DeFi mortgage pools need more value? Feasibility Analysis of Introducing Real Estate into the Mortgage Pool

Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from

Crypto Valley Live (ID: cryptovalley)

Crypto Valley Live (ID: cryptovalley)

, Author: David Hoffman, translation: Ziming, reproduced by Odaily with authorization.

This article discusses the possibility and feasible approach of breaking ETH’s monopoly position as MakerDAO’s mortgage asset—that is, introducing Off-chain real estate through RealT, and combining the new agreement (Balancer) to make the real estate enter MakerDAO’s mortgage asset pool, so that DAI’s The performance is more stable.

Financial applications of Ethereum are really hungry for new assets. RealT, with its ever-growing real estate pool, and the brand-new DeFi protocol Balancer business will have the answer ETH wants.

In fact, Ethereum is an organic combination of all applications built together. Applications within Ethereum combine themselves into a unified financial ecosystem. We call this ecosystem "Ethereum".

All applications on Ethereum are value-driven financial applications. The assets of Ethereum applications flow through the electrons in the wires that power all applications. The more valuable the asset, the more current will flow through DeFi.

Of course, this is another way of saying economic bandwidth; the economic bandwidth of Ethereum refers to the total market value of assets flowing through DeFi.

The economic bandwidth of Ethereum is essentially a function of the value of Ethereum (ETH). When the price of ETH increases, economic bandwidth increases because more asset value flows through DeFi.

If native applications on Ethereum (especially those with native assets) want to become more valuable and useful, they need the value of Ethereum to appreciate in order to be able to tap into a larger market. MakerDAO on ETH with a market cap of $20B is much better than ETH with a market cap of $20M.

• If native applications on Ethereum (especially those with native assets) want to become more valuable and useful, then they need ETH to appreciate in order to be able to enter a larger market. MakerDAO with a market cap of $20B on Ethereum is obviously much better than when its market cap is $20M.

• However………

• This again creates a "chicken and the egg" problem:

• Applications on Ethereum need an increase in the price of ETH to reach a larger market;

ETH appreciation depends on the adoption of Ethereum;

Ethereum applications can only use ETH (in fact, DAI is essentially ETH, and USDC is not much different from DAI);

Ethereum is not universally used as it is only useful for ETH holders.

ETH+DAI=95% of DeFi

ETH is a trustless asset, and DAI is also counted as ETH. This is naturally great for ETH as it can achieve a monopoly in DeFi.

But it is not a good thing for DeFi. DeFi is caught in an embarrassment that can only provide ETH services to customers. The other asset on Ethereum that can add significant additional value to DeFi is USDC. While USDC is good, it does improve market liquidity and new collateral types, it is not materially different from DAI, it is still a stablecoin that maintains a 1:1 ratio with the US dollar.

In fact, some financial applications on Ethereum have nothing to do with assets. And they are also looking to use new assets.

Both MakerDAO and Uniswap have undergone protocol upgrades to purposefully reduce their dependence on ETH. As a result, Ethereum’s three largest applications, MakerDAO, Compound, and Uniswap are all off-chain asset-agnostic platforms. "Run DeFi on ETH" is probably the best phrase to say about getting value on ETH, but that shorts all Ethereum applications. They don't have some kind of gratitude for ETH and are eager to acquire new assets in their applications.

Let DAI have multiple mortgage assets

Letting DAI have multiple collateral assets means that we enable alternative asset types and reduce our dependence on ETH. DAI is a product of the Ethereum ecosystem that is objectively better when there are more uncorrelated assets in MakerDAO vaults.

DAI is indeed stable, but we cannot achieve its stability by being 99% backed by a collateral (ETH).

Uniswap V2

We witnessed this on Black Thursday, when the price of ETH dropped by more than 40% in one day. Since 99% of all open DAI is backed by ETH, DAI’s collateral value has nearly halved. Then a series of liquidations may ensue.

If MakerDAO can use other assets that are not related to ETH, then the MakerDAO system will have strong roots. If DAI is not 99% dependent on ETH, then the stability and liquidity of DAI will be immune to ETH fluctuations. In the same world, 50% of DAI's collateral is backed by ETH, and the other 50% is backed by assets unrelated to ETH, then the competition for DAI will be greatly eased.

