CitaDAO & Vesta Partnership

Hey Vesta community!

My name is Ethan, and I am one of the core contributors at CitaDAO - we are bringing real world real estate on-chain in a truly DeFi way. I think there is an opportunity for Vesta and CitaDAO to collaborate.

Tl;dr

I would like to suggest adding CitaDAO Real Estate Tokens (RET) and RET-USDC LP tokens as eligible collateral on Vesta to mint $VST stablecoins. This would present both an opportunity for CitaDAO LPs to leverage their LP position and increase their returns and for Vesta to increase the circulating supply of $VST without taking on much risk due to the high quality of CitaDAO Real Estate LP tokens as collateral.

Intro to CitaDAO

CitaDAO is a seasoned team of Real Estate and Web3 veterans building a global Real Estate powered DeFi ecosystem, featuring two-way real estate tokenization bridge, ample liquidity, composability, and bearer asset tokens that are redeemable for a property’s title deed. We believe real estate backed tokens will enable the DeFi community to generate sustainable yield through real world productive assets, hedge against inflation and diversify their portfolio on-chain, and serve the long unmet demand for sustainable on-chain yield.

While the concept of real estate tokenization has been around for years, we believe the time for mass adoption is now. Unlike past attempts, we are taking a 100% DeFi approach that leverages composability with other projects in DeFi, allowing scaling of users and use cases (e.g., collaboration with Chainlink to create price feeds for real estate based on real world prices which enables real estate backed stablecoins, among other primitives Announcement)

Most recently CitaDAO has successfully tokenized an industrial property in Singapore: Tech in Asia - Connecting Asia's startup ecosystem, and it is now freely trading on Uniswap with ample liquidity and low slippage. This property is high quality, has many comparables, and is not only highly liquid on-chain, but in the real world as well, property details here. Many more such high quality properties are in the pipeline being prepared to come on-chain.

Properties brought on-chain via CitaDAO are characterized by strong liquidity that allow Real Estate tokens to serve as high quality collateral in stablecoin mechanisms such as that of Vesta.

Our Progress in building liquidity

Each property introduced on-chain features incentivized AMM pools where liquidity providers earn KNIGHT, the CitaDAO governance token. For example, the current property is valued at around $630k and has over $300k of liquidity provisioned in a ~15% range on the Uniswap v3 pool: Uniswap Info

This ensures high liquidity and low slippage even when trading up to 18.3% of the token’s market cap. We are currently deployed on the Ethereum mainnet and we are working with Vesta to explore enabling the utility of them on Arbitrum.

In addition, there is a mechanism which allows the redemption of on-chain tokens for real world title deed. This involves a buyout contract which enables anyone with at least 30% of the RET market float to buyout all other token holders at a fixed price while enabling everyone else to buyout the initiator 30% at the same offered price. This ensures that in the event prices move irrationally on-chain, any token holder is able to trigger a buyout of the entire property. If a token holder is successful in completing the on-chain buyout process, they can proceed to claim the NFT and use that to redeem the title deed in real life after clearing standard conveyancing KYC/AML checks which are conducted between the SPV lawyers and the successful buyout initiator. Thereafter, legal representatives are required by law to transfer the title deed to the buyout initiator’s name, giving them the ability to take control in the real world, and do as they wish with the property at that time (hold, sell, etc.). This creates a potential floor to the token price.

Collaboration between Vesta and CitaDAO

Given the above, we think there is a great collaboration opportunity. Usage of real world assets as collateral to mint $VST has a set of unique advantages: stability of the collateral, diversification of collateral type, future scalability leveraging the world’s largest asset class, diversification in jurisdiction

We propose that Vesta allow real estate tokens brought on-chain via CitaDAO to be used to mint VST, this would be feasible as rails with Chainlink have been built to provide price feed data on the real estate’s value in the real world.

Smart contract risk

What is the link to the main project Github repo?
Our repo isn’t public currently but we are working to release a public repo

Please provide an Etherscan link with verified contracts.
Etherscan 20SML0253SG (20SML025) Token Tracker | Etherscan

What is the age of the token in days?
110 days

What is the number of transactions in token contract to date?
400+

Counterparty risk

How many holders of the token are there?
58 total holder
~30 for SML20-USDC LP token
~15 for SML20-FRAX LP token

How would you describe the decentralization level of the governance of the protocol that issues this token?
High, as the SML20 and all future real estate tokens are fixed supply and non-upgradeable.

What is the setup of the main protocol multisig governing this token?
There is no multisig governing the real estate tokens.

How upgradeable is the token contract?
Not upgradable

Market risk

Please provide some numbers describing the depth of liquidity on this token across some different markets.
$450k TVL for SML20-USDC and SML20-FRAX
Dune Dashboard

How accurate are oracles for this token? Do they exist? If so, for how long?
The on-chain methods to calculate the price of the LP tokens are very difficult to manipulate and the chainlink oracle is currently undergoing testnet trials with another stablecoin project.

Please provide the token volatility, defined as the Standard Deviation of log-returns for specific time frames
Has fluctuated between 0.98 - 1.00 from May 2022 to present

What is the future emission schedule of the token?
Zero emission, there is a regular buy and burn of the SML20 token using rental income.

What is the current total and circulating supply of the token?
630,000

6 Likes

Thanks, @ethan_citadao and the CitaDAO Team for proposing this collaboration. I personally fully support these efforts!

1 Like

this is super exciting. whoever is able to use real world assets as collateral for crypto stablecoins will have addressed the scalability problem that projects such as DAI faced.

however, I would like to know how decentralized the real estate is, and if those real estate properties can be seized by government if they don’t like how it is being used as collateral for the stablecoins such as VST?

