity ownership and then the other side is usdc so money or like dollars if you will right and the AMF is basically borrowing the to make these Market trades with other people so it's using

the tokens and selling them to other people that want to buy it and it's using the usdc to buy tokens when other people want them it goes through instantly and so it's a phenomenal experience that there's nothing in real estate that matches that and so guess what you have to pay a premium for it and lots of people are perfectly fine paying that for everyone using a market order they have to pay an additional 2.5% fee per transaction on both sides buyer and sellers but instead of that money coming to us as a company at lofty that money is the revenue earned by the algorithm and being that is not a person or a company it doesn't need money so what it does is it passes 100% of those trading fees and Revenue back to the people who staked assets into this

liquidity pool and that is where the yield is generated from and and earned so you can stake now ownership in real estate you can also these are truly one-sided staking because that's what this um new algorithm allows uh so you can stake just the property tokens you can stake just usdc and for the very first time if you just want to stake usdc you don't even need a lofty account you don't even need a kyc account you can just get a third party wallet connected to the portal and stake usdc if that's what you want to do or you know you can stake both sides if if that's what you want to do and essentially now it allows folks who enjoy staking to stake against a real world asset and a real world business

activity so these yields aren't being paid out of thin air from like a token that repeatedly mints new tokens and that's really more dilution and not actual Revenue whereas this is real money like Revenue being generated from a business activity um and so you can imagine the more trading that happens and the lower liquidity the higher the yield being advertised right by the pool and that incentivizes people to deposit more money into the pool uh and then when there's too much liquidity too much money and not enough trading the yield is going to be really low and that incentivizes people to say like I can get better rates elsewhere and they pull money out so it's this really sort of clever unique way to achieve equilibrium where it diverts capital where it's most

needed diverse liquidity where it's most needed and it's really bridging two markets together like combining the real estate market with the liquidity and yield chasing uh of the web 3 market and and connecting them for the first time and unlike a lot of the traditional crypto liquidity pools these are backed by real assets and so you will never really realistically speaking get to a point where it goes to zero like the properties can decrease in value but there's insurance policies on them so if they're destroyed by someone like hurricane like you usually get an insurance payal and then on top of that you worst case scenario there's typically a a land underneath the

property that is zoned for single family housing right and Zoning is like a big problem so it's like properly zoned and everything and so people will find Value in that so again it can go down in value but it never really real estate that's one of the benefits it never really goes to zero and for the first time that sort of security and safety you can actually benefit from by staking and doing like a web 3 activity so that's really kind of how you can interact with the new features you can be pure real estate person who cares who doesn't even understand what the hell is staking and liquidity but now you just know that like hey wow like I can buy and sell real estate like instantly and and that's a really good experience for me and I'm happy to pay for that experience

or you could be on the other side and be like I just want to Stak I I want nothing to do with real estate or properties you can just stti usdc into the pools if you want or you could be like some of our users interested in real estate but also web 3 Savvy and they do a mixture of both they both invest in real estate using the market makers but at the same time they also stake in certain pools to really like boost their returns um on idle cash that they have so that's really kind of how all that works at a high level and how people can interact and take advantage of it it's amazing the opportunities that are presented by blockchain for the average Joe to get involved in things like like Market Mak right this didn't

exist before lofty I mean you could you could go Defi and get involved in liquidity pools and put your assets up and then take yield a result of that but as you said there's a lot of risk associated with that because you're investing in cryptocurrency tokens which what is the business behind that and how safe is that asset right whereas here you're providing liquidity for Real Estate with which is much more stable I mean I don't even think we need to get into that discussion one question so I'm on am. lofty. which is the new liquidity pool Marketplace we'll put that link in the show notes so we can go check it out so you guys can see what this is like so

if I'm looking at this right now I've got it up on my screen and as you said each property has its own pool so I'm looking at the top property which is 1339 East uh 115th Street so that's clearly a house that's I can't tell exactly where that house is but find it on Google Maps like a real thing that you can look up yeah right and I can see the total value locked for this house is $14,000 and then it shows me average 7day apy and this is where my question is it says it breaks it down by apy for property tokens or for usdc because as you said you can either lend or Stak property tokens or usdc but the 7 apy listed here is 104% for property tokens and almost seven 100% for usdc which is

