ICO + Smart Contracts + Real-Estate
There are many ways to utilize an ICO for a real-estate backed project. In the early days of this whole blockchain revolution, real estate was always touted as one of the main use cases for it. When Hyperledger first came out – in the initial days when both the Dans (Dan O’Prey and Daniel Feichtinger) were essentially working on the project – I had an idea for a crowd-sourced real-estate project.
Now that this whole Ethereum and ICO market is blooming, my idea can actually be implemented. It is only a matter of time before someone launches an ICO using this technique.
Investors invest in a project to gain returns. Let’s take the example of Dubai because there are many real-estate projects coming up there.
Here is something a builder like Nakheel or Emaar could use to utilize Ethererum’s smart contract capability as well as crowd-funding for its projects.
For purposes of keeping the mathematics and concept simple, we will denote everything in US Dollars.
Let us assume that Emaar wants to build a set of townhouses.
- Each town-house has a market value today at US$ 2.5 Million,
- Emaar wants to build four of them, for a grand total of $10 Million.
- Emaar also needs two years to build this quad-house.
- Emaar needs the money to build this project (truth be told, I would not be surprised if they actually needed the money, anyhow, I digress).
- The maturity period on this ICO is 24-months.
So Emaar does an ICO. The ICO is an Emaar ICO (so the reputation is already established by the party wanting to do the ICO). This is no Tom, Dick, Harry, Jane, Mary, Joe doing it. This is Emaar.
Emaar issues ETT (Emaar Townhouse Tokens).
- The total token supply is 10 Million. Each ETT = 1 US Dollar
- The ICOs are equally placed in four contracts.
- Each contract corresponds to one house (i.e. 2.5 million ETTs)
- At the end of the maturity period, the tokens will be sold as follows:
- Each contract holding 2.5 Million ETTs will be returned at a value of $1.1 US$ (i.e. a 10% gain) back to the holder, i.e. The 2.5 Million ETTs are now valued at US$ 2.750 Million. This is called the Min_Street_Value.
- This US$ 2.750 Million is the minimum street price of the house at the end of two years for which a buyer would be committed to after the token sale has concluded.
i.e. some person or entity will step forward and place into it the smart contract, US$ 2.750 Million worth of Ethereum tokens which will be cashed out on the last day of the 24 month period.
This is extremely important: So regardless of what happens in the future, each token holder is guaranteed a return of 10% and their principal back in full.
Any other person can come in and place a higher bid and this bid (in Ethereum) would have to be higher than the Min_Street_Value bid. So person X places a bid for ETT of $1.2, i.e. 2.5 Million ETTs = US$ 3.000 Million
The contract is programmed as such:
At the end of Maturity_Period the Ethereum Smart Contact will check if there is a buyer that has put in coins and a bid that is higher than the Min_Street_Value. In this case, there is a bid from person X for $1.2 per ETT – so that contract will automatically execute (if there is no bid higher than $1.2 per ETT) in the system.
- This pretty much guarantees three things:
- The money is never lost in this ICO as there is buyback guarantee
- There is a physical asset backing this ICO
- There is a proper name of repute backing the ICO
- There is a guaranteed buyback price for this ICO
If the property price will be higher by the time it comes to completion, then the buyers who are interested can bid for it – via their bank etc. and place the money via the ETT coins into the blockchain + smart contract.
Not only does this scenario utilize the crowd-funding aspect of the ICO, it also looks at micro (or fractional) ownership of an asset for a small while – before a final buyer comes and claims the asset at a market value price.