Turning houses into tokens with Lofty

Transcript

GM GM welcome to web3 Academy a place for entrepreneurs business professionals and creators to learn how to use web3 to build sustainable business models and thriving communities I'm Jaybird and as always I'm here with my co-host Ka readhead what's up Kai what's up friends how are you today today on the show we are joined by Jerry Chu the CEO and co-founder of lofty we're going to be talking about how he's turning houses into tokens and disrupting real estate with web3 we love tokens I'm kidding but real estate really what I learned from this is the perfect example of how blockchain technology solves just like a

specific real world problem blockchain can just make the real estate industry so much more efficient and if you've ever been in this industry you'll realize it is the least efficient industry I think in the world but really some of the things that it can do that we learned is it gets rid of the long transaction times that are also riddled with insane fees so can kind of get rid of a lot of that it enables you to not have to have these crazy high down payments to get a house and it also makes the real estate market more liquid which is huge for owners anyway so lofty solving this uh Problem by creating a Marketplace that enables anyone to purchase a fraction of a house and share ownership of it so ultimately you get to own a house with a bunch of strangers which is quite interesting so we sort of

dive into the realities of owning a house of strangers and making decisions via decentralized governance so Dows and how Tech can actually make this more seamless ultimately their goal here is just by putting real estate on chain is it is trying to create more freedom more flexibility for our finances which is huge yeah one thing that really stood out to me was the stat that Jerry shared which is that 70 of their owners are not crypto native so clearly they are solving a problem that really matters to people regardless of the blockchain tech and in the crypto like these are not people who care about oh I have crypto and I want to invest in more crypto

things these are people who just want to invest in real estate because they want to get into that asset class because it's an opportunity to build generational wealth and it's amazing I love it your business yeah this is real utility right here real utility uh and and Jerry talks about how they onboarded those people because those people don't have crypto wallets and so Jerry takes us through what they have done in order to enable these people to participate on the blockchain and a lot of these people don't even necessarily know that that's what they're doing so very very interesting Jerry is just an absolute Giga brain so smart so much knowledge to share so obviously he's one of the founders and CEOs of lofty now prior to

founding lofty in 2018 Jerry worked as a quantitative risk management analysis there's a title for you Kai at Barclays where he was in charge of their Treasury risk Department he also has a bachelor's in mathematics and economics and a master's in financial engineering he's much smarter than Kyle or myself so you're really going to enjoy this episode because Jerry is so great at explaining really complex things in a really simple way and showing how this is creating real business utility for the real estate industry and for Real Estate Investors uh super stoked on this episode before we jump in let's just take a minute to hear from our sponsors the future of social media is here and that future lives in web 3 on top of

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Revenue you need unlocked at web3 Academy We Believe nft memberships are the future of business and community and that's why we decided to build on unlock learn more at unlock dashprotocol.com today we have with us Jerry the CEO of lofty to talk about fractionalized real estate Jerry welcome to the show thank you for having me guys really appreciate being here we were both Kyle and I very excited for this episode for several reasons one we both bought a house in the last year Kyle's actually currently in the process of buying a

house yes congratulations to you both by the way thank you thank you appreciate that Kai when's your close date on that December 21st so probably gonna close before this episode comes out I think yeah probably we've both gone through the current super old school traditional way of transacting on a house and we faced that problem but we also both appreciate and the reason we bought a house is because we both want to invest in real estate and we see the huge potential of diversifying our portfolio and being a part of real estate now we're lucky that we had the opportunity to do so but we know that many people don't so I think where we should start today's episode is Jerry just what was

the problem that you faced that led you to create lofty what problems did you want to solve yeah definitely that's a great question so at lofty we just noticed that there was this big problem happening in society that was affecting everyone including ourselves and that was basically the phenomenon where you see asset values rising at a much faster Pace than wage growth right and you have this phenomenon where people can't own certain assets and what happens is then people in society ask why do the rich get richer while the poor stay poor and the answer is basically well certain assets that the wealthy have access to once they invest and own these assets

they basically don't do anything and it just sits there and and sort of prints money for them if you will right it grows in value and it grows in value at a very rapid rate in certain economic conditions and they don't have to do anything extra and folks who don't have access to these asset classes end up having to work and trade their time for money and that never keeps up with the rate at which asset classes can grow and so real estate is probably one of these largest asset class that faces this problem where it's one of the best assets for the creation and maintenance of wealth over Generations right and not just in the United States or Canada but all around the world and the sad thing is the vast majority of people can't afford to invest or own real estate and

that's a huge problem and when you have this sort of bigger divide between people who have money wealth and people who don't you have a sort of unstable society and basically bad things happen and you can see this throughout history in various countries and nobody wants that to happen right to a country that you're living in so we have dealt with that ourselves where pretty much we went around the table engineers and and founders of the company was like hey we all love to sort of invest and own real estate but none of us do and like why not right and so we realize it's mainly due to three major problems which is number one is is just really expensive right so if you don't it can't get the mortgage or you don't have the cash to

just buy the house out right you just can't afford it so there's nothing not much you can do beyond that then the second issue is the outdated Legacy transaction system which we can definitely talk about more because you guys have experienced it at this point here in the US at least it can take upwards of 70 days to close on a property and this entire time you're doing all this work hiring and firing middlemen and everyone's trying to take a picture have a percent there like just adding all these fees it's really unpleasant and draining and so for some people who even have the money real estate is not a desirable asset class to enter into because you have alternative now where you can go on your stock broker account