The recently released Uniswap V2 breaks ETH’s monopoly as a trading pair asset across all Uniswap markets. Many markets on Uniswap will continue to use ETH as collateral, especially native assets such as Ethereum MKR, DAI, and REP.

Other types of assets denominated in stablecoins are more suitable for trading, and off-chain assets such as real estate or gold denominated in US dollars are also more suitable for trading, because they are priced at such prices outside the Ethereum platform. Has anyone thought about RealT's real estate transactions denominated in ETH on Uniswap? I am afraid that no one can accurately price real estate with ETH unless it is in Uniswap V1.

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Off-Chain Assets

• In order to break free from the shackles of a completely "self-referential system", Ethereum needs to build bridges to access new sources of value. Access to new sources of value will provide Ethereum with the resources it needs to develop a healthy and stable economy. Both users and applications have more choices in staking assets, which is mutually beneficial for all parties involved.

• real estate

• Real estate, the most valuable industry in the world, is the clear first choice for a new type of collateralized asset in the Ethereum ecosystem.

This is a new type of collateral for MakerDao, highly independent of ETH (unlike BAT);

This will be a new type of market for Uniswap.

stable currency

Real estate is characterized by high value and low volatility. It has different characteristics from ETH, that is, the latter has a low market capitalization and high volatility. Adding real estate to the portfolio of any application like MakerDAO or Compound makes the entire DeFi ecosystem more stable and useful.

Black Thursday shook up the entire DeFi structure, because the entire DeFi structure is built on top of ETH. It would obviously be beneficial to have DeFi's second basic mortgage asset during the ETH shock period, and real estate is a better choice for its secondary pool of value for DeFi applications.

stable currency

After ETH, stablecoins are the most liquid and financial assets on Ethereum, which provides a better transaction experience between companies and customers. This makes Ethereum ideal for novel products and services for those earning rental income through stablecoins.

RealT issues rents on a 24-hour cycle; but only a highly liquid stablecoin ecosystem and fast block times can achieve this mechanism of operation. So it is a good thing that Ethereum has users. RealT is sending $300 per day to users through the Ethereum ecosystem, and it's growing fast. (Can exceed $10,000k per month!)

Without that DeFi users will have no choice but to take cash from the market and go home. But if there is DeFi, RealT users have more choices while holding rental income. They can store the value of their cash in Ethereum, DSR, Compound, Aave, dYdX or other DeFi applications that provide DAI services.

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RealT is expected to become one of MakerDao's mortgage assets

RealT is the first company to bring real estate to Ethereum. The available collateral pool is also growing as total assets issued on the network exceed $1 million. More and more real estate agents in different cities in the United States are planning to issue and sell their real estate on the RealT platform in the future.

Currently, all real estate on RealT is tradable within Uniswap (in competition with ETH). Historical pricing data for RealT assets in Uniswap illustrates their price stability (even when priced in ETH).

You can check the price chart of RealT’s top 3 properties on Uniswap over the past 6 months:

You can pay more attention to the changes in the prices of these three real estate during Black Thursday in the chart above. (The above picture uses a different timeline because it entered the Uniswap market at different times)

There are two points to note:

1. RealT's assets may be the most volatile real estate in the world;

2. Even if the previous point is true, RealT's assets are the most stable assets on Ethereum.

At the same time, remember that the premise of the first point above is correct only because RealT is denominated in ETH and not in stablecoins. Since the real properties in the above chart are denominated in ETH, you can see the volatility of ETH from the changes in the prices of these real properties. You can see arbitrageurs stepping in to get a fairer price for RealT real estate in the market, as ETH price fluctuations change the value of RealT real estate on Uniswap.

Real estate acts as a collateral asset in MakerDAO, which is exactly what is needed to provide DAI with additional stability and liquidity.

RealT has 6 properties on Uniswap exchange

A total of 520 ETH provides liquidity to 6 different RealT markets. Since Uniswap uses a 1:1 market design, the total liquidity of 520 ETH ($70,000+) is divided into 6 different markets.

This shows that RealT's assets become the biggest obstacle for MakerDao and other DeFi applications as collateral assets: a single real estate is too bulky to be used as a collateral asset due to its lack of liquidity.

