Rentvesting - Using Blockchain to Turn Rent into Ownership

Transcript

[Music] Perfect. Well, thank you everyone. Appreciate it. Uh, thanks everyone for joining today and it's been a great uh a great set of sessions thus far. Appreciate appreciate you all being here and uh yeah, happy happy ETH Boston. So, uh, as mentioned, I'm Seth. I'm here from Groma. uh and I'm here to talk about a very tactical use case of blockchain uh that we've been working on for a number of years and hopefully you all will get pretty excited about where we're rolling it out in beta uh really just now and it is a very specific use case of trying to use blockchain real estate uh decentralized finance to enable renters to turn rent from just being a monthly expense that they burn every month into a levered monthly investment. And we think that is

a really exciting thing and would do a lot of good for high expense cities like Boston and people all over the world. So we're we're trying to make it happen and I want to walk through a little bit of what's behind the scenes to try to build a financial product a DeFi tool like that. Um but first I know you've all been sitting all day. Uh thanks everyone for for for for joining us. And I figured a little bit of audience interaction. You're not going to have to do too much. So don't liber up all that all that far. But just a quick show of hands. Uh how many people in the audience today uh rent for the place that they live in? So maybe 40ish%. How many of you own uh the place you live in? Probably 50ish%.

Uh now the complicated question, how many of you own the place you live in? Sorry, rent the place you live in, but also own real estate beyond that. So we've got a few people here. Um I'm also in that boat. I'm a renter. I also own real estate actually via rent vesting. And our goal is to make it such that everybody who rents has the same ability to own real estate, own a bit of the city around them, own a bit of the world around them as people who leverage the mortgage or other financial instruments to own their home. Um, so if you're a homeowner, hopefully you'll find this presentation interesting. You can still use Groma in certain ways, but really this is built for the 100 million renters that exist across the US and the 40 50% of you uh here in the audience

today. uh some fun stats about why we're spending so much time and effort thinking about how to use blockchain, how to use DeFi to build a mortgage like tool for renters. And really, you know, this is the this is the money slide, so to speak. There's a hundred million renters in the United States, about 40% of the population. They spend $650 billion a year on rent, uh approaching a trillion dollars a year in rent, and they earn and build zero wealth by default. Um, unlike a mortgage, which can be viewed as an investment, renting is an expense every month. $650 billion, hundred million people, zero building wealth by default. Uh, and uh, I I dropped out of university, so I'm not an econ master, but I think the technical term for this situation is suboptimal.

Uh, if you're spending $650 billion a year and not building any wealth from it, uh, that's not ideal. And we want to use blockchain and rent vesting to try to solve that. How are we going to do that? uh has involved a couple of years of work uh a lot of investment in blockchain tech a lot of investment in actual real estate and real estate tech and I want to walk through here the smart contract uh that we call rent vesting that we're planning to roll out uh in the next couple of months uh but first uh as Jake had mentioned this is actually my third ETH Boston I'm a Boston uh Boston native don't let the accent fool you um I've spent a couple of years with my team a lot of whom are here as well building out the Groma ecosystem and and there's one really

important part of the Groma ecosystem that's worth highlighting before we dive into into rent vesting itself, which is what we actually do, which is we provide a a tool called the Gromacoin. It's like a stable coin, like a stable coin, not exactly a stable coin, but one that's backed by real estate. There's a lot of discussion in the last panel and throughout the day here about stable coins. A Groma coin is not fixed to the dollar, not backed by treasuries, but actually backed by underlying real estate. It's sort of a liquid form of real estate on chain. Hopefully something that drives appreciation yield over time. And the way Groma works is exceedingly simple. People can send their USDC, their Bitcoin, whatever they want to a Groma prime address. They get back Gromacoin. That's essentially a

share in a decentralized real estate trust that owns real real estate in the world, but the value of which is is locked on chain. Um, we've been working at this for three or four years. We've got about hund00 million dollars of physical real estate out in the real world, also owned by our holders on chain. Um, as you can tell from the slides, and ETH Boston, I like the color orange. So, if you see a small multif family building rolling around Boston with a bright orange door, there's a good chance that is part of Groma. And the Grocoin holders actually own part of that as well. The exciting thing that I want to talk about today is really not Gromocoin itself, but what you can do once you have liquid real estate on chain and a primary use case for that is rent vesting, a smart contract that combines