or coinbase and just deploy quarter million dollars in less than five minutes versus going through this process and then the last issue is a lack of liquidity right which is scary for a lot of people if you bought a house and something happened in life which happens to some people and you need it to sell very quickly chances are you're going to lose a lot of money because real estate isn't very liquid you're gonna have to hire a realtor again they take six percent from you just right off the bat even if you're sold at the same price at which you bought it but realistically if you want to liquidate quickly in a week and a month you probably have to Discount your price right and so for people who just have enough money to buy that first house or just enough money to buy that

rental property it's very scary to be like I'm gonna put a hundred percent of these funds into this one asset and what if something goes wrong and I need to liquidate it quickly right and so for those three reasons this asset class is just not accessible to Everyday People and then we realize by just looking around the industry and looking at how technology has developed that if you put the ownership of real estate on chain on the blockchain you can actually solve for all three problems at the exact same time right and so that's what we've done at lofty is we turn houses into tokens that people can trade and what that means is you can become a co-owner in a property with other people and rent this property out for rental income and you would still benefit from the appreciation and

that means you have the flexibility to buy any portion of the house with minimum starting at as low as fifty dollars right and so now literally anyone who has an interest or want to own and invest in houses is now able to do it so that affordability problem goes away then our process is exactly the same as coinbase or Robinhood what people are used to it takes you less than five minutes to sign up for an account and all the sort of annoying Legacy transnational system has been eroded away and fixed with technology so that means you can create an account get started buying and investing in property right away you're not dealing with that 70-day process anymore and then lastly there's liquidity you if you bought two tokens right you only bought a hundred

dollars worth of a house you can then change your mind five minutes later and say this isn't for me and you can sell those two tokens to other people directly peer-to-peer who would have an interest oh I would love to own two tokens in this one property for a hundred dollars so they will buy it off your hand so that makes it a lot more liquid so you don't have this lockup area you don't have to worry about the liquid nature of real estate traditionally and so that's exactly what we've done and how we've solved the problem this is incredible and I have so many questions but let me just start here to set some context you say you've basically taken homes and put them on the blockchain one like what does that really mean and I wonder if we can explain that to the

audience just so that we can understand what does it mean to put a house on a blockchain is it like the contract is it like what are we really putting on there and just connect the dots there and then you talked about how you can own parts of it and this is more kind of investing like what if I want to own it and live in it right like I can't just go on open C or whatever the lofty platform is and just buy a home and now all of a sudden I'm in it right so just talk about how that how that works just so we can wrap our head around this a little bit definitely those are great questions so just to start off with with your first question how does it work exactly right so the way it works is someone we're a

pure Marketplace so we don't actually own any of the houses and properties you see on our platform and we take that actually very seriously we don't want to be trading against our customers we don't want to be selling flipping houses to our customers that doesn't make any sense right huge conflict of interest so we're a pure Marketplace and what that means is traditionally just like how real estate market currently works there are buyers and sellers so someone who wants to sell their house will come and instead of maybe using a real estate agent or listing it I actually don't know what we have in Canada but in the US there's an MLS system instead of using these and using a realtor they can come listed on lofty's Marketplace where I have this house for sale I would like to sell it for three hundred thousand

dollars or whatever the price is right and and that's now listed on our platform then collectively we allow a group of people to come in together and say I don't have the funds to buy this house outright by myself right but you know we can maybe pool our money together and buy it together and go collectively we would own and manage a property together so the way we facilitate that is underneath we're creating a business entity that is formed in the United States in the state of Wyoming and is actually called a dow LLC and essentially it is specifically called an algorithmically managed Dell LLC and what that means is legally speaking this entity has no manager it has no CEO it has no board of directors

it just it doesn't have One Singular person or entity in charge instead every owner of this entity has equal voting rights and equal power and equal managerial sort of decision-making power just like how democracy was originally created and invented by the Greeks like you would go to this town square and every person who's eligible would cast a single vote and there was no elected representative or anything like that and so what ends up happening is if enough funds are pulled together where you can now afford to purchase the property that process occurs and the seller basically sells the house and the deed transfers over to the Dow LLC right and then you collectively each become a member or

owner in this Dow LLC and that indirectly is how you would own part of a house with someone else right the the company actually the Dow actually owns the house but you own let's say five percent of the company therefore the company doesn't do anything else it doesn't have any other assets on its balance sheet or its Holdings and so indirectly you own five percent of that house which means if it's ever sold you get five percent of the proceeds if it's ever being rented out and it's collecting rent then legally you're entitled to five percent of the rental income and so on and so forth so that's how you sort of tokenize or fractionalize and and create co-ownership opportunities for people in these houses now the last part is well what if you want to live in it what if

you don't want a co-owner with people that's a beauty about the blockchain technology which is it's it's infinitely flexible you can do whatever you want with it right and so imagine in this scenario you do have the funds to purchase the house so you do it the same way but instead of a bunch of owners in the Dao you're the only owner and that's actually a very common practice where people would buy their houses under an LLC right and the reason they would do that some people do it for identity protection so celebrities actually do this quite often in the US because they don't want to just put their name on the title because you can actually search it up in public records and be like oh like Brad Pitt lives right there let me like go outside his house so you don't want that so they create

like random llc's and you're like you don't actually know who ultimately owns it another thing if the benefit it provides owning a property through an entity is liability protection right so if you own the property yourself directly someone comes to your house trips they slip they decide to suit you which is a terrible thing to do I don't know why people do these things but some people do it if you directly own the house and you're on the deed all of your personal assets are liable right you're not only the house but your car your brokerage stock account your cryptocurrency everything is liable and that's that's terrible whereas if you owned it through an LLC or an entity they can't directly sue you because technically on paper you aren't the

