Funding your house with an ICO


#1

Hi All!

We at Walnut thought of a way to use a new phenomena (ICO) to innovate something rather old: the purchase of property. We wrote a blog about it on Medium some time ago (https://medium.com/@martinvanderlinden_32305/finance-your-home-with-an-ico-758470fa411).
At this point we are starting an ITO to issue tokens for our first client. pre-ITO starts March 5 until 25 and the ITO starts April 1 to 30.
Visit our ITO site at https://www.walnut.ventures/ito or join our Telegram group.
Hope to see you soon!


#2

Couple of questions / observations:

  • In your write up you state that the tokens will be entered on an exchange so that they can be bought and sold. This will change the value of the coins and can change the value drastically day-to-day due to the volatility of the market. As such it may render it impossible for the lessee to buy back the tokens due to their high market price and can as such dramatically change the value of the property (without any reasonable grounds). How do you plan to counter this?

  • What is the incentive for the lessee to actually purchase the tokens back within a reasonable amount of time? What safeguards do you have in place to ensure that the tokens are repurchased within a reasonable time?

  • What kind of interest rates are you looking at? People investing in cryptocurrency and tokens do so with an expectation of a reasonable to high return on investment.

  • Wouldn’t it make more sense to use a stable coin rather than a token on an exchange?

  • Wouldn’t it make a better use case if the tokens purchased were Walnut tokens rather than property specific tokens?

  • When the lessee buys back the tokens, do they burn or now sit in the portfolio of the lessee? In case of the latter, wouldn’t this allow the lessee to drive up / down the price on exchanges.

  • what type of KYC process do you have in place that ensure viability of the potential lessee? If you are targeting people that are unable to qualify for a traditional home loan, then how are your KYC rules and conditions different form those of institutional banks.

  • How do you prevent money laundering?

Interesting idea, but it needs a lot more information added to it from my point of view.


#3

Hi Iwan,

Thank you for your questions and observations. I copied them below and will put our answers/remarks right under them. Hope this answers your questions.

Best Regards,
Martin

In your write up you state that the tokens will be entered on an exchange so that they can be bought and sold. This will change the value of the coins and can change the value drastically day-to-day due to the volatility of the market. As such it may render it impossible for the lessee to buy back the tokens due to their high market price and can as such dramatically change the value of the property (without any reasonable grounds). How do you plan to counter this?

We give the lessee the opportunity to buy back the tokens at ito value plus added interest. Then we only have the issue of availability of tokens to be bought. In our point of view this is not a token for speculation on short term, but a long term, backed investment.

What is the incentive for the lessee to actually purchase the tokens back within a reasonable amount of time? What safeguards do you have in place to ensure that the tokens are repurchased within a reasonable time?

The value of the tokens increase (by the added value). In the Netherlands, not paying back the tokens will result in a loss of your interest deduction facility. We will make sure that in the deeds there is a fallback for when tokens are not bought back. This is also stated in the law that makes this construction possible.

What kind of interest rates are you looking at? People investing in cryptocurrency and tokens do so with an expectation of a reasonable to high return on investment.

Annual interest rates would be between 2.5 and 3 percent. The profit comes from the raise in value of the property itself. Again, this is not a speculative token, but a securer long term investment.

Wouldn’t it make more sense to use a stable coin rather than a token on an exchange?

It would. We chose this to give investors the opportunity to get out along the way.

Wouldn’t it make a better use case if the tokens purchased were Walnut tokens rather than property specific tokens?

That makes it harder to pledge a property specifically to the invested money.

When the lessee buys back the tokens, do they burn or now sit in the portfolio of the lessee? In case of the latter, wouldn’t this allow the lessee to drive up / down the price on exchanges.

Basically, the foundation keeps the bought back tokens. The lessee pays the foundation, the foundation buys the tokens back. Tokens are burned after completion of the lease.

what type of KYC process do you have in place that ensure viability of the potential lessee? If you are targeting people that are unable to qualify for a traditional home loan, then how are your KYC rules and conditions different form those of institutional banks.

We look at the same information as regular banks do. If someone can’t afford the loan, we will not supply it. It is not our intention to put people at risk. But we look at groups that have a hard time obtaining a loan and do have the means to afford it.

How do you prevent money laundering? For bigger amounts (>12ETH) , we will do a KYC.


#4

Just a tip, highlight text in the original message and a quote option shows up, clicking this will open up a reply box with the quote embedded, this makes it easier for others to follow the Q&A :slight_smile:

You would have the same opportunity with a stable coin, you can list it on exchanges and allow investors to opt in/out at any time, but you can guarantee price stability, linking it to the EUR would make sense in this case, in my opinion.