rent payments, uh, a sort of a trustable revenue stream, Gromacoin, liquid real estate on chain and leverage, uh, a little bit of debt. And the goal is to use those, combine those into a smart contract that gives renters a path to actually build real estate ownership, importantly without spending any more each month. uh people already spend plenty on rent. Uh we don't want to increase that, but we want to give them financial tools that exist uh in the same way that financial tools exist for for homeowners all across the country. The way rent vesting works is sort of a three-step process. And I'm going to walk through how it works and then I'll take a step back and walk through kind of why it works. So, how it works is uh let's say you're a renter. Uh you you know could just pay rent normally $2,500

a month, pay it to your landlord, live there for a month. In the rent vesting model, there's a few more steps. Uh, but it also offers, we hope, the potential for renters to to get a stake in the ecosystem around them and build wealth over time. The way it works for a rent investor is instead of paying their rent right away, uh, first they take that $2,500 and they actually invest it into real estate. They actually buy Groma coins. They purchase, let's say, $2,500 worth of liquid real estate on chain. We have bankers, and we actually have this live today in in limited beta. We have bankers behind the scenes who will lend to Gromma Cororp and and thus to our renters secured by that real estate on chain sort of a DeFi transaction the $2500 that gets paid to the property and

that covers their their rent for that month. Um at this point they've done two things. Uh one is they've bought real estate. The second is they've levered it, borrowed against it and used that to pay their monthly rent. And it's a it's a net zero transaction thus far. You've got $2,500 of value. You borrowed $2,500. Use that to pay your rent. What happens in following months gets interesting. Real estate has this really nice capacity to appreciate over time. And so the way rent vesting smart contract works is the renter can hold those coins, hold those shares for as long as they want and benefit from the appreciation over time. When they sell, the smart contract first pays back the amount of covered rent. So our bankers get paid back. Any excess is the renters to keep. And Groma is actually sitting

in the middle and eating a little bit of risk. So if the real estate happens to go down, Groma takes the loss, not the renter. A couple of important things have happened there. Uh one, uh rentvested shares, you know, Groma coins tend to produce yield. Uh real estate produces cash flow and it's that cash flow, those dividends that are actually covering the interest payment for our banks and keep them engaged and and willing to underwrite this this entire process. That is something that we hope to use uh DeFi and sort of DeFi lending protocols for over time. That's how the process works. To recap very very quickly, it's a multi-art smart contract. Uh a renter could rent normally. Instead, they rent vest. They take their monthly rent check. They buy Gro Mccoins with it. They stake those.

We have lending protocols to lend against them. That covers their rent. They get to keep the appreciation. If those real estate shares appreciate, the dividends cover the interest. Um, it's in many ways like a mortgage, but a mortgage where we've split apart the key components and and reimagined it so that a renter can step into real estate and benefit from appreciation. A banker can do their normal thing of banking uh and we can enable our renters and others to actually get a stake in their community over time using a little bit of uh financial engineering and a little bit of blockchain uh to make it all happen.

Why does it work behind the scenes and what are people sort of believing to make this happen? Well, there's three different parties involved in the smart contract. The renter, broma sitting in the middle, and the lender. As a renter, if you rent vest, you're making a bet that real estate will appreciate over time, right? If appreciation is greater than zero, the renter when they sell their Groma coins, uh, ends up with a with a net equity benefit, ends up with value that's been created. Um, if it goes down, they end up basically at neutral, uh, paying rent each month, just like they normally did. The lender on the other side is making the simplest bet. uh they're just betting that they're going to get paid uh their interest. Um Groma coins tend to produce dividends that covers the interest.

Groma is sitting in the middle guaranteeing that in case there's a shortfall in any given month. So the banker bankers are not the most adventurous people. They're making the simplest bet in the equation. And over time, we expect that funding source to come from uh from from sort of stable coin lending on chain. And really those stable coin lenders are making the bet that they get paid the interest that's been promised. Groma sits in the middle and sort of guarantees all this in a slightly more complicated bet. Uh we are making the statement that we think the dividends produced by Gromacoin by real estate shares will be greater than interest. Otherwise, we're sitting in the middle covering uh covering that loss and that over time appreciation of real estate in dollar terms will be greater than zero. Otherwise, again, we're we're in a position where we have