owner The Entity or the LLC is the owner and so they would sue the entity and the entity holds no other assets other than the underlying house so your maximum exposure like worst case instance in a lawsuit like that is you would lose the house which is again not great but much better than losing everything else along the way as well so the technology is like very flexible you can definitely just instead of buying the tokens with other people you could just put in all the money take ownership of all the tokens and now just like owning your own house through an LLC you own your own house through it now you don't need to vote on anything because you're the only owner or member you can just move right in they'll give you the keys and then basically own and live in your house just a traditional

way and so that's that's how that would be done and I guess if you ever need a liquidity you could sell a little bit of your house right yeah and here we go that's very interesting so you know sometimes people go oh I want to do some Renovations instead of coming up with a cash so there are tools available where you can refinance your property but here's the thing it's not very flexible if you go to a bank and say I want to refinance three thousand dollars of my house if you're like no we don't do that like the underwriting process that the back office they're dealing with just to do the paperwork is going to cost the bank probably more than that amount of money so they're not interested but with this process you could just be like I'll liquidate three thousand dollars worth

of tokens and now you have those funds and then you buy them back later when you know know you you no longer need those funds so the ownership I get they own the deed the deed is still written probably needs to be signed by a lawyer and all that stuff right but the ownership of it because it becomes fractionalized as a token that makes sense to me do you think that at some point that deed ends up just becoming like an nft and now we don't even need that whole paperwork side of things to actually exchange ownership of a home how far into this real estate world does it get Unchained I'm curious yeah so that that's a part where it becomes a projection right and so a lot of people are asking why it hasn't already happened and the answer is again I can't

speak too much for for the system of Canada but I can say it for the U.S which is that Deeds are recorded at the county offices here in the U.S and there's a lot of counties in the entire country right so think of these as like your local Municipal governments or something they're like the little small fiefdoms if you will and they're the ones who are actually responsible for verifying oh okay person a sold it to person B person B holds the title now this is are legit and they would keep it in the county records that process takes a really long time and government officials and government departments are very slow to adopting technology right and they don't want to spend more money obviously and so for the deed to actually just be an nft and be on the

blockchain itself what you actually have to do is some organization or a company or a person someone has to come and build free software like completely free that is super user friendly and that approach every single County government and say hey instead of doing it this traditional way why don't you just record the deed on the software I built for you on this system right and the counties have to agree so I'm not saying it's it's not possible I actually think it's it's guaranteed to happen at some point it's more about a question of when and who is ultimately going to go out and do this because it isn't as simple as just saying oh we'll just start doing this now you have to convince every single County to buy into this process right and then your software can have a

subscription fee or anything like that because again County records have to be public so you you legally cannot charge for this so who's gonna maintain the servers and build all this out and fix the bugs and deal with all this and not make a single dollar from which which is really hard so maybe one day the government itself will do it maybe someday I've always joked internally if lofty ever becomes a huge mega billion dollar Corporation one day we would just do it for free like why not we believe in this future so we would just sponsor that but somebody has to go and do this and and that's why it's it's been very difficult to just do it now right makes sense because to me I was like it seems so obvious that this is where it goes because I had to hire a lawyer and then

I don't even know what the lawyer did basically just signed a form that was like yeah we're gonna transform us like that was it pay him like whatever thousand dollars or something like that was so useless like why did I have to do that like the thing on the blockchain already what are we doing here but he makes sense practically it's it's much more difficult than it is idealistically but you probably had to use a fax machine which who the heck had one of those had to print the piece of paper and hand sign it and then mail it to them and I was like and I had to upload it to the site and I was like why I was so mad okay I want to I want to get into the Dow governance model that you that you mentioned before because I think that's

really interesting but before we get there I just want to touch on the the fact that you guys have created a Marketplace and whenever you make a Marketplace obviously you have the cold start problem right of getting buyers and sellers and so I'm just curious how have you guys approached that and what is what has been the success today because I think you guys have been I don't know your exact numbers but I you've sold quite a bit through the marketplace so yeah how did you make a Marketplace did you get the sellers first did you get the buyers first how did you get them on board and make that happen and how does it worked tell us a little bit of that process of you get someone you're like hey let's tokenize your house and they're like sure okay

yeah great great question so we were actually quite fortunate so going back into lofty's history as a company we didn't actually start off trying to solve this problem right we actually started off as a AI SAS software for Real Estate Investors right and we had built that software and we were running and we had customers and we actually grew quite a bit at one point and so we were very close with our customers we went through Y combinator which is a startup accelerator based out of San Francisco the Bay Area and they basically taught us to always talk to your customers especially initially like her first customer like constantly talk to your customers to understand what their actual problems are and then it's up to you to figure out a solution to solve

their problems but you need to Target an actual pain point where someone's like begging for someone else to come along please I will pay anyone money and they'll fix this for me right so so they encourage us to do that it's been just drilled into us and so from day one we've been speaking to all of our users of the SAS platform and lo and behold the users of the SAS platform for Real Estate Investors tended to be people who either want to buy or already own existing properties houses rental properties and so forth so we started I wouldn't say be friends but become more familiar with these people you talk to them on the phone regularly and so when we pivot it into the current business model and we needed to launch that first property we were fortunate that we had this list of people that knew us that

actually enjoyed talking to us and and felt like hey these are like smart Engineers that could maybe solve a huge pain point in the market so we basically just email blast it all these former users and said hey guys we're launching a Marketplace for for real estate and we're gonna sell properties on it right and here's the thing we didn't mention the blockchain or the tokenization aspect because we knew that would potentially a freak people out confuse them and just add a layer of complexity but if you understand human psychology and you're thinking from the perspective of a seller right imagine you're trying to sell your house you really only care about two things which is how much can I sell it for and how quickly can I sell it for beyond that you really don't care like what's the actual mechanism for the

sale if it's a individual buying it if it's a company buying it if it's a group of people in a dollar you really don't care about the details so we just didn't say anything and so lo and behold there were certain users that came back yeah I was actually thinking of selling this one property I'm not in a huge hurry I'm not desperate I don't need liquidity so why don't you guys list it on your platform we'll see if it doesn't sell two three months I don't even care then we'll just delicit or something so so not very high AI high risk here so that's what we did we just listed this one property and then separately on the buyer's side we had already figured out the business model there we were creating these Dows and collectively and say look you can now collectively co-own

and invest in real estate for as little as fifty dollars which literally was not possible before right and just blew people's minds like you have college students like young professionals who just graduated school and have student loan debt and like really like I can own real estate like I understand it's not 100 of it but just the idea that I can even own a small piece of it at this age with my current finances it's just insane and so we just launched internally through y combinator through their social groups and friends and family I went on LinkedIn and I hit up every single high school person just like people you knew were just hey by the way we're doing this have you ever been interested in buying or investing in property it's now possible

for you to do it this way the first property [Music] and the sellers legally didn't need to be aware because when they sell the house it again goes through a Traditional Escrow system where the D transfers and there's a title company so they don't need to know anything about the blockchain but that's how we do strapped and overcame the co-star problem to our Marketplace that's great your point about focusing on developing relationships with your users and solving their problem is probably the best founder entrepreneur advice that anybody could get yeah 100 and I I would say it's an advice that universally Works no matter

what industry you're in your company is trying to sell drones to the defense industry or to the military they'll talk to the buyers who are in the military what are your needs what do you want out of a drone right what problems are you facing you're selling SAS software to students same thing what what are your products the one thing that's universally true let's say I buy some tokens on lofty and I now own part of a house how do we manage this as a collective I'm guessing I don't know who the other owners are or how am I connect with them how do we make decisions like the this is a rental property the furnace breaks down and we need to replace the furnace how do we decide making decisions as a

group is difficult right particularly when it involves money so how do we manage that process not a Discord group right yeah not at this point a Discord group exists but that's not the mechanism for for managing and voting but people do have discussions there right which I'll dive deeper into but that's a great question and so it's basically this concept of decentralized governance right so what does that mean it basically is exactly what you said it's it's when a group of people who don't know the identities of other people in this group can somehow collectively right work together to manage something in their own self-interest in the group's self-interest if you will right and all of your incentives are aligned because

you're all co-owners in this property so I don't think anyone comes into this group thinking I want to lose all of my money but everyone's interest is we want this house to do well we want to earn more rental income we want the price to appreciate more right so so your incentives are online and because of that you can collectively manage something even though you're not aware of each other's identity but the exact exact mechanism for how this works is we have what's called a governance program right and so the governance program works in this way so the underlying property actually has a third party Property Management the company that that you as a group collectively have hire right and you actually get to choose this and people have fired their property managers and put Nuance into

place right and we we've already seen these votes go out and it's been done but essentially there's someone boosts on the ground who's actually answering the call at 2AM when someone's like oh the toilet doesn't work like this the pipe is leaking or something so you personally don't have to wake up at 3am to go fix something for one of your attendance there's a professional company doing that for you right and you don't actually have to pay them cash out of pocket either the way these companies make money and Bill you is actually by taking a portion of the rental income earned right so you would rent these houses out there will be a tenant there and every month they're paying rent and these property management companies would say get five or ten percent some percentage of the monthly gross rent

right and then you would keep the rest so that's how you get you would pay them and so now you have this company that is doing the boots on the ground stuff actually making the repairs actually dealing with attendance actually collecting the rent so you are just the manager you don't have to physically go do anything you just have to make decisions and that decision making just needs to be connected with the property managers operations and so we built the technology where the platform that connects this so our property manager basically comes to lofty and say and report it she was like Hey the tenant wants a new shelving installed in in their bedroom closet right this is not a legally required repair right but and they would just like to have it as something nice to have we've looked at the scope of this and based on our

contractors rates we estimate this would be like 300 to 400 do you do you want to do this yes or no right which point we take this information and we send it out as a governance Vote or only to people who own tokens in that specific property and basically you would get an email and you would just see hey your tenant at this property that you own is requesting you install shelving in their bedroom closet do you want to do it yes or no and then the property manager will even provide you with some basic contacts and guidance of like hey you legally don't have to do it but this tenant has never been laid on rent so maybe if you do this you'll keep them very happy they'll read new right and then you get more consistent cash flow from your investment right or you

could just deny it and save 300 completely up to you and so people read that they form their own decisions it's not that hard to understand and it's not that hard to decide and you basically vote and say yes I would like for the shelving to be installed or no I don't want to spend 300 to pay for this and all the votes are then tallied up one token equals one vote and then finally you would see what the vote comes out to and for all these dials by default in the operating agreement you actually need a 60 super majority for any vote to be enacted on so as long as the vote reaches 60 or above for one of the decisions then okay the Dow has come to a consensus and that's a decision that will be carried out we take that

decision back to the property manager and say the owners have decided to do this right and then that decision gets carried out there's also some mechanisms to make sure that voting is always fair for example a no person or entity can actually own more than 10 of a doubt right the tokens in a dow and that's to keep it fair so someone doesn't come in and just own 51 60 70 then that there's 40 percent other owners there but they can just be like oh I get to do whatever I want to be you guys so this is to protect the the all the members of the dial so that even if you're a small time owner you only have one token or two token you feel like your voice is heard right you don't feel like you're being strung along by sort of whales or people

who own larger portions in the property so if I sell a few thousand dollars of my house with tokens I still own 98 of it or whatever but I sold like a couple thousand dollars to renovate they can vote the same amount as me or how does that work no they cannot so right now you actually can't do that I was purely explaining from technology standpoints so I lost this platform today you're not able to come in and say I'm living in this house that I own and I want to sell 10 or three thousand dollars you're buying blockchain technology and what we build allows you to do that and maybe one day in the future that is something we'll add as a piece but of course things would change in that instance where you know that person probably

shouldn't vote on how you're living in your house despite being a part owner but yeah so there's all these mechanisms to make sure voting is fair and and that larger owners cannot just sort of dominate the small owners and yeah that's exactly how dow ownership works and decentralized ownership works and and so a couple couple follow-up questions what sort of voting rates are you seeing and what happens if the money is not if it's outside of what's available because I'm guessing that the money comes from rent or some sort of is there a treasury like what if what if the the upgrade is more than what is currently available yeah great idea a great question so so actually the way it works is you're exactly right the Dow

actually has a treasury that is pre-funded at the time of purchasing the property so in addition to paying for the property you're actually pre-funding a small allocation which is usually five to ten percent depending on the condition of the property we're just sitting in cash every Dow has its own separate bank account so the cash is segregated and it's just sitting there in a FDIC insured checking account or savings account if you will right and when repairs need to be made the funds are drawn from the treasury it's called a maintenance reserve on our platform the funds are drawn from there and whenever a maintenance Reserve starts being depleted meaning funds have been drawn and we didn't decide this this is how decentralized governance where people actually voted for this mechanism 10 of the monthly rental income goes

back into replenishing the Dallas treasury right and so this this again can be changed at any time people can call for a vote and then change the the rate and then furthermore if the maintenance Reserve depletes by more than 50 percent below 50 percent right people have voted to take 50 of the monthly rent to replenish it so that planet replenishes at a faster rate and that's that's how that mechanism works and the voting rate has been incredibly high so technically speaking it's actually 100 on our platform what I mean by that is we actually have What's called the automated governance so can you imagine you own a bunch of properties in this way you're in a bunch of dows and every day you're getting like a hundred emails that would be very annoying very quickly

right so obviously we don't want that you don't want that and we realize that a lot of Real Estate Management in this way for single-family properties is fairly sort of consistent across the board where the same situation comes up like over and over and over and over again and so it's like you actually don't need people to revoke on the same thing over and over again and so what we do is when you create an account on lofty you have to answer this long list of sort of survey questions like if this scenario were to happen here are the choices how would you want to handle it right and these are like if the tenant doesn't pay on time what do you want to do to eviction right away ask the property manager to find out what the situation is and then based on the

property manager's discretion and maybe offer them some time to get caught up on the rent right offer them immediately cash for keys or things like there all these sort of standardized scenarios and options that will happen multiple times as a real estate investor and an owner and so you have to answer this list of questions and you can go back in and change it at a future date if you change your mind about a particular scenario and when these scenarios come up you don't actually get contacted to put in a vote we already have your preferences set in the application so we just internally run the vote and we just go back to the property manager and say okay the owners want to do this right and so only like very edge cases that are not covered by this automated

governance process are manually voted on and so this way people are very engaged like they're not getting a thousand votes a day and it becomes like a full-time job right it takes just seconds and it comes sporadically from time to time and the tenants probably get answers much faster this way as well which is cool because I know even just like the place the the I bought a condo and so I basically have a similar thing I have a condo like a board that runs all the condos and they do the same thing if I want to do things I ask them and make sure it gets approved and things like that I'm already waiting for something I haven't moved in yet and I'm asking for things and but I know it's going to take for forever because that's just how it works I actually love that

sort of automated idea that's actually pretty smart I'm curious do you guys deal within all of the finances so let's say that the tenant is paying and I assume they're paying a fiat currency they're not paying in crypto and so that's all done through you guys in the in the back end and the the owners don't have to deal with any of that kind of stuff yes and no so we don't touch or handle money like we're not the ones collecting the rental income and like depositing it for you and things like that so the property manager is the one the one you hired is the one going to collect the rent and they deposit it into their Bank account which they then send to the Dow's bank account on a monthly basis right right from there if you as an owner want to withdraw your

rental income right we allow you to withdraw and so we build the technology the API integration that basically code that lets you move the money from the Dallas bank account that is owed to you right so like you can't go in and take 100 of the treasury like we have the code that doesn't let you do that but you know we have the record of hey you own right again all this is public information which is what's great about the blockchains like we know this person is holding three tokens which is equal to 0.03 percent of the house which means they're only allowed to withdraw 0.03 percent of the rent and now this month the rent is a thousand dollars so simple maths and and using Code this way you're able to directly withdraw rent from the

bank account whenever you want that is otu that you've earned and and you cannot touch other people's money right so our responsibilities only building the technology and maintaining that it's going to be really nice when all of that money flow is just on the blockchain so rent is paid in crypto or like a stable coin or something and it goes right into it and you don't have to have the middlemen anymore it'll just make it all so seamless for you so I'm excited for that you can already do that the user experience is is the same so we allow you to actually withdraw instead of in dollars in cryptocurrency we allow users who who aren't us-based so if you're a Canadian user and you don't want to withdraw US Dollars and then transfer 30 cents to your bank account super annoying and wait all these days for the