1 Like

This seems to an interesting proposal. However, there seem to be a few real estate tokenization projects out there. How’s CitaDAO different? Also, how does CitaDAO address the liquidity issue that other similar projects often face?

ChainLink, I like. Not easy to get partnership with Chainlink :sunglasses:

So rental yield is used to buy and burn the real estate tokens. But why the project has to do so if “the SML20 and all future real estate tokens are fixed supply and non-upgradeable”?

Thanks for going over the post and the questions @vestaexplorer @baboola @availablewhy

however, I would like to know how decentralized the real estate is, and if those real estate properties can be seized by government if they don’t like how it is being used as collateral for the stablecoins such as VST?

Each real estate is held by a standalone legal entity. Real estate has a long standing legal precedence that protects the property right of the owner and prevent unlawful government seizures.
Nonetheless, in the event that it actually happens and the government auction off the real estate, the real estate token holders will be able to trigger a buyout and claim the auction proceeds.

This seems to an interesting proposal. However, there seem to be a few real estate tokenization projects out there. How’s CitaDAO different? Also, how does CitaDAO address the liquidity issue that other similar projects often face?

Unlike previous attempts in real estate tokenizations, we are a DeFi project and the real estate tokens (RET) are fully composable with other DeFi protocols. In addition, the RETs have the right to buyout all other RETs to redeem the title deed. We are also able to incentivize secondary liquidity through xToken and allow RET Token holders to earn additional reward by LPing in the Uniswap V3 pair

So rental yield is used to buy and burn the real estate tokens. But why the project has to do so if “the SML20 and all future real estate tokens are fixed supply and non-upgradeable”?

This will deepen the stablecoin liquidity in the Real Estate Token Pool, enabling deeper stablecoin liquidity for the Real Estate Tokens. In addition, by burning the tokens, the supply of Real Estate Tokens will be reduced, resulting in greater value for the remaining token holders.

Thanks Ethan for your post and replies. I have a couple questions

  1. How is the token structure determined? The supply, the token price, etc.
  2. How did you calculate the gross rental yield of 4.1%? Is this number changing?
  3. Why did you decide on the structure of buy and burn instead of issuing a bond with fixed payout? Is there a duration to this bond like structure or is this perpetual?
  4. With regarding the buy-out redemption, if I was a 30% holder and I want to buy out all other people, what will be the buyout price?
  5. How would you discount the friction required to trigger the redemption? If you have any tradfi framework for evaluating cost of time and legalities it would be very helpful in allowing Vesta achieving a healthy LTV for this collateralization project.

On a relevant note, I simulate a trade to acquire 30% (assuming 180k tokens) of all token in circulation, and the required amount is 181830 USDC, which makes it quite viable to acquire the 30% needed to trigger a buyout.

Once we figure out the redemption detail, we’ll also have to work on the implementation side of things. Since the token is on mainnet, we can work with LayerZero or Synapse to bridge these token to allow for collateralization.

Look forward to your response :slight_smile:

1 Like

Thank for the questions @mikey

The supply is determined at the point of tokenization based on the price of the Real Estate. We peg the token price at $1 per token at the point of minting. This makes it simple to reference the market token price to the initial listing price.

This is the initial yield calculated based on the existing rental generated from the real estate over the listing price. The number will change based on the market price and subsequent rent revision. Typically commercial leases last 12-24 months, and the historical and comparable lease rates for properties in the vicinity can also be seen in property details section.

A buy and burn mechanism is the most efficient way to capture the value generated from the rent perpetually. A bond with fixed coupon is a security. If we issued a bond with fixed coupon , it will not be possible to argue that the Real Estate Token is not a security token. On top of that, some countries have preferential tax treatment for capital gain, and a buy and burn structure takes advantage of that, while token holders can achieve the same fixed payout when selling the equivalent amount of tokens.

You (i.e. the buyout initiator) is free to set an offer price per token. However, the rest of the community can also buyout your tokens at the same offer price (i.e. you may be bought out, if your price is deemed to be too low)

The buyout mechanism is designed for potential black Swan scenarios and we believe it will only be triggered only if the on-chain price drops significantly below the real world price. This is unlikely due to the ample liquidity on chain as well as known parties who want to retain the high quality assets we are introducing on chain.

Having said that, in the event of such a scenario, and using some heuristics and market principles, we think it would be prudent to apply an additional 5-10% discount to facilitate the friction required to trigger the redemption.

Typical conveyancing takes between 60 to 90 days after KYC checks on the new owner is completed. Legal rights would have to be undertaken by the buyer appointed lawyer before the buyout is triggered as different jurisdictions have different land ownership laws.

Meanwhile, the stability and regular buy/burn of real estate tokens using rental income would be arguments for why real estate tokens should have a higher LTV than volatile crypto native assets such as ETH.

Therefore hopefully we can arrive at a prudent LTV to start, which takes into account the above, and then adjust with time as needed.

2 Likes

Seems interesting but…
I’d like Risk assessment team to weigh in - what protects Vesta from being exit liquidity for SML20 holders in case of asset price decline? How will Vesta take hold of the real world asset in case of a bank ran? Bringing real world assets on-chain is not an easy feat.
I wish I could say yes to this proposal but I think the risk outweighs potential reward.

Thank you @ethan_citadao for putting up this proposal.
I am commenting here as a CIta DAO contributor.

@Kelevra Interesting perspective about the potential risks. However, in all fairness, Real estate tokens are the only tokens in the space that are actually backed by a tangible asset.

There is no notional value and only real value. In the case of a supposed bank run, Vesta could take over the asset just like any other RET holder would.