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Introducing Balancer

Balancer is very similar to Uniswap except for the 1:1 market (that is, one asset can only be traded for another asset). Balancer is more "multi-faceted" and can manage any number of tokens in a single pool. By using Balancer, you can buy and sell any asset in the asset pool, and can obtain the asset pool liquidity of all assets.

In the initial period, Balancer launched a pool of 8 tokens, and plans to expand the size of the pool through further research and development.

Balancer is an asset aggregation and liquidity tool (gadget). It allows assets to be pooled into a common pool and issues secondary tokens that represent a partial index of assets. In doing so, it also aggregates the liquidity of each asset in the pool.

RealT is actively exploring various possible architectures for the application of Breaker, but there are still some things to be perfected, such as maintaining legal compliance and the structure of the product provided, and we will continue to update the Ethereum community on our methods to deal with obstacles progress.

Once RealT overcomes these hurdles, Ethereum will have its first non-native asset and will usher in its prime time for DeFi.

Depositing RealT's assets into the RealT Balancer pool will return a new token to the depositor, which represents the right to claim the deposited asset pool. This is also how Uniswap works. The tokens of the RealT-Balancer pool symbolize the credit of any asset in the RealT-Balancer pool. This means that tokens from the RealT-Balancer pool can enter the rest of the DeFi ecosystem and be used as collateral in MakerDAO, Compound, or any DeFi application that requires collateral.

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increase liquidity

RealT pool tokens will have the market cap of the sum of assets in the RealT Balancer pool. RealT assets can exist inside or outside of Balancer. Balancer is an optional utility on Ethereum for owners of RealT properties. As a RealT property owner, you will never be forced to do anything you don't want to do.

But there are some benefits for users who submit RealT real estate to the RealT Balancer pool. The main benefit is that you can get the transaction fees charged by the RealT-Balancer pool.

Balancer transaction fees

Like Uniswap, Balancer charges fees to those who swap assets within the protocol. If you add an asset to a Balancer pool, it means you will be trading with those (liquidity providers) for transaction fees. Although the balance of assets in the pool may change, liquidity providers theoretically receive more value than they put in transaction fees

Uniswap charges a flat 0.3% fee across all markets. Some specific pools can have their own unique exchange fees by using Balancer. Some research will be required in RealT to simulate the optimal fee. But my hunch is that it's much higher than the Uniswap default of 0.3%. For example, if the transaction fee for buying and selling real estate IRL is 3% for both buyers and sellers, the total will be 6%. Some voices say it should be somewhere between 0.3% and 3%, which sounds plausible but more research is needed.

The purpose of the fee is to provide an incentive to deposit assets into the pool. The more total assets deposited, the more total liquidity available. Tolerating exchange fees of 0.3% to 3% in the real estate market is a strong argument for increased collateral.

• This kind of incentive mechanism is what Ethereum needs to take real estate liquidity to new heights. Balancer’s customizable transaction fees allow companies like RealT to set key parameters that best suit their specific needs. RealT and real estate usually have a very strong need for liquidity. Balancer's ability to aggregate assets and incentivize asset deposits is why I call Balancer the "liquidity tool" for DeFi. Balancer is indeed a better tool to store assets and increase liquidity levels.

• RealT Real Estate’s Proposed Route to MakerDAO

• While this roadmap still needs legal support, here is a general strategy for acquiring RealT assets in MakerDAO:

• Transfer all real estate assets within Uniswap into a single Balancer pool.

• Raise Balancer’s exchange fees to a more profitable price for liquidity providers to incentivize RealT real estate owners to further deposit assets.

As the assets deposited increase, the total available market value of RealT-Balancer pool tokens increases.

Then RealT merged the liquidity of six separate Uniswap-RealT markets into one unified RealT-Balancer pool token market: the new DAI exchange.

RealT is working with various DeFi teams like MakerDAO/Compound to get them to accept RealT pool tokens as collateral assets within DeFi.

Before RealT real estate becomes collateral within MakerDAO, MKR holders must vote in favor of this decision and accept tokens from the RealT-Balancer pool as their collateral. But we do have some existing ways to help RealT-Balancer pool tokens become attractive collateral assets for MakerDAO.