an incredible apy a massive number yeah why is that number so massive how does that work yeah absolutely that's a great question so number one right off the bat I will be very honest and transparent don't expect that apy that last for the entire year so you're very unlikely to actually realize that annualize yield of you know 700% but what that really is saying is that you know when a pool is first launched there's typically not a lot of liquidity in it yet you know it needs to take time and then for people to to trct the liquidity for people to deposit it and so for the very first people that like put money in when trades happen especially if there's a lot of Trades like some people have been waiting two years to sell out of a

property right so there's sometime like this pent up demand or Supply or whatever is the case so you combine low liquidity with high trading volume and it's just mathematical like the denominator is low and the numerator is really high so you end up with a really high sort of fee gen generative as a percentage sort of Roi on your your capital and then that is that one day's worth of yield and then that's annualized so basically the last seven days of that yield is averaged out so it's a weekly yield and then annualized for you and so the idea is if liquidity stays this way and if trading volume stays this way for the entire year then you will actually realize that annual yield right but realistically because

the yield is so high incentivizes people to put more money because they're like I want to cut of that action right and what ends up happening is by having a larger denominator at the bottom your your yield just naturally even if trading fees stay consistent ends up you know having lower lower yield annualized so that's right off the bat but with that said if you time it right and you know this is riskier so I will disclose that but for folks that have the time and and have the sort of gots to do this if you are in very early you can often take advantage of this really high yield very effectively because you're not going to get 700% but even when you convert that to a daily yield a lot of people make like one to two% within like

the first three four days right like literally just raw Returns on your money like and if you do this enough times like you are actually getting oftentimes High double digit yield for the whole year on your money which you realistically and there's no instrument that gives you that kind of returns so there's a way to take opportunity of that then the second thing is liquidity in these pools are are very interesting because unlike other traditional pools you actually don't need too much liquidity right so if you think about it for a given property we've seen the data shows that roughly about like 20% of it might be floating meaning at any given point in time like maximum like around

20% of the supply is constantly changing hand right the remaining owners the remaining 80% are really in there for the law haul like people were just holding for at least a couple years right and so then if you look at the price of these properties some of them are like $100,000 or $200,000 So 20% you know is 20,000 $40,000 that's not that much and that's pretty much all the liquidity like maximum you need in the pool right even lower liquidity than that it would still function pretty well most of the time right and so the way liquidity Works in general is just different because you just don't e that much so your denominator can actually stay relatively low and and that's perfectly fine normally speaking whereas you know if you look at a Bitcoin pool

or ethereum pool and and there's only like 60k worth of liquidity in it like oh that pool is terrible I don't want to touch it but in this case that could be like a really good liquidity pool for for Real Estate right because it's for that property specifically um so that's one then the other one is consistently like if you scroll down to the bottom of the pages you'll see the the pools that have stabilized more that were launched earlier like you know last December of last year they're still doing pretty good like the yields there are are pretty pretty good right like compared to Alternative assets you could put money into and the reason for that is because typically in web 3 in defi dexes people really hate fees or just trading

fees in general so it's more standard to maybe get 10 basis points 25 basis points per trade maximum off of a trade in those markets anything higher people would just leave your decks and go to a different one right but here's the funny thing like real estate people are very used to paying high fees they don't like it but if you're telling them hey instead of a 6% agent fee you pay 2.5% to to like trade instantly like sell out instantly or buy instantly they' be like hell yeah like that's a great deal right like I love it but if you think about it 2.5% that's 250 basis points you're talking about on average like 10 times more per trade in terms of Revenue gener at it compared to decks and so that is

why consistently you probably will actually see higher yields for the pools on lofty than you would see elsewhere yeah that makes sense Okay so we've talked Lots about this liquidity pool and the opportunities to invest in this either as a provider to the liquidity pool in order to grab yield or as a buyer or seller on either side and what's interesting is hadn't even thought about this is as you said there is a moment in time when any of these liquidity pools are launched because let's say that the owners of a property purchased it on lofty I don't know a few years ago and they've decided that they