inner national transfer you can actually withdraw in usdc which is a stable coin Peg to the US dollar you can just directly pull it into your crypto wallet and then go to an exchange and satellite yourself and again all that is handled automatically for you in the back end we build the tooling for that to happen so you don't need to worry about it but we're not directly sort of converting money for you or anything like that right it's amazing so if if someone wanted to sell let's say there's a vote and I disagree agree with it but they they won right to I don't know put a hot tub in the back or something like that I'm like no this is a crazy idea and I can just I mean I guess the the nice thing about this I can just sell anytime right I just go okay I'm gonna

put my tokens up and absolutely you can be like wow this group of people I do not agree with their management style I'm I'm out of here someone else who likes what they're doing can come join this dial instead and here's another thing we've done at lofty which is typically in real estate traditionally you have information asymmetry between the buyers and the seller where the sellers always know more about the property than the buyers do right and so it leads to a lot of bad behavior right where people like withhold information or technically I didn't legally have to disclose this so I'm not going to disclose it and this person didn't catch it so it sucks to be though right this one part of the house has a hole in it or something all sorts of weird things can happen that way and so what we've

done at lofty is actually whenever a property has any updates like the tenants delinquent right they're not paying their rent or the Dow has voted to do certain things we automatically update that onto the description page for the prop property so if you're a potential new buyer into that property you're like hey I'm thinking of maybe joining the Dow and being a co-owner in this property you can actually scroll through and see all the property updates and be like oh wow like this property is not earning any rental income right now oh wow there's this issue they need to take money out from the treasury to fix I don't know if I want to do that anymore so this way if you're trying to sell and leave the Dow because of some bad news you're going to have to essentially deal with the fair market

mechanisms where people might not pay you full price because there's some issues right so you have to sell at a discount you can just be like haha sucker you don't know this thing's going on I do I want to sell it to you at a crazy market value the new person buys and it's oh I got I got Hoodwinked so that doesn't happen I lost you or through through these mechanisms of ownership Ken I'm gonna put my dgen hat on for a second here these these tokens these fractionized tokens of the house they they sit in my wallet are they are they on the lofty platform only yeah so self-custody we don't custody for you right not your keys not your wallet we are the proponents of that but we've done something fairly interesting which is we've built a hybrid model so we

realized Believe It or Not 70 of our user base aren't even web three people like they have no idea what is crypto like they have no interest in crypto they're here for the real estate right and they're here for the ease of how they can now buy own and sell real estate which is just never been the case historically before and so we noticed there was at one point a 60 drop off in our sort of sign up funnel at the step where we said hey go download this third party wallet yeah platform and connect it to your account how is this and then they were just gone and so what we've done now on lofty recently in the past few months is we launched this feature called the lofty wallet right but it's not a centralized

wallet that we control it's using what's called a multi-sig technology which means there's basically be multiple signatures required for transactions and so these wallets are individual wallets spun up on the blockchain it has their own independent address and you control it because you actually get a key but we also have a key so we can do certain things for you right and so basically it gets automatically spun up with your account and so people who don't understand anything about cryptocurrency or blockchain don't even need to know how wallets work they just create a lofty account they're like oh I'm buying it it just all gets sent to this wallet because we have a separate key there's also additional Security benefits from that where sometimes people forget the

one of the most unuser friendly things is when you create a wallet it gives you like a list of 20 words or something like that memorize this and right yeah and most people are like what the hell is this and they just like okay I've memorized it well there are many times where people forget their passwords to the wallet or or change phones or something like that and now in order to recover their wallet and the funds they need to get these secret passphrases which they no longer have and now they're locked out of their account permanently and they've just lost money so because we also have a key if this were to happen to you we can re-key your wallet for you and and just basically kind of like reset it and give you access again so again it's just very user friendly for beginners and at any

point in time again this is an independent self-custing wallet you can be like hey I'm confident managing my own wallet we're gonna redo this and you don't get the key anymore I'm gonna spin off this wallet and deal with it myself right so that's something we've done to make basically this web 3 product a lot more accessible to people who don't know anything about blockchain and then additionally of course if you want to use external third-party wallets you're welcome to use them and connect them but all tokens are held on self-custody wallets there's no centralized sort of exchange or custody function all lofty right so the D5 model right it's it's normal ux web 2 ux in the front and then it's actually blockchain Tech in the back but the reason why I asked is that DJ hat is can I then take those tokens

and go to Maker Now for example and grab a loan against the portion that I own on a house that's a free market as long as maker Dao allows you to do that right their their platform and their protocol operates with the blockchain that we use and and these tokens on and there is a willing and able party it's like hey I would like to be on the other side of this deal then 100 you can go ahead and do that we don't stop you it is after all like real ownership like you've bought a house right like when you do make money but we're basically we actually have broker's licenses we basically just sell houses we're like like a real estate agent basically that's how we make our money we make like transaction fees at the front end

and then after that we don't make any management fees or anything like that it's it's purely you guys you bought the house you own it and so it's yours to do with what you want right very interesting if I'm a seller at what point does the sale happen if I put it up on your Marketplace but only 10 of the tokens get purchased do I have to wait until 100 percent get purchased until I get that cash out exactly it so we basically give you it's an offer traditional real estate offer letter where it says we're gonna buy your house for X dollars closing in 30 days for 45 days right and at which point as time gets

closer you would hope your property is getting more and more fully funded and as long as it's fully funded before the closing day you would basically get the cash offer and this would all close right now in certain instances people have not liked the prices that sellers have asked for they're like I think this is too expensive so that's the one other thing I wanted to mention too which is again we don't like information asymmetry lofty so for every property there's actually a documents tab like hosted on the cloud Dropbox folder basically where you can go in you can view appraisal reports inspection reports right everything about the property that you're thinking of maybe buying so you have this end basically you can do your own diligence and people have done that and said well the