Are you not running a substantial risk in this case? Investors buy in on the tokens for a specific property, but that token is listed on an exchange, so an investor can sell off their investment, or attempt to sell it off. If there are no buyers, the investor will sell it at reduced value, which either renders the opportunity less attractive, or which reduces the value of the property as a whole.

I’m having a hard time seeing this part of your value proposition.

I just read through your whitepaper and it outlines that the tokens grow in value due to the added interest on a monthly basis (or some fixed time basis); let’s for a moment assume that the markets accept such a standardised value increase, which may be an incentive for a investor to hold the tokens.

However, I didn’t see a need for an investor to sell the tokens on due dates, is this in the “Deed of Pledge”? I.e. a lessee cannot own the property until all tokens have been bought back, what if an investor holds on to the last token (out of spite for example), how does the lessee gain control of the property?

Also, the whitepaper states that the lessee pays the foundation to buy back the tokens and that the foundation will hold the funds if there are no tokens available for (re)purchase; this kind of ties in with my earlier question: how does the foundation guarantee transfer of ownership when all redemption and interest are paid in full but the tokens cannot be repurchased? (think of a scenario where the investor passes away unexpectedly and nobody has access to his/her private keys to sell the tokens)

Page 18: issues, states: “if the lessee wants to terminate … increase in value is split over all tokens, so also the already by the lessee bought tokens profit form this” According to your earlier response the foundation is the one that holds the bought back tokens, not the lessee, so how does the lessee benefit form this?

Onwards to pricing, it is a really beautiful property by the way! The value of the property is EUR 1.500.000, with the ETH at 700 EUR / coin this would translate into 2,143 ETH required to purchase.

(page 28) The value of a token is 0.01 ETH and you are issuing 3,000,000 (3 million is how it currently appears), which equates to 30,000 ETH or 21,000,000 EUR … I’m assuming this is meant to state 300,000 tokens?

Mind you, it is hard to read so it could also be stating 3,000 tokens but that would only translate into 30 ETH?

Can you clarify these numbers?


#5

[quote=“iwan.spillebeen, post:4, topic:2743”]
Onwards to pricing, it is a really beautiful property by the way! The value of the property is EUR 1.500.000, with the ETH at 700 EUR / coin this would translate into 2,143 ETH required to purchase.

(page 28) The value of a token is 0.01 ETH and you are issuing 3,000,000 (3 million is how it currently appears), which equates to 30,000 ETH or 21,000,000 EUR … I’m assuming this is meant to state 300,000 tokens?
[/quote] It is meant to be 300,000 tokens. I see that in the print version of the whitepaper to number is wrong. I will correct it.

I think you do have a point here. We have to make a seperate article in the deed(s) I think, to solve this. I believe that eventually, ask and demand will move towards each other, but the lessee should not be ‘victim’ of it.


#6

Great, that makes a lot more sense :slight_smile:

Yeah, not sure how I would tackle that one, perhaps the best approach is through smart contracts, where the contract regulates the final token sale. I.e. if all redemptions and interest are paid, all tokens need to be sold back to the foundation, irrespective of the wishes of the investor. You can automate this process and clarify that first acceptance of the investor will be sought but if not gained within 7 days (or some other deadline) then the token sale will automatically be executed by the smart contract.

It does leave some gaps, so for sure it also needs to be mentioned in the deed(s), an investor can always move the tokens to a different wallet which would prevent execution of the smart contract. Again, you could prevent such a move in the smart contract itself but then the ability to resell the tokens at any time would disappear, which is contrary to the underlying idea of investors having freedom of movement.

I do agree that supply and demand would keep most of this moving forward, and I would not build for exceptions (such as mall intent) but in case of an investor passing away, the private keys being lost, the tokens being held in an estate that is in dispute and therefore locked, etc. some safeguards need to be in place.

Which brings to mind another question, when an investor sells the tokens at any time during the lifespan of the huurkoop, what binds the new buyer to the deed(s)?


#7

What exactly do you mean? The new buyer of the tokens? Basically, the tokens are binded to the deed(s).


#8

Sorry , forgot for a second that the tokens are issued per property and as such effectively bound to the deed of that property. That implies that you could regulate and trigger an automatic sale of the remaining tokens through a smart contract once all redemptions and interest payments have been settled with you.

You can add that as conditions into the deed(s) which should then enable you to automatically close the huurkoop at the end.

Really interesting concept and a very interesting discussion on this forum I certainly learned a bunch of new things, thank you very much.


#9

Your welcome Iwan! I hope we have triggered you to participate :slight_smile: