REAL ESTATE EXCHANGE

USING ETHEREUM
Analysis of Business Risks, Implementation Issues,
Critical Features and Success Metrics

Submitted By:
Kumar Badgujar, Nakul Ashok, Rimjhim Rajkhowa
Real Estate Exchange Using Ethereum

P2P Real Estate Exchange on the BlockChain

This document is concerned with the disruption of the real estate market with the advent of new
technologies like BlockChain. Currently, the real estate market is facing the following difficulties:

- Very low liquidity

- Hard to implement fractional ownership
- Cross-border real-estate sale
- Poor implementation of regulations
- Lack of transparency in processes

Setting up of a real estate exchange platform on a BlockChain is going to help solve all of the above
problems, and also bring in other benefits such as eliminating intermediaries in transactions. This
leads to reduction in transaction costs. Given the distributed and transparent nature of the
underlying technology, trust levels also increase within the system, which is vital for a platform
models success.

Salient features of the exchange:

The success of the exchange fundamentally depends on the real estate growing faster than the
cryptocurrency being pledged to hold stakes in the real estate, allowing cryptocurrency investors to
hedge risks in fluctuating cryptocurrency values. This can in effect be viewed as implementing an
interest free risk linked loan based on the real estate token exchange rate. Details follow.

Investors

Exchange
platform

Leasers Builders

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Real Estate Exchange Using Ethereum

Platform model
The real estate exchange platform aims to thrive by creating user networks around the platforms
core offering, locking in multiple types of users. Investors will form one side of the network, with
builders/leasers on the other side depending on the use case.

Asset classes
This model will broadly deal with 2 different types of asset classes- one where investments are
happening on new and upcoming projects and another where investors focus on properties in set
localities which will appreciate with time and neighborhood population increase, and also generate
steady sources of income through rentals.

Raising funds
Funds for purchase of real estate happens through the use of crowd funding.
Interested users can pledge any number of bitcoins in lieu of real estate participation tokens,
which will be explained in the next point.

Investment and contractual processes

The following steps are involved in running this market:
a. Crowd source funding to initiate investment on projects: once sufficient funds are raised the
exchange will invest on projects which it deems fit.
b. Enable participation in this market by working the platform on Ethereum network.
c. Obtain cryptocurrency (bitcoin/ether) from investors and grant real estate participation
tokens in lieu.
d. Create smart contracts which fulfil regular property contract obligations over the Ethereum
network.
e. Enact these contracts by using the real estate participation tokens, which act as a proxy to
any other type of currency which couldve been used. The tokens will have a dynamic
exchange rate with respect to cryptocurrency as well as the underlying assets value.
f. Rental payments over the network will be paid out to the investors in bitcoins/ether. Same
applies to sales.
g. Permit trading of tokens the way stocks would be traded in a stock market.
h. Provide users an option to cash out of the system as well.

Acquiring builders/renters
Builders and renters are acquired by banking on the principle of strong network effects on the
2 sides of this platform.

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Real Estate Exchange Using Ethereum

The Trading App

The solution will require an app, which acts as a conduit between 2 sides of the network. Users can
pitch to fund, trade, identify properties and rentals among other things. Salient features of the app
are walked through later in this document.

Inherent Risks in the business

This section highlights some of the potential business risks in an exchange based on this model.

a. Validation of listed properties

For a real estate exchange such as this to work, we need to develop a wide network of
properties across borders.
This requires active scouting for potential investments and careful verification.
This risk here lies in the verification part, especially in the case of cross border
investments. Double selling and Ponzi schemes are potentially viable in these scenarios.
The legitimacy of the property based on international laws, estimating future value
appreciation and ensuring proper maintenance and conformance to standards poses
an inherent risk in running this business.

An example:

ReCoin, the supposedly first BlockChain based real estate solution, where in the founders and
claimed to raise around $4 million but in reality, raised only $300,000. On top of that, they didnt
even invest those $300,000 in any property. There is always a risk that the decentralized
organization lists fake properties or creates in Ponzi scheme.

b. Regulatory Risks and Political Interference:

Any platform based business model is inevitably subject to intense scrutiny by
governments regulatory bodies.
Questions about the exchange rates being set for real estate tokens and governments
attempts to regulate them adds to the risk in the smooth running of the business.

c. Adoption fear and apprehension

Any new system, especially ones such as this which are not actively regulated by any
traditionally acknowledged body are subject to public scrutiny.

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Real Estate Exchange Using Ethereum

It is not uncommon for people to display hesitance in adopting and investing in such
platforms. In these cases, developing and retaining trust becomes key to success.
The risk of losing trust is very high and this can potentially completely derail the business
since platform models tend to rely very heavily on trust based systems.

d. Financial risks with cryptocurrency price fluctuations

This exchange is based on valuing cryptocurrency against real estate tokens. Post investment,
we allocate tokens and not cryptocurrency against estate ownership.
In case of a sudden devaluation of the cryptocurrency, mass cashing out of investors from the
real estate markets is a possibility one cant ignore. If this happens, they need to be paid back
in bitcoins/ethers, since that is what they pledged to receive tokens.
This could potentially lead to not being able to pay back investors their pledged bitcoins since
there might not be enough in circulation, and taking loans in cryptocurrency is hard effectively
rendering us unable to fulfil promises to investors.

e. Investing in under progress projects

Investing speculatively in projects which are under progress or planned is also a possibility in
this mechanism. But there are chances that the project invested in doesnt complete on time, or
gets involved in a litigation etc.
This will impact the expectations of a steady income flow through rentals. Investors would
perceive this as a risk in the platform, and would seek means to know how reliable a particular
promoter is or how efficient a contract is.

f. Risk of non-salability in case of property under scrutiny

Under circumstances where the concerned real estate is in litigation, the investor stands to lose
out since he wont be able to liquidate it. Trust is placed on the exchange platform to invest only
after appropriate due diligence, but investors will always face a risk of the platform failing to
deliver in this regard.
Also, in case the exchange owner retains majority share and attempts to sell property, this will
cause unnecessary risk of losing out on potential profits and income streams for the investor.

Implementation Pitfalls

a. High chances of money laundering

With absence of a centralized regulatory entity, there are chances of money laundering in this
implementation
People can buy bitcoins/ethereum on the black-market in exchange of their black money
They can reinvest these bitcoins/ethereum on our platform in exchange of tokens and then get
white currency in return of these tokens

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Real Estate Exchange Using Ethereum

This is a serious implementation challenge faced by almost all BlockChain based applications. A
method to mitigate such issues are to get the KYC of the user done before he participates in
any transaction on the platform.

b. Updating Token contracts

A token contract is created when a DAPP is created. Although token contracts are
comprehensive within themselves, their implementation is rather complex.
Once a token contract is created it becomes a part of the BlockChain for eternity. Making
changes to the token contract or updating it is a very heavy and complicated operation
However, if tomorrow government mandates a certain compliance format for a token, the
implementation level implications and complexities are uncertain.

c. Property maintenance, taxes, and related work on estate on central agency potential lack of
action on their part can reduce value of estate
Our platform opens up the door of cross border real-estate co-ownership using smart contracts
to as a means to regulate the ownership stake and appropriate payoffs
However, there are still services for which the user will have to rely on the platform in a
centralized manner. These services include: property maintenance and repair, property
management, property insurance, property renovation and any other legal costs or auxiliary
costs borne by the management company servicing the asset.
The two potential pitfalls to these are:
o Validating the timely execution of services
Due to reliance of the management company, it would be difficult for someone to
validate the execution of services in a cross-border case.
o Real-world charges incurred while executing these services
Another drawback behind this feature is that lack of transparency on the actual
charges incurred by the management company. The management company has
the right to levy a service charge that they incurred in rendering these services.
There is again a trust factor issue here.

d. International tax compliances

With cross-border co-ownership opportunities for real-estate, the platform needs to be wary
about the different international tax compliances involved in the real-world purchase of such an
asset.
Different geographies will have different tax regulations. Accordingly, the crowdfunding,
ownership and payoff contracts will change.

e. Government regulations on ownership and tax policies for capital gains

The platform allows investors to earn profit from their investments in terms of rent and sale or
purchase of property.

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Real Estate Exchange Using Ethereum

This opens up an alternative source of income for the investor and needs to be taxed as per
government policies in the investors country
Another important aspect to this is proof of ownership. How will the investor show his ownership
claim on the property? Complying with government regulations in terms of format of the proof
of ownership and deducting appropriate taxes on an investors income earned from such
platform are implementation details that one needs to look out for.

f. Asset ownership reporting

Since this investment is just like any other investment in the real world, an investor should be
able to show it as a part of his investment portfolio.
For instance, if an investor wants to avail a loan, these investments should be used as an
instrument of mortgage.
Establishing such investment vehicles as a legitimate instrument of mortgage that is recognized
by governing entities in the real world is a challenge that needs to be solved by our platform.

App Solution for the above problem statement

Real estate has been the greatest source of wealth for many investors and is the largest asset class
globally. As mentioned above, the Real Estate Exchange app is designed and made keeping in mind
the above risks and pitfalls, and attempts to offer solutions to most of the problems and challenges
faced. In this section, we present snippets of a few critical features of this Real Estate Exchange app.