want out but right now the only way for them to get out is if they either have to sell it on the secondary Market which as you said is very inefficient and difficult to do or they have to convince every bu in their Dow and their every the% you know of the voting power so super majority but yes they would have to convince other members of the Dow to just sell the house on the open right which is not probably not likely and difficult to do especially as as you said most of these investors are more long-term investors so what is happening is there's this moment in time where all of a sudden there's this opening of a liquidity pool oh wow I can buy I can sell out of this property and there's a

great opportunity at that moment for the liquidity pool providers to capture higher yield because of as you said of the calculation so it's very interesting unique opportunity as you mentioned not not Financial advice and also would take consistent effort to track all of this this is not passive investing where you could because each liquidity pool is for its own house you'd have to watch this so probably not for for everybody but a great opportunity I think before we wrap up on liquidity pools and I want to move over to more the initial phase which we haven't talked about today we talked about it last year but I want to revisit that of the first time a house is basically fractionalized and purchased

on lofty because that is just also so powerful you guys have built there but before we get there I think for our listeners if you are the type of person that wants to take some Capital that you have sitting around and capture some Yi build on that there is opportuni to get involved in liquidity pools and I think for a lot of our listeners you might not be involved in liquidity pools right now because you weren't so confident in Defi and in your ability to understand how to get involved in those and which tokens to provide liquidity for because you're unsure of the stability of those tokens which is totally fair but now with lofty you have this unique opportunity to provide liquidity for real estate and

that's pretty cool I think incredible what you guys have have done here that really democratizes the opportunity for the average person to get involved in a way that was not possible absolutely but again it it is a lot of work you need to read things understand how they work research I was actually talking to a user earlier this morning he said you know it's funny he kind of brought out the same thing is like you know I kind of love you and hate you at the same time Jerry like you you created a new way for me to make money so I love you for that but now I also have to do so much extra work to like do this I was like right which like that's why you didn't start a fund where it's past investing you know you built a Marketplace that is going to allow lots

of people to get involved in many ways but D do your own research do your own effort it's on you not on the lofty team to tell you what to do and how to manage your liquidity pools let's go to to the other side of the product here and let's just talk a little bit about how outside of the liquidity pools I guess you would call this like what do you call this like primary buying or the first time a house is basically tokenized and brought on chain how does lofty do that what does that look like because I think that's an important thing for really for all of our users to understand around it's not just real estate it's the way that real world

assets and this you know I Larry thinkink said this a few weeks ago Jamie Diamond has talked about this so many of the tradire world is using the term tokenization of real world assets it is the trend that we are going to see a lot in the coming you know years decades because there is so much potential and Improvement of the management of assets when you bring them on chain let's talk about what lofty does on that side absolutely so the way you think about lofty and and mechanically how it works is we're just a real estate Marketplace so you think about how it works today is there's the MLS right right and so the vast majority of homes whether it's for rental properties or for homes for sale

for people to live in are listed on this sort of marketpl and that's how buyers and sellers find each other and that's how you find inventory and that eventually leads to transactions right so think of us as sort of an alternative to the MLS and in addition to just sourcing the property you can transact and settle on it directly right and so that's essentially what's happening you can essentially people have heard of this before I'm sure but you can do these like for sale by owner listings right like where you you don't involve an agent you maybe don't even use the MLS you just list your house for sale it's yours you have the right to sell it and so essentially you're kind of doing something similar here on lofty which is we're a Marketplace we never own any of

the properties we don't buy it ourselves we don't manage it we don't control it but we offer this platform where anyone can come and list house for sale or property for sale right it doesn't even have to be a house it could be you know quadplex a dup it could be a small commercial there's a commercial strip mall off to you right now with really MD Donald's one of the tenants yeah like that's that's one of the properties they're kind of all over the place there airbnbs like short-term rentals there's long-term rentals and and so it's just a platform but it can sort of list any type of real estate assets realistically speaking and the seller just says I have an interest I want to sell it on this Market instead of alternatively on another market right and what we do for them is we basically you know help them

