Robinland’s mission is to bridge the gap between Trad-Fi and DeFi for the real estate industry. Through tokenizing high-quality, dividend generating, commercial real estate assets, we create security tokens that can be used to access liquidity in DeFi from retail investors or institutional lenders such as MakerDAO.
Status of DeFi
DeFi has been one of the most successful use cases of smart contracts, which itself is a turning point of the validity and applicability of the blockchain technology. Currently, the financial ecosystem of DeFi includes lending protocols, DEX, insurance protocols and stablecoin protocols. Despite the diversity, all such use cases have been limited within the DeFi ecosystem, based on endogenous tokens/protocols, with no connections to the real world, forming 2 important problems: (1) Stability of the DeFi ecosystem and (2) Long-term prospect of the adoption and dominance of DeFi.
(1) Stability of the DeFi system
So far, the majority of DeFi lending is done on top of crypto native collateral, which exhibits high volatility and high correlation with each other.
As a result, to ensure the peg between the stablecoin and USD, DeFi lenders such as Maker need to ask for extremely high collateralization ratio — Maker has $5.5 billion worth of DAI in circulation and is backing it with $9.5 billion worth of collateral, an astonishing 172% collateralization ratio, meaning very low capital utilization rate, thus bringing down efficiency of the entire system.
At the same time, during market turbulence (such as the episode we’re experiencing right now), it is also very easy for DeFi lending protocols to collapse due to sudden drop in its collateral value, as all of its collateral exhibits price correlated volatility with each other, making it very difficult for DeFi protocols to expand at scale.
(2) Long Run Prospect of DeFi
So far all of DeFi’s applications have been restricted within the blockchain ecosystem. Whether it can survive over the long run and become mainstream (e.g., eventually replacing Trad-Fi) depends on whether it can be applied to use cases and solve challenges in the real world.
Right now, the monetary policy in USD affects DeFi (e.g. when the Fed raises rates, token prices drop), not the other way around. The total outstanding market cap of crypto is $1.6 trillion, a fraction of what the US money supply (M1) is, currently at $28 trillion. In order to expand the size of DeFi protocols and rise to dominance, DeFi cannot be an isolated pool of liquidity, but has to be able to access the assets denominated in USD, i.e. real world assets (RWA).
Furthermore, solving real world challenges is the only way for DeFi to be adopted more broadly and eventually replace Trad-Fi. Imagine you are an apartment owner and would like to borrow against your apartment as collateral. You can’t do this in our current DeFi ecosystem and have to resort to the Trad-Fi system. Our protocol aims to fill this missing piece and speed up mass adoption of DeFi in the real world.
As a result, leading DeFi lenders such as Maker have been trying very hard to incorporate more RWAs (real world assets) into their system to increase stability & expand use cases:
- Most RWAs exhibit much lower volatility (commercial loans, real estate, government bonds, etc.)
- Its volatility is orthogonal to those assets in DeFi, providing the benefit of diversification
- The low rates and fast turnaround of liquidity from DeFi is superior to many traditional financing sources in Trad-Fi, thus addressing real problems for borrowers in the real world
However, it is not easy for DeFi lenders to navigate RWAs:
- Every collateral type is fundamentally different
- Much of them are privately placed and opaque and thus it requires domain expertise to onboard high-quality projects
- The legal, logistics, operational aspect is heavy and again industry specific
Thus, having intermediaries bridging the gap between DeFi sources of financing and high-quality assets in Trad-Fi is becoming a main direction in the development of DeFi over the foreseeable future. In the past, the money supply denominated in USD and in stablecoins used to be two completely disjoint pools. Now through the transformation provided by Cytus, they are linked together.
Robinland’s offering is twofold: (1) transformation of asset class as a technology (and legal) offering and (2) selection, onboarding and maintenance of high quality RWAs specifically in the Real Estate industry as a financial service offering.
Bringing RWA onto the chain is as much a technological process as a legal one.