appraisal report says this property is worth two hundred thousand this person wants two hundred forty thousand dollars I think it's too expensive despite it being like pretty good condition Etc et cetera so they're a bit in instances where a property has not been fully funded by the closing date at which point we just go back to the seller I'm like look like it's not funded you your choice you can either pull the listing we cancel this all together or you can adjust pricing you can lower your price and then maybe it would motivate people more and people have done that in the past where they've dropped the price and then it gets closed or people have been stubborn and said you know what I'll just I'll delist it I'm not going to sell it through lofty anymore which is totally fine at which point people who have contributed

funds we just refund them fully 100 like the Dow has not bought the property yet so just refund you from the treasury and the Dallas actually spun down what's the the current rate of sale on lofty or most homes selling the the vast majority do so we've tokenized or sort of onboarded 131 properties to date into our platform and I think out of that number so five did not I believe it's either five or six did not close successfully which means we've tried to tokenize like 135 properties so the vast majority do do close people are reasonable if you're motivated to sell your house and you're like ah it's 80 filled pretty close to selling me I'm

gonna drop my price it doesn't even have to be a lot you don't have to go in give a 50 discount or anything like that but just dropping it by like sometimes two percent three percent it motivates people like okay this makes more sense for me now I heard that the owners can decide to donate the rent if through your platform can you talk a little bit about that yeah 100 so that's something people aren't aware so again we're just a technology Builder the reason we like the blockchain and web3 is that it creates more Financial Freedom for people it creates more flexibility more transparency and that ultimately is good for the consumer and so through this mechanism of owner you're entitled to your portion of the rent and because

it's your portion you can do with whatever you want with it without negatively impacting the other owners right and so again if you own 10 of the the house and you know the rent was collected this month you can choose to donate your earnings and we will allow you to do that it goes into a charity called Mercy Housing which goes into providing affordable housing for for folks here in the US which is many parts of the US and Canada as well you have a lack of affordable housing which is a big problem and so it's completely optional not every user needs to opt into this if you opt into this you don't impact anyone else right and so again you're This Groove you don't even know each other's identity you can do things that are beneficial for yourself like

whatever you want to do without negatively impacting the other owners super interesting just one final question for me I'm curious in terms of adoption of this I imagine if you Market to the crypto world and people who understand crypto and all the stuff they're probably like yeah I'll do this for sure right it's probably it's probably easy to get the buyers I guess is what I'm saying especially if they're crypto native on the selling side is that like the main kind of slowing point of adoption or like what are you guys seeing just in terms of adoption yeah we're not really seeing slow down when I say difficult I mean like obviously growing a business is difficult even if it's not hard to convince people to jump aboard you have to reach out to them you have to reach out to them at an

affordable price right and things like that and so that's always difficult and in this Modern Age you're constantly competing for attention if you have really short attention spans every other company is trying to reach out to the same set of consumers so forth so it's always going to be hard but we haven't noticed a lot of difficulty sort of persuading people as long as they actually do feel the pain point on the seller's side this is again just this Marketplace and ecosystem the better way to sell your house why because we charge you lower fees so if you're a seller traditionally and you hire a realtor and you go out and do all this it can take you months sometimes to sell the property because the liquidity is so bad like you need someone who can either get the mortgage with the down payment or

someone who has enough cash like one person has to be able to buy this entire house when you open it up right on the on the purchase side like hey a thousand people could buy collectively by your house you you create a lot more liquidity and interest which is much easier to sell your house I'll throw out an interesting sort of fact that people might find surprising but some of these houses have sold out in eight seconds fully filled right if you were a seller what ended up happening was you came to lofty to sell your house and instead of being charged six percent in the realtor fees we only charge you three percent so you get a 50 discount there you got to dictate your listing price so there's no haggling right you don't list it for a million dollars someone comes I'll give

you like 9 9 20 which is the case in traditional market and can be really annoying we let the free market decide if you list for too high of a price again there's appraisal reports in there people like the address is there people can look up the house on this is a lower or a thousand other listing services and and really decide if it's worth that price and if people don't think it's worth that price you're not going to be able to sell it for that price right but there's no haggling involved so a lot of sellers like that and then you also don't have to schedule annoying tours where open houses and you gotta like hey I gotta leave the house today because there's going to be a full day of Tours and things like that and that that's annoying as well and then on top of that

the biggest kicker at the very end is again sometimes we sell these houses in a second so we close in seven days right which is much better than what you would traditionally see and on top of that there's no mortgages involved there's no leverage so you're getting an all-cash offer so it's guaranteed to close and so from a seller's perspective the vision here isn't oh it's in blockchain web3 technology cools don't show want to sell your house foreign blockchain adoption it's if you've wanted to own and invest in property before and couldn't afford it now you can't there's no barriers to entry it's

easy to process everyone can understand it as you can collectively manage it in a fair way so that the pitch is different to both sides of the market and again and as long as we're able to reach out to people at an affordable price our conversion rate is is very high and our retention rate is also very high which is proving out that there is this need and and people who do find us end up sort of sticking around pretty much forever our our monthly churn rate is like below one percent I think the lowest we've had was last month and it was 0.7 and so the industry standards like if you are our business ideally you want it below five percent but even that's not very good like you wanted to be around like two percent right where