convert their ownership into a dow LLC so basically they legally there's this Dow decentralized autonomous organization it's a legal entity so it can legally own the D to the property and then we give them all the tokens so they're 100% owner in the Dow initially then they just list the proper like we list the property on the platform for them and then they just list their tokens for sale right and then they can sell anywhere from you know 10% all the way up to 100% % of the property so it's extremely flexible like if you want to you can sell like 21.9% of your house like that's easy so we have sellers for a variety of reasons some people are looking to sort of like do a helck model

right unlocking liquidity from their Equity ownership there are ones that are doing like lease back they're like older people and they basically are getting close to retiring and they have all this money trapped in the house so they're basically selling the equity and then they just pay rent to keep staying there but now you know they have a huge amount of like Capital that they freed up that they can enjoy and use for for you know their retirement so we have those and then we have folks that are just using this to sort of grow a portfolio like they would invest in a property you know get it ready get a cash flowing on Airbnb they would sell a portion on lofty that would free up a certain amount of capital then they use that to buy another property and they just keep doing this and they

can like you know maybe normally by themselves they would be able to get you know five proper properties in five years but doing it through this way on lofty they can get five properties in one year right and then kind of grow their portfolio that way so you have folks doing all this so that's all it is is a Marketplace and people can come and they see all these different properties like a buyer and you just say I like this one so I will buy with this one I don't like that one so I won't buy that one right and you just do your own research do your own diligence decide what makes sense to you and you can buy ownership in these properties and then you collectively manage right so you're essentially having co-owners which actually a lot of people mentally think this is like a big leap and jump and

that's so different from the real estate market but it's actually not because real estate is so expensive the vast majority of people typically own it with other people now it's just a lot of times in the real world you know you can't trust random strangers so you own it with like family and friends and colleagues right like people you know really well whereas on lofty because of the mechanisms and the code and how smart contracts are enforced you don't need to know who these people are you're incentives are aligned you're all here to hopefully succeed on your investment and make more money and you're you know protected from each other so you don't need to know who these people are and then you just now collectively manage it with these other random people as opposed to spouse or or a friend or you know family member but the rough idea is

exactly the same where you have multiple owners of a house and they can they control the house as their house they do whatever they want sometimes they do short-term rental sometimes that doesn't work out so they convert it to a long-term rental right like you can vote on anything under the sun as long as it's legal and you can do all that within and on the platform so that's really how lofty Works in show and really you know if you think about as you said it's very common to invest in real estate with a small group of friends and family and right now that also is a very cumbersome process of you're investing with friends and family

most most likely none of you are lawyers so any of the decisions that you want to make are probably there's no system set up around voting there's no way to vote so using lofty it's almost like if if I were to go buy a house with friends and family I think I'd be like hey let's just do this on lofty so that we get the benefits of the Dow LLC set up for us get the we get the usage of tokens to represent our ownership usage of tokens to represent our votes it's just a better management system for owning and absolutely investment property it's economically beneficial in many ways as

well because you benefit from economies of scale so for example in many cases people who do this with friends and family still hire a property manager because everyone's got their own full-time job so they you know not always one person's full-time jobs to manage the property so they hire a professional property manager but but if you did this on lofty because there's so many different units of properties like you might only own one unit collectively together but there's hundreds of other ones on the platform so collectively the property managers that service properties on lofty Grant bulk discounts because they're managing 100 units instead of one unit so they're like okay instead of charging you 10% I will charge 5% to manage all 100 units right so you as an individual or Collective

benefits from that lower property manager rate if you were to go to the same company and put a property with them you would pay more on your own outside of lofty same thing with the insurance policy so every property has Insurance again we don't select it we don't pay for it like the owners do it themselves but again the insurance provider and like oh wow I just sell at this one business and like one access I don't do 500 different sales calls but I basically get to do all of these policies potentially yeah they give a big discount than if you were to go out and buy one policy yourself right so you actually benefit economically from these as well so that's why I said earlier like the goal is to build this in such a way where the buying the actual holding and managing portion and ultimately the