- When a crypto token is expected to generate returns for the holder, they are “security tokens” as defined by the SEC and are subject to SEC regulations. In order to legally issue security tokens in the US, one either has to “register” it, i.e. go through an IPO, or go through one of the exemption clauses (e.g. Reg D, Reg S, Reg A, etc.), which is the approach Robinland is taking to legally issue tokens that represent RWAs in the US. With in-house lawyers who have completed the exact same process before, Robinland is able to provide legal service to both the project supplier and liquidity supplier such that they engage in a transaction without any legal concern.
- The part on token issuance is actually simple: security token is a mature space with a full range of service providers who can take care of each of the steps in the process: For example, Polymath token studio for issuing security tokens under ERC 1400 contracts; Digishares, CrowdEngine, SeriesOne, LenderKit for token sales; INX.com and tzero for secondary market trading. We have an in-house CTO who has issued his own tokens before and runs an active SocialFi community, leading a team with expertise that utilize different pieces to create an integrated system that smoothly transforms a RWA into crypto tokens.
Robinland Service Flow
Robinland approaches real estate (RE) developers or PEs to source high quality rent generating first-lien commercial real estate projects and sets up an SPV to hold each of them. There is an umbrella entity (Robinland Asset Management LLC) that holds all the project specific SPVs, apply for a Reg D fund, and issues what will be called the RBL security tokens representing the shares of it.
The RBL tokens, which represent fractions of the portfolio of RE projects, will be pledged into institutional DeFi lenders’ collateral pool (such as MakerDAO), to access financing which will be dispersed to Robinland in the form of stablecoins (such as DAI). The stablecoins will be exchanged back into fiat and delivered to the RE borrower who provided the RE project. Every period, Robinland collects interest payments from the RE borrower, exchange it into stablecoins, and disperse it to DeFi lenders to pay for their interest charge. More can be found in our Maker proposal.
There are a few advantages of the Robinland model:
- Robinland tokenizes RWA completely legally, in compliance with regulations put forth by the SEC, by issuing security instead of utility tokens to represent RE assets. This is not something that most of our competitors in the field are offering.
- The RBL token represents fraction of a diversified portfolio of RE asset, instead of individual asset, largely increasing the liquidity of RBL, and bringing down the risk of default (because there is mutual insurance among the portfolio assets)
- To begin with, we partner with Crowdfunz, a real estate PE firm with 5 years of track record, 0 default rate, with 10–20 projects financed every year. Crowdfunz underwrites the loan, and Robinland purchases it from Crowfunz and funds it. This allows Robinland to focus on being the LP at the beginning, saving resources on the operational side of the tasks related to underwriting and onboarding a loan project.
The reason why Robinland is fit to service the real estate industry is precisely because of its industry specific domain knowledge and connections (its CEO having a PhD in Economics studying the real estate industry, and its COO being a real estate veteran)
Selections of projects:
Commercial real estate (either debt or equity) is a very private and opaque market. Without the right connections, it’s very difficult to access the highest quality projects (or even be able to tell which are the good ones). This is where Robinland comes in: through our collaboration with Crowdfunz, a real estate PE in NY with 5 years track record, 0 default rate, onboarding 10–20 projects each year,
- Source the highest quality of projects in the private placement market that satisfies Maker’s specific requirements on the characteristics of the underlying asset (full-recourse senior lien commercial real estate debt)
- Not worry about heavy operational tasks, such that it can focus on its comparative advantage — bridging the liquidity from DeFi to Trad-Fi
Risk management and liquidation:
For any and all borrowing and lending, the most important thing is ‘what happens when the lender wants to liquidate’. With Robinland’s connections, Robinland is plugged into a network of buyers for such underlying assets and can liquidate as soon as 1–2 weeks if needed. This is also the benefit of working with full-recourse senior lien commercial real estate debt, which is that there is a very robust secondary market for it since it’s highly secure and very standard. If default happens, Robinland will also be the one who takes on the heavy labor of following state and county judicial processes to execute the foreclosure of the asset, with all and any information relevant in the process shared with Maker and be supervised by a third party appointed by Maker throughout the process.
Robinland achieved a very important milestone on Jan 24, passing the Greenlight Poll on MakerDAO’s governance forum for its MIP6 collateral onboarding application. If you'd like to read more checkout our article.