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Real Estate Exchange Using Ethereum

Feature 1: Crowd Sourcing/Funding

This feature, displayed on the home screen of the app is vital to the ongoing expansion of operations
to the exchange. In order to acquire more properties, continuous pledges of BTC or ethers need to
come in to the platform. The investors are then given real estate participation tokens in lieu of these
pledges as per the exchange rate on the day of the pledge.

One way of carrying out estate purchases is by conducting rounds of fund sourcing with a set target,
which will be invested when met or the deadline for the round is crossed, whichever is later. The
Contribute page displays the contributions being targeted in the current round, and also the
deadline for the current round of fund sourcing.

There is also a preview of the upcoming projects which are being targeted, which when clicked will
take you to a relevant project page, mostly on the site of the promoter of the project.

Pledging here will remit BTC/Ethers from your wallet to the exchange. Once all the property
acquisition efforts are complete from the exchanges end, tokens will be assigned to you which can
be used to target individual projects later on.

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Real Estate Exchange Using Ethereum

Benefits of feature:

Easy verification of project and promoter details

Eliminates adoption fear through transparent process
Superior protection against investing in projects prone to completion delays through
promoter ratings

Feature 2: Property discovery

Another critical feature of the app is titled Discover. This feature enables users of the platform
network, both investors and people who are looking to rent out apartments, to look for prospective
matches.

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Real Estate Exchange Using Ethereum

These listings can be sorted based on whether you are looking to buy, rent or popularity. Color
coded indicators enhance visual appeal and cognitive resonance.

These listings can be filtered based on location and age of posting. (the screenshot shows only
location filtering though)

This feature is key to developing our two sided network effects on this platform, wherein as more
and more investors come in, we will have higher number of renters and vice versa.

Benefits:

Comfortable viewing experience of relevant data to all users

Promotes 2-sided network effects, rapidly increasing platform usage- value for all users!
Quick view of hot deals under trending list, signaling user preferences strongly for
investors

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Real Estate Exchange Using Ethereum

Feature 3: Asset ownership reporting

Once we partake ownership of an asset, we will need to certify that information in some form from
the exchange. A typical use case for this will be taxation. We will need to provide documentation
evidence for ownership of property or proof of lease for income tax - HR purposes.

Such legal documentation will have to happen through the execution of smart contracts at the time
of transaction. Since the private key of the transaction block will be accessible to only the users, only
they will be able to view and download these documents and the exchange will not have any access
to them.

We can access such receipts and legal documentation of previous transactions from 2 locations:

a. The Token Passbook

This is a ledger containing the history of all transactions performed by the user on
the exchange.
b. Menu >> Asset Ownership
This will open up a list of all the legal documentation associated with your account
from past transactions.

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Real Estate Exchange Using Ethereum

Benefits of the feature:

Hassle free, paperless documentation and retrieval

Guaranteed to be secure and confidential by design
Easy authentication of ownership, if implemented correctly has the potential to become
the de-facto standard of attestation

Evaluating the success of the product: Success Metrics

Crowdfunding

Pre-launch Success Metrics

During the pre-launch period of a crowdfund, an effective way to track the performance
of your fund is by measuring the leads. The leads generated can be measured against the
baseline leads for a 30% crowdfund;

(funding goal x 30%) / (conversion rate x token conversion rate)

Post-launch Success Metrics

Conversion rates during the campaign are an important way to measure success.
Track and analyze conversions rates for the campaign page and for Facebook ads
A good baseline conversion rate is typically around 5-10%, but the general trend
should be upward.
Another important aspect is the ratio between cost per click and cost per
acquisition.
CLV > CAC

Property Discovering

Key user actions per session: A important way to measure success of a newly
launched feature is the number of times the feature gets used. We can go a step
further to determine the increase in key user actions per session to measure the
overall impact of this feature.
Cross-side multiplier effect: Another extremely important metric we need to track is
the multiplier effect between property seekers and investors on the platform. The
idea here is to be able to regress and establish a relationship between demand for

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Real Estate Exchange Using Ethereum

properties from user side and interest to invest on the platform from investors side
of our two-sided network
User Retention & Daily active users: The success of a feature can directly improve
our retention rates and increase the daily active user share on our platform. An
indirect way to track the success for this feature is tracking the conversion rate
from this process funnel

Asset Ownership Reporting

The success of this feature goes beyond the traditional usage metrics and reaches
the real world. The idea behind launching this feature is promoting the use of
these ownership proofs or rent receipts as legally accepted assets for the investors
and expenses of the users in the real world
The more legal acceptance these documents will have, the more successful the
feature

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