Foods below that the thing I love about this is It's a real world use case that blockchain just improves for both sides for the customer and the this and the seller right so it's just there is no speculation or any of this craziness that goes on in the crypto world it's just a better technology to use than what we but we're using the existing world before this and so it just makes it better for everybody that's that's the coolest part for me I absolutely love it if people also think that they love it just like I do where do they find this how do people get to your website or your socials or wherever people should go to learn more sure our socials you can go follow us on Twitter so it's just Twitter and if you search for lofty AI two words you'll you'll

find us where the top option there and then our website is just lofty dot AI so you'll you'll be able to go see the website there we have helpful blogs we have helpful sort of certain articles we've written about certain common questions that people have we have a sort of video up there which explains in less than a minute exactly how all this works so it's pretty easy to get get started with us I'm I'm so fired up I can't I'm gonna I'm gonna go I'm gonna go invest in something in lofty where where are the homes currently can Canadians invest is it just Canadians can invest and they're all over the place our goal is eventually it's not so much a question of where because it's going to be everywhere right you're going to have properties listed just by people it's just our goal is we just

convert the real estate market onto our platform that's that's the end goal right but right now again it's a slow process so most of the properties right now are in like sort of Midwestern states where where the South so you have properties in Tennessee and Ohio Michigan Illinois and like places like that but we're constantly expanding for example there's one property in Miami there's one in Texas as well right and so we're starting to expand to other states other areas incredible okay let's let's wrap with a quick speed round unless Jerry is there anything else that you wanted to share with the audience with listeners today no I think that's a pretty in-depth dive into what we're working on and again if people have questions where like this is what we do

all day we're super passionate about what we're working on and if you let me talk forever I'll basically never shut up about it so just reach out to us we're happy to answer any and all questions for you appreciate it appreciate it okay speed round first question what's an nft you'll never sell yeah that's a that's a good question so when we first started Loft again we we started lofty on a different business model right and so we try to get that to work and It ultimately didn't work out and so you learn as an entrepreneur like what it means when like your product is really compelling to the market and to the customers right you you see how like passionate they are about it and how interested they are about it so the

prior product just never sort of reached that level but I remember very in Vivid detail when we first launched lofty like after the first one or two properties sold the community was so interested in this like we had people go out and create like nfts using lofty's logo right and they were like gifting it to us what's your wallet address I'm sending this over so I have these presents from our earliest users for when we're we're building this business and so I'm I'm never selling those I'm keeping those forever that's awesome that's awesome okay if you were speaking to a Founder who was early in the journey what's one piece of advice you would give them

yeah the best piece of advice I could give them is basically talk to your users do not your your day-to-day should not be coding or worrying too much about marketing or like all these things that kind of cost money and and you will really drain your funding or if you're sort of bootstrapping the company really what you should be figuring out exactly is talk to yours or how do they find you why do they look for you what is the problem they're trying to solve and like how have they been trying to solve it and you do this enough times right you start qualitatively sort of pattern matching your head as an entrepreneur to eventually where you will get to that aha moment oh this very specific thing is what people are having problems with

and they hate the process so much that they've been trying to like do things themselves to resolve it to to know Avail and they're more than happy to pay someone else to come in and fix this problem and when you get to that conclusion that's when you build an actual successful business where you would have low churn like you're your hack for users will be low everything will just magically work itself out in a sense because you found product Market fit you've found people that have a problem that your product actually solves and these are real problems not sort of like a a vitamin thing where like it makes their life slightly better they're like oh my God like I I just I can't live if someone doesn't solve this problem for me for this specific thing

and once you find that out I mean you're you're good to go that's how you grow a business great advice thanks Jerry okay last question if you had a billboard that one billion people were going to see what would you write on it yeah and so this is a cliche but it's really hugged your loved ones to haul your mother call your dad kiss your wife complimentary just treat the people around you really well and give them attention and tell them you love them that's that's essentially it because I can tell you we've gone through a lot of ups and downs at lofty and it's it's being a startup founder is not for the average person I'm going to be very honest like I think Elon Musk at one

point said if it's like chewing glass like it's that painful right and he's not really not exaggerating I think a lot of people who have never started something just can't really emphasize with because they just don't have the same experience but if you talk to any other founder any business owner who bootstrap their business initially they would all be like yeah yeah I totally remember the pain like that this is this is really miserable and it can be really lonely and so I realized over the years that no matter what happens at lofty or like we're having a good day a bad day something really bad happens it's great to always go back and just have my wife there we watch Netflix like it's it's discomfort that I think people take for granted and you don't really notice it

until something really bad happens to you maybe in your professional life and then you're like oh my wife still loves me crazy you're like maybe the world isn't it right yeah and so yeah that's something you realize when you've experienced those that is phenomenal advice I love that it's beautiful that's beautiful I also feel like I could tell you're Canadian with advice like that yeah that's a Canadian right there we love people we're just nice we're nice wonderful Jerry this has been fantastic it's been so great to learn about lofty the problems you guys are solving and really the the potential of decentralized governance decentralized

ownership I mean there's I feel like we could have another episode where you could talk about the tech that you guys have built can extend probably so much further and I'm sure you guys have many ideas there but for this we'll wrap this one up today thanks so much again Jerry it's been an absolute pleasure thank you guys so much for having me on here this was a blast and I hope I was helpful and interesting to the listeners thank you for listening to web3 Academy we hope this helps you along your web 3 Journey if it does please share this episode And subscribe so you don't miss the next one nothing in this podcast was Financial advice crypto and web 3 can be risky you can literally lose it all in fact if you invest on account of what we say you probably will lose it all so don't do

that in all honesty the point of this podcast is to remove the noise of markets and price and focus on utility and imitation anyway so you should not take any of this as Financial advice thank you friends and see you in the next one