to cover that. That is a complicated bet. Uh but it is a reasonable bet. Uh, I'll talk about this in a little more detail on on a later slide, but a fundamental principle of of real estate investing. I know we're in a crypto conference, but but many of you may also be real estate people. A fundamental principle there is that you want to be buying real estate where dividends are greater than your cost of borrowing and you hope it goes up over time. So, these are important concepts, important bets for us to be placing, but reasonable within the scope of things people do uh in the real estate space to to try to to make money off real estate. And we want to bring that onchain and make it available for renters so they can step into it uh each month and build wealth over time. There's a lot of steps to

rent vesting. Um and there are lots of things in crypto that can be, you know, make money overnight or potentially lose money overnight. Um we like to position rent vesting as a a turn of phrase I'm not sure we've coined ourselves. Probably others have used it, but it's a get-rich slow scheme. uh there is no way for uh this uh Gromacoin or rent investors to you know 10x or 100x their holdings overnight. But what stepping into real estate ownership over time has the potential to do and has done for 100 million homeowners in America but not done for 100 million renters is build wealth, build equity over time. Um we have rent vesters in the ecosystem today. Uh and as this projects forward, uh what we think this can mean for, you know, renters in the grome ecosystem in

in in any property over time is the ability to turn their monthly rent from just being an expense every month into something that represents ownership in real estate. If real estate appreciates in this model 5% a year over five years of renting instead of walking away with zero uh you're walking away with a net equity of 1516,000 which isn't going to make you a millionaire overnight but it does index you into the city around you into owning real estate and starts to enable people to build wealth and build equity in real estate uh much much earlier in their career than they otherwise might be able to. We view that as a real net good for society and a very pragmatic use of blockchain to make all this happen.

Wrapping up uh you know in in about a minute or two here and then I'll I'll leave any time for questions if folks uh want want to dive deeper. Um we view rentvesting as one of we hope the formative real world use cases for blockchain. a way for us to, you know, take this incredible technology that lets people democratize access to ownership, move money around, move value around in really creative ways, and achieve three things that we think are going to help onboard millions of people into the blockchain ecosystem over the next couple of years. Um, three very cool use cases or three very cool components of it. Uh, smart contracts make it feasible for us to take a transaction as complicated as rent vesting, which is about as complicated as a mortgage, and encode all that into

a smart contract we're building on the Ethereum platform on Ethereum that enables us to keep all of those parties in sync and keep those transactions flowing smoothly. Um, we need debt to make all of this work and there are lots of stable coin holders who want yield. uh why not deposit your stable coins into a rentvesting lending contract so that you're earning your four 5% yield but also facilitating a transaction that enables renters to actually buy into their ecosystem and build real estate wealth over time. And for millions of renters who probably aren't here at this conference, uh they they you know should be and will be introduced to blockchain over the coming years. And we view this as a way for us to take blockchain, which can be a little bit of an abstract concept, and deliver something that

really matters to them, a way for them to stop just burning their rent money every month, and turn that into something that is actually an investment, buying them into the ecosystem around them. Uh we view this as a really big win for everybody involved. Uh renters uh can finally get a path to building ownership without spending any more each month. If you're a renter in the audience, hopefully that resonates with you. I'm a renter. certainly resonates with me. Onchain lenders, uh, people holding stable coins get a new and value additive way to build yield and build, you know, their sort of expected return over time. And for Groma, uh, which is today about a hundred million dollar ecosystem, it gives us the potential to work with our renters and renters not uh, in the Groma

ecosystem to build scale as we try and bring this from Boston, where we're currently live in beta, to other cities and other countries across the world. Um, we've just launched the beta site, so if you're interested, it's actually not live today, but you can sign up and and get on the wait list for when we eventually set this live or just learn more about what we're doing. Um, and with that, uh, I'll wrap up here and leave about five minutes for questions. Um, this has been on rent vesting and a little bit of background on Groma and our plans to use blockchain, uh, to try to turn rent from just being an expense every month, uh, into being an investment instead. So, let me pause here and happy to, uh, answer any questions.

