What if you could use your bitcoin (BTC) or ether (ETH) as collateral to purchase a home? This innovative concept is crystallizing through the real estate firm Propy, which is preparing to auction a condominium in Honolulu, Hawaii, starting at $250,000. Potential buyers have the unique opportunity to finance the property by securing a loan from Propy, contingent on providing 100% collateral in either bitcoin or ether while also pledging the property itself.
“It’s a great proposition for bitcoin holders,” stated Natalia Karayaneva, CEO of Propy, in an interview with CoinDesk. “It’s not a taxable event. They get a loan and buy real estate with it, instead of exiting bitcoin, paying taxes, and then buying real estate.”
Under this arrangement, buyers could take out a two-year loan with a 10% annual interest rate. However, there are inherent risks involved: if the value of the cryptocurrency used as collateral drops by more than 50%, a margin call occurs; in a worst-case scenario, the crypto holdings may face liquidation, and the property could be resold at an auction. On the other hand, should the cryptocurrency’s value double, buyers might easily repay the loan from their gains. Interestingly, the loan and interest payments can be settled using bitcoin, ether, or USDC.
Another significant aspect of this transaction is the tokenization of the property. Propy’s mission, launched in 2017, focuses on channeling real estate transactions onto the blockchain to enhance speed and liquidity. For the Hawaiian property sale set for January 29, prospective buyers can expect immediate loan processing, with an automatic reclaiming of their crypto upon fulfilling the repayment.
“This isn’t just a milestone; it’s a glimpse into the future of real estate,” Karayaneva remarked. “We’re demonstrating how blockchain technology can simplify home buying, replacing the traditionally lengthy loan approval process with an instant, efficient solution.”
Buying Real Estate On-Chain
Using the Ethereum layer 2 solution Base, Propy has not frequently tokenized properties up till now; rather, the firm has primarily relied on smart contracts to expedite real estate purchases while minimizing attorney fees. “The main business is coming from normal consumers. They even don’t know that we use smart contracts on the back-end, but they love how quickly and transparent the whole process is,” explained Karayaneva.
When Propy tokenizes a property, it establishes an LLC for the property within the county register, subsequently creating a token in a process that typically requires about two weeks. When ownership changes hands, the LLC is updated accordingly, and the property’s token is transferred to the new owner.
Currently, transactions solely relying on cryptocurrency account for roughly 5% of Propy’s volume, according to Karayaneva. One notable example involved Michael Arrington, founder of TechCrunch, who converted his apartment into an NFT. Propy also conducted the auction of a 17th-century Italian mansion on blockchain back in 2017. “We haven’t executed many of those transactions yet because we needed the loan product to scale. People need a mortgage or a loan to access real estate,” she added.
Further supporting the crypto community, Propy offers escrow services in collaboration with Coinbase, allowing bitcoin holders to engage in real estate purchases without needing to convert their holdings into ERC-20 tokens like wBTC.
Once a property has been tokenized, the buyer retains the ability to sell it to another crypto-native individual without necessarily routing through Propy. If the token is transferred to a new wallet, the buyer will receive a link to provide Know-Your-Customer (KYC) information, and their name will subsequently be recorded as the property owner in the LLC. Additionally, the buyer can ‘un-chain’ the property from the LLC, reverting ownership to a conventional model—a process Karayaneva has termed “un-chaining.”
“Our premier goal is really to on-chain as many real estate assets as possible,” Karayaneva concluded. “Imagine making an on-chain swap between a real estate on-chain asset and bitcoin or another crypto asset. … It’s a $300 trillion market. Imagine if it becomes liquid.”
Read More: Propy Teams With Abra to Offer Property Purchases Backed by Crypto