selling portion is just so much better than the alternative if you're doing this on your own like outside without lofty that the answer ends up just becoming like why don't I like of course I would just do this on lofty it's just easier right and so that that is ultimately the end goal and so right now like we actually have a promotion going on where if you refer someone who has a property that they want to sell too lofty and we end up listing that property right you actually get a you know cash referral bonus so that's something interesting that folks might want to take advantage of we have people doing heat locks selling their primary residences it's a very flexible platform it's ultimately at the end of the day is for people that want to sell ownership in real estate and there's a lot of

those people yeah it's fascinating I don't envy your job right now because even in what you just talked about there my mind starts to go to an onchain identity system for Real Estate Investors where a insurance provider can be linked up with them and say hey I can recognize that you're a good you're a great real estate investor okay I'm G to give you discounts on insurance or I'm GNA give you uh oh you manage your properties well I'm going to give you disc like there's so many ways that you could take lofty what's the the road map what's the next I don't know how far Advance you guys think things change so fast in this space what's the future

look like for lofty yeah I mean you know our goal is we're always going to iterate and improve the platform for our existing users and so it's kind of funny to say but it's like lofty is always the worst version of itself like if you join right now today it's always going to be worse than it is like 10 days later like we're always making things better right right so it's like like a very funny thing to actually kind of think about but we basically look at the existing real estate market like our goal wasn't to create this new thing that was so drastically different and create a lot of barriers people have to be educated in different ways to understand how it works the idea was literally to take what already exists and just remove the components that you don't like about it

like the annoying aspects of real estate and then keep all the things that people do like about it which is the freedom to buy and sell whenever you want to the freedom to choose your own asss right because it's it's not a fund where you just give money and other people decide how to allocate it for you you get to do it yourself and keep all that sort of the pros and then remove all the cons so that's really long-term Vision what LOF is doing so we're right now going for feature completion which means that we kind of built these things iteratively like one thing at a time first you could just buy real estate very easily but you couldn't really sell easily right and then it's like well now you have a a market where you can sell peer-to-peer but liquidity wasn't good so now you can

you have a marketplace where you can sell instantly so you have really good liquidity plus all staking and all these things to to additionally earn income if you want to the next missing piece is the loan portion right so like people can get mortgages in the traditional market and that's again one of the really beneficial things of real estate is the ability to leverage up so easily like no one else like you it's very hard for you to go to your stock broker and be like I want to buy a million dollars worth of Tesla shares like lend me 80% of that and I'll just put down 20% again you know that's really difficult but in real estate that is essentially the norm and in many cases with special programs you can go even lower than that like you could put 0% down you could put 5% down

right and then on top of that your mortgage payments are usually tax deductible as well and so again like a lot of like these benefits are really compound that's what really gets you most of your returns in real estate it's not the raw number of return you're looking at is what's your take-home number post taxes right and real estate has one of the best sort of after tax return essentially and so one of the things we're going to do now is essentially sort of like decentralize synthetic mortgages if you will where someone can come and say right because if you leverage up the underlying property it is actually risky because you know what if tenna is not paying but you still have to pay morgage and it affects everyone in the doubt right

because the underlying property is levered up well we thought like what if you could Silo away risk so that people don't impact each other with their risk profiles right and so you can imagine the property is always bought in cash but you know someone could say hey I'm conservative and so I'll buy $500 worth of tokens in cash and then that's it and you know whatever happens happens but then someone else would come and say I'm also going to buy $500 worth of tokens but I'm only going to put up a $100 I want to borrow the remaining 400 right so now this person is essentially has a mortgage on their ownership in this specific property but the mortgage is sort of like on the tokens not on the underlying house and so if they were to

