Every day, DeFi and TradFi inch ever-closer to their own singularity.
It’s a trend I’ve been chronicling for about 18 months now – the never-ending and increasingly speedy
progression as the cryptoconomy invades the world of banking and Wall Street with decentralized,
blockchain improvements on traditional financial products and services.
One the latest entrants: Parcl—a Solana-based FinTech firm that has brought real-estate investing to the
blockchain.
However, this isn’t tokenizing properties to buy and sell on the blockchain. It’s much more ambitious:
Using the blockchain and the abundance of available data to trade entire cities based upon the daily
price movement in their underlying real estate markets.
Here’s what that looks like with New York City…
Every day, thousands of residential properties are sold, listed, and repriced in the Big Apple. Until now,
tracking that river of data in real-time would have been near-impossible. But by employing “oracles” to
scour public real estate data such as deed recordings and MLS listings, Parcl is able to bring all that
information onto the blockchain, and then use data analytics to produce on a daily basis the change in
the per-square-foot cost of New York City’s residential real estate. (It can do the same in Austin, San
Francisco, Miami Beach, Seattle, and numerous other cities … and just recently it launched a price
tracker in Paris, and will soon launch in Jakarta, London, and Hong Kong.)
The technology’s benefit is that it now gives investors and speculators a new, crypto-based tool for
owning or shorting real estate in one, specific market, and based on median price changes that occur
daily. The only other option for investment exposure to real estate are the S&P CoreLogic Case Shiller
exchange-traded funds. But those are big, broad composites of large U.S. cities or America as a whole.
Moreover, the underlying assets in those ETFs are calculated monthly, based on home-price changes
over the previous quarter.
In short, CaseShiller’s newest data is old even before it’s released, nor does it reflect the true state of the
market at that moment. And neither does it account for any residential property other than single-family
homes. Moreover, taking a position in a single market like, say, Las Vegas or Philadelphia is impossible,
aside from buying property locally.
With Parcl, “owing” the entire, local residential real-estate market, and profiting from its daily change in
direction, is now available—proof that DeFi is taking on TradFi with novel investment opportunities that
have never before been seen.
Through the Parcl platform, traders and investors can take a position in a specific city simply by
connecting their crypto wallet. The process is as easy as trading an NFT: log into the platform with your
Solana wallet, choose the city in which you want to invest, then click “buy” or “short.”
Trades are denominated in USDC, and they’re peer-v-peer.
By that, I mean that longs and shorts are betting against one another, with liquidity providers in the
middle. Overall, about 64% of investors are long the U.S. real estate market right now, while 36% are
short. But on a market-by-market basis, the skew can be wildly different.
For instance, Austin, Texas. There, 99.6% of the money is short what is clearly an overheated real estate
market. Nearly 89% a short San Francisco, a market in economic and social decline.
Then again, more than 95% of the money is long Miami Beach as Florida sees an influx of new residents.
And nearly 99% are long Atlanta, a city emerging as the economic capital of the fastest growing region in
America—the Southeast.
Traders can hold their positions for minutes, days, weeks, months—whatever. However, as markets skew
in one direction or the other, a “funding rate” kicks in, or what is effectively a “holding tax.” In practical
terms (and without diving into the math of automated market making), those who are on the majority
side of the skew pay a per-second fee to those on the minority side.
In the examples above, anyone who’s short Austin or San Francisco is paying a tax to investors who are
long those markets. Similarly, anyone who’s long Miami Beach and Atlanta is paying a tax to those who
are short those two markets. The purpose is to reduce the negative impact that an overly skewed market
can have on a specific city’s pool of liquidity.
The tax is pulled out of an investor’s withdrawal. So, if an investor clocked a 10% gain, for instance, and
the cumulative funding rate was, say, 1% during the period the investor held the position, then the total
return would be 9%.
For investors, then, what Parcl brings to the table is a novel way of profiting from price direction—up or
down—in individual real estate markets. A truly unique way of wagering on real estate.
But I would argue Parcl is just as important for another reason: It’s yet another piece of a much bigger
mosaic telling us that crypto and Web3 are the future of everything. Those who see that, will see the
long-term opportunity in this comparatively short-term bear market.