Yeah, >> I'll bring the uh mic around to anyone for questions. >> You had mentioned Rome is like a stable coin. Is it like backed by a CLLO or REIT or CMEs or anything like that? >> Yeah, great great question. I'll I'll pop back to to this slide just to sort of describe a little bit of what the the liquid real estate on train is. So, so we say like a stable coin with heavy emphasis on the word like uh because a stable coin is backed by treasuries or or other sort of dollar assets and and therefore stable to the dollar and might produce some yield if if you stake it. A Gromacoin is actually backed by real estate in a real estate trust. Um so it's not CLLOs's, it's not credit, it's not anything all that abstract. It is uh in this case the hund00 million in the

Groma uh coin ecosystem is quite literally 100 buildings around Boston small multif family rentals they happen to be apartment buildings conceivably it could be anything we've just focused on multif family rentals because we we in large part are building our tools to help renters build build ownership and so if you owned a Gromacoin um you would have you know one 100 millionth of that ecosystem the value of a Gromacoin started at a But it is not stable to a dollar, right? It's stable to that portfolio of real estate. Today, a Gromocoin is worth a dollar3 um because the real estate has appreciated 3%. That could also go down, right? We could have a a recession or something that causes real estate values to drop dramatically

and it might be worth 97 cents or a$110 in the future. A big bet of Grocoin is that a stable, predictable, yield producing asset is of value and treasuries are one thing that could back that. uh real estate is another thing that could back that and over a hundred years, a thousand years, real estate has had a very good track record of appreciating slowly. Um and so that is part of what Grocoin itself is doing. Rent vesting leverages that onchain real estate to build financial tools that are a bit more um a bit more innovative uh to uh in this case offer rent vesting to to to renters.

>> Other questions? It's a little bright, so if I if I miss you, uh uh >> toss your hand up high if you have any questions. So, when you have a stable coin, right, it's uh if if I have $100,000, I can go to Tether and have them mint $100,000 in Tether, right? And if the price on the exchanges fluctuates from the peg, people will move in and out. How does that work for real estate? Do you have to sell and buy buildings when people move in and out?

>> Yeah, great great question. So, uh the way Gromocoin works today is, you know, if if you had $100,000 and you wanted to buy, you know, 99,000ish Groma coins, um you would send onchain, uh th those USDC to us. That increases the value of the Groma Real Estate Trust by $100,000. And we and our team have to turn around and actually deploy that into buildings, deploy that into into real estate. Uh, so I'll just repeat the question so everyone else could hear. He asked, "Do we always purchase oursel? Could he just like give us a building in exchange for Groma coin?" Um, today we pretty much always purchase oursel. Uh, but the answer is yes, you actually could. And we have had people contribute buildings

in exchange for Groma coins. Um, that is a very novel thing. It actually has some unique tax advantages. Um for those who are are real estate nerds, it's called upreing an an umbrella partnership real estate investment trust transaction and and people do it um mill you know I don't know probably a couple billion dollars worth a year. Um but primarily it's dollars into the Gromocoin ecosystem USDC or Bitcoin in we deploy that into real estate that becomes the asset backing. The inverse is also true. If people send us Groma coins back to the Groma prime address a sell back transaction um we then have to provide them with USDC. If that happened enough, we would actually have to sell buildings though, though we keep a healthy cash reserve to do that.

>> Have you had to sell any buildings yet? >> We have not had to sell any buildings yet. Uh and as we launch a secondary market, which we hope to I should clarify at this point, Gromocoin is absolutely a security, right? So, this is a security onchain. Um secondary markets for securities on chain are still a very nent thing. Um but uh you know we see lots of people moving in that direction and if there were a secondary market that would provide greater liquidity uh uh potentially over time which is where we we we hope all this will evolve in the in the coming years. >> All right.

>> Oh, >> do we have time for one more? >> Yeah, we got time for one more. >> But it's the last one, so make it a doozy. Hit us with something real real tricky. Are you building out the secondary market yourself? >> Yeah, a great question. Uh, so we're not building out the secondary market ourselves. We're a very narrow focused company. We've got real estate on chain, hopefully a liquid token, Grocoin, that is a real estate asset on chain and the tools, you know, the the financial tools around that to help more people with a very special focus on renters build equity from that. Uh the secondary venues are we think going to be the likes of you know not speaking for for anyone else who who's been at this presentation but the likes of Kraken,

Uniswap, Coinbase who are all exploring what does it mean to allow for centralized or decentralized security token trading. Um that's a very hard problem. I think they're doing great work on it and uh we hope to to slot into that and and build with them as it as it comes live. >> Amazing. Thank you all so much. Have a great rest of the conference. [Applause]