default and they couldn't pay right the whoever was a lender would just claw back that $500 worth of tokens and then now can liquidate it instantly on an open market with a very transparent price so ahead of time it makes it easier to underwrite as well like how how much should I be able to lend you know you can look at the volatility and the price to determine that and then when this person gets liquidated it doesn't affect any of the other members in the doubt if other people are are leveraged up and they're paying on time that's fine and people who pay with their tokens and cash they're totally fine you never have to worry about a scenario where like oh Panic we have to panic sell the house right as as a new and so that's sort of the next next big feature and then at that point we're

basically feature complete like think about what you can do in the real estate market everything you can do there you can can out do on lofty but better and and is it going to be a better experience for you and that's kind of the state we want to get into I love it I want to uh take that line everything you can do in real estate you can do on lofty but better that perfectly sums up this episode and everything that's possible on lofty I want to couple of points that you brought up during the show we're going to put a link in the show notes for everybody to the liquidity tools on lofty if you want to check those out if you want to stake your usdc you don't have to kyc you can

just go stake your usdc you don't even have to be invested in any properties on lofty and you can take yield so you guys can check that out we'll put that link in we'll also put the link you mentioned Jerry of your current promotion for anybody uh that refers the seller of a house they can get a referral fee so we'll put a link to that in the show notes as well Jerry anything else you want to draw our listeners attention to or you think they should check out yeah I mean before you do anything you have a very powerful and concise learn Center so you can go through how taxes work how to the you know what does it mean when I own properties what is a d LLC how does staking work you know like literally everything under the sun if you want to

spend like enough time on it you can really get to know the platform so I would you know heavily recommend everyone kind of check that out at least you know just for the component if you're just interested in staking at least read that component um before you get started think of it as a tutorial that both tells you how to do it and then also explains to you like how how it actually works so you have a better understanding and yeah everyone can lofty is accessible to everyone but um as far as staking is concerned we don't kyc if you don't want a lofty account for usdc staking but only if you're from non-sanctioned countries so unfortunately if you're from a country that's been sanctioned by the United States we're us-based company so we can't service you and you know again

we're based here in the country we have every intention to grow and stay within this country so we take the regulations very seriously so that's the only thing to note as well okay great okay before we wrap speed round couple of fun questions for you Jerry what is a mustre book that you find yourself telling people about that's a good question I think is that book about the PayPal story founding story that's called the founders I highly highly recommend that book to to everyone even if you're not into startups even if you're not running a business I think it's just such a crazy interesting Journey how that company was created and ended up where it was and then subsequently what

happened to the early not just Founders but like early employees like low-level employees like there's a term called the PayPal Mafia which is statistically speaking was very odd but like a very high percentage of people that worked at PayPal in the early days ended up becoming incredibly successful uh in their own like they left the company after it was sold to do their own companies and things like that but I don't think people realize how crazy running a company and just having it like grow and ser like really is and I don't know their their story I wouldn't say it's exaggerated I would just say it's probably on the more extreme side and probably not the norm of every business but I think if people just read

it it's just such an interesting read and will just open your mind to what is possible when you run and and try to create a new business in a space that's heavily regulated with you know new technology and new use case that didn't really exist before yeah I I think it's just so fascinating and some of the stories are actually insane like you won't believe it until you read it yourself yeah to yeah it's a it's a great book great recommendation and it'll it'll help you understand what Elon Musk is doing with X and Twitter in my mind it really absolutely framed Elon for for me in terms of his what he wanted to do with PayPal before he was booted out and I think what his

intentions are for x and Twitter as well yeah absolutely and I think it helps frame the difficulty of doing a fastp startup you know in in a regulated space and so for me A lot of times when I run into you know issues and and problems that inevitably arises I always now having context of what happened at PayPal like oh this such a big deal know otherwise you you start to get really negative and think like you're just unlucky and the world is against you and like only bad things happen to you and not to other people but once you start reading a couple of these books you're just like oh yeah this happens to everyone I'm like are way way more unlucky than I am like I'm I don't have

