Intro to On-chain Property Lending
We’ve turned Land into cash…and you get to keep the land.
If you look at a popular Land marketplace like Landsearch you’ll see over 300,000 active listings, 280,000 of those are greater than 90 days old. Land can be illiquid. At Fabrica we’re changing that.
We’ve already enabled quick and efficient transactions by bridging these properties on-chain as NFTs; going from having no land to verifiably owned land in less than 5 minutes is amazing and improves the liquidity of the market as a result.
The next big advancement after transactions is financing. Thanks to Fabrica, this is the most revolutionary development the Land market has seen in years. With your Land as an NFT, you’re free from the old world of banks and hard money lenders who make lending in this area extremely restrictive and tough. Now you can borrow against your property in minutes using DeFi platforms that you already know.
While this is new at scale, we actually helped enable the first ever defi property loan back in 2021. We did this on NFTfi with a property we brought on-chain. It worked similar to most defi and NFT loans:
- Owner bridges land to NFT using Fabrica
- Owner connected to NFTfi using their crypto wallet and creates loan
- Lender fulfills loan and owner receives proceeds
- Borrower/Owner repays loan + interest and closes out the loan
Since then, the total loan volume through platforms like NFTfi have exploded.
With more and more people tapping into these platforms both to borrow and earn a yield, now is the perfect time for asset-backed NFTs. More and more yield seeking lenders will be inclined to lend against a real asset.
How does Fabrica bring certainty to this market?
As we bring a property on-chain we perform a variety of validation checks around the NFT and property. We perform title checks, reviewing the chain of title, past owners, and deeds to ensure that the information lines up. We also verify the legal description and geo cords provided by the user, as well as the status and authority of any entities being used. We also check for any encumbrances or outstanding liens on the property and represent them on-chain if necessary. The company checks wallet addresses and usernames against OFAC restrictions to ensure compliance.
Once the NFT is live and on-chain we run a confidence check on any on-chain transactions:
- Are the identity of all owners–current and past–verified?
- Are there any known ownership restrictions on any current or past owners?
And make sure the NFT is under a known legal instrument/operating agreement with verifiable title history:
- Under a v3.x Operating Agreement
- Deed into holding entity recorded
- Claim in Token Matches Legal Description from County
- Holding Entity Matches Owner from County Assessor
You can read more about these points in our documentation here.
Over the last few months we’ve spoken with 20+ defi platforms and have completed loans backed by our property NFTs including a platform called Arcade.
Here’s how the process looks with Arcade.
Arcade is a platform which allows for peer-to-peer lending around NFTs. They are currently a zero-fee platform but we expect this to change in the future. For now, the costs around the loan are set in terms of interest payments and Ethereum network gas fees.
Things you’ll need to get started:
- A computer (not mobile device)
- MetaMask chrome-extension
- At least $100USD in $ETH in that wallet
Once on Arcade and connected to your ethereum wallet, you’ll navigate to your account tab and select “My Vaults”
A vault is a container that can contain 1 or more NFTs (of 1 or more collections).
From here you’ll be able to Mint/create your vault.
The full loan process from creation to closing and withdrawing from Arcade may cost around $100 USD in $ETH (so have at least that in your wallet but it may be worth having more than that).
These costs are known as “gas fees” on the Ethereum network. Ethereum gas fees refer to the transaction fees paid by users to send or execute transactions.
These fees will be spread across a series of transactions and approvals through the loan process.
Once you’ve approved the Mint Vault transactions you’ll be able to place NFTs inside of this vault.
Here is where you’ll select a Fabrica NFT to deposit into the vault.
Please note that this process allows a smart contract to temporarily withdraw the NFT from your wallet and place it into another wallet/smart contract. This will cancel any active listings on any marketplaces you have.
MetaMask will ask you to confirm this transaction as it is a potentially far reaching authorization. As always, when transacting across the blockchain you should be aware and understand what you are signing, and what permissions you are authorizing.
Arcade has processed nearly $60m in loan transactions through their platform and the largest single loan has been of $4m. For more information on Arcade you can view their documentation here as well as some analytics of their loan activity.
Once your NFT has been deposited into the vault you can set the terms of the loan as you wish. A lender will need to accept these in the future.
The Principal is the amount you are looking to borrow. The principal can be denominated in any of the following:
- USDC: is digital stablecoin pegged to the United States dollar. USDC is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain, an investor in Circle.
- WETH: is “Wrapped Ethereum” and allows for greater and cheaper interoperability across the network. It can easily be converted back into ETH and other crypto currencies through a platform like Uniswap for very low fees.
- DAI: is a stablecoin cryptocurrency that is created and governed by the MakerDAO protocol, which is built on the Ethereum blockchain. DAI is designed to maintain a stable value relative to the US dollar.
- APE: is an ERC-20 crypto currency within the Ethereum network. It was created by Yuga Labs and is managed through a foundation.
The Repay amount is the sum of the principal amount plus interest.
The Duration can be set in both days and weeks.
Using those 3 inputs an APR will be automatically calculated for your viewing.
Once your terms have been signed you’ll be asked to “START LOAN” which will allow a lender to accept these terms. The loan will not be financed until a lender accepts these terms.
You’ll also be able to receive offers from lenders at different terms. Similar to you creating terms originally, there will be a gas fee of up to $60 (depending on how busy the Ethereum Network is) to accept these terms. This offer will appear in your vault page.
When a lender finances your loan or you accept an offer of different loan terms, you will receive the principal amount listed in the terms in your wallet automatically.
To see this you may need to “Import” the token that you accepted i.e. $WETH to your wallet in MetaMask.
You will also receive an “Arcade Borrower Note”. This note represents your claim to the NFT/Vault. Whoever has this note, has the right to repay the principal amount plus interest and claim the NFT in the vault. It would be wise to not transfer or sell the Borrower Note unless you are sure of what you are doing.
Towards the end of the loan period, you may request to extend the loan or pay off the loan.
By selecting the “PAYOFF LOAN” option, you’ll be paying off the principal amount plus interest to the lender.
If you do not pay off the loan by the loan due date you will be in default. While in default, the lender has the ability to claim the NFTs in the vault. Up until the lender does this, you are able to pay the principal plus interest and remain in possession of the NFT. If the lender claims the NFT, you will not be able to get the NFT back.
Upon successful completion of the loan, the NFT will remain in an unlisted vault. From there you can create a new loan or withdraw the property back into your original wallet.
If you choose not to withdraw your NFT, you can create terms for a new loan and repeat the process.
If you have a piece of Land that you'd like to bring on-chain you can do so here.
If you don’t own a property, you can see some Land that’s already an NFT here.