the worst of it yeah yeah that's the uh the sin of the mind it only thinks selfishly about you in your life and it does not have that ability to put it in context of hey you're not the only one there's eight billion people in the world and everybody's having their challenges good reminder okay one more question before you WAP here Jerry I think we would have asked you this a year ago when you're on the show I'm sure you don't remember your answer to the question so we'll have to go back and see if you answer it the same way if you had a billboard that one billion people were going to see what would you write on it okay so my mentality for this you did ask me this question but my mentality for this has shifted quite a bit so we talked about this earlier at

the beginning is like I'm a I'm a new dad now so I have a three-month-old son and before at least I think people in my generation as a sort of halil and Millennial you you start reading about this in the mark media as well but like a lot of people are scared to have kids when you look at it there's all these logical reasons of like oh it's really expensive you know I want to you know make sure my finances are my place like now it's there's just like all these reasons and even amongst my friend group I'm the only one with a ch right now but I promise you I don't know if it's like biological something that gets activated but honestly it it's hard it requires work but it's not so hard there's some

level of like intuition when you become a parent of like you know before we were stressing out like oh you have to take classes to how to do this and read books on that and like all these things and you know what turns out I didn't need to do any of that stuff like I just knew naturally how to hold my baby in a safe way that they look like they're comfortable and they're secure and it just it just happens and so now I talk to a lot of my friends I'm like man like what are you waiting for like and the truth is I got advice that there's never a right time like when you're thinking about the perfect time to have kids turns out there's never actually a right time so you just end up never having kids and a lot of people don't realize

when you get older biologically it just becomes a lot harder to do like I have friends and and neighbors and and folks that they spend ton of money later trying to have kids and it's just and and like emotionally draining for them and it's just like yeah like honestly it's not actually such a good idea to wait so now I tell all my friends I'm like look as long as you're not about to become homeless or anything like that and you have zero support network in your life like yeah you probably you're at the right age where you should probably become parents that's my long-winded thing I would put on the billboard like there's never a right time and you know you should have kids if you want kids I was going to say is the bill word say make babies or something like that well you know you

don't want to force everyone into it but there's a lot of people that like want to do it but then they come up with all these reasons and excuses of why it's not a good idea and I think the con consensus is actually in very extreme rare scenarios it's pretty much a good idea you shouldn't delay it yeah yeah I I I've got to agree with that one also being a new dad and we both were chatting about this before we recorded today it's the best I don't know how else like yeah if you ask me how it's going I'm going to tell you about the challenges because I'm just a honest person and I don't like you know just saying everything's good I like being straight up about where I'm at and

there's a lot of challenges to a baby for sure especially in the early years because it's such an adjustment and such a change but it gives you an energy every time I come home from work and I mean I work in my backyard so it's funny to say I come home from work but I I walk in and I see my son and I feel a million bucks it's yeah the only thing I can like into is if you have a dog and you see your dog and every time you see your dog his Tails wagging like crazy so excited to see you like imagine that times a thousand that's what it's like every time you see your kid it's the best absolutely best like even when I'm having the worst day if I just like sometimes walk by and like I see my son

and he just like looks at me and smiles I'm like okay I'm not so like I'm not sad anymore yeah okay so buy houses on chain and make babies that's the title for to that is the advice and only gift I can provide Jerry always a pleasure to have you on the show thanks so much for the time shout out to you and the whole team for what you guys are building at lofty really excited to follow along hope our listeners will take advantage opportunity to get involved in real estate if they're not already lofty is a great place to do it thanks for the time today thank you for having me back again again it's wonderful to be here again so appreciate the opportunity I'll pass on

the well wishes to our team they desperately need it after basically a year-long Sprint but now they're finally having you know a more relaxing time that's good that's good thanks so much for listening in everybody have a great day thank you for listening to web through Academy your one trusted source to capitalize on the next big phase of the internet if you enjoyed this episode please share it and subscribe or follow so that you don't miss the next one while you're at it there's a link in the description for our free newsletter where we provide timely and relevant web 3 insights so you can confidently build and invest in web 3 make sure to subscribe today one final note this podcast is for educational purposes only and nothing we say is financial advice

crypto and web3 are risky and you should never invest more than you're willing to lose thank you friends and see you in the next one