The Pomp Podcast - #1328 Natalia Karayaneva | How Crypto Is Revolutionizing Real Estate

Starting point is 00:00:00 What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Natalia Karyaneva. She is the founder and CEO of Propy. In this conversation, we talk about the real estate market, how blockchain technology promises

Starting point is 00:00:41 to potentially make transactions cheaper and faster, why she's launching a brand new product that is helping all kinds of people across the industry, and also a brand new game that got spun out of Propy called Propy Keys. This conversation taught me a lot. I hope you guys enjoy it. Here is my conversation with Natalia Karyaneva. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement

Starting point is 00:01:14 to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Propy. Imagine a world where you could buy and sell your home, wallet to wallet. With Prop Keys, you can mint your home address and upgrade it to a real-world asset. This not only protects your home's title from fraud, but when you are ready to move, you can sell it through an NFT auction as well as through the traditional way.

Starting point is 00:01:42 There's optionality here. Propy Keys is part of the Propy ecosystem. Their mission is to make home ownership more efficient, affordable, and user-friendly. PropyKeys is a fun entry point to placing title on the blockchain. Now, anyone can start their on-chain journey by minting home addresses via PropyKeys and staking them for profit until they are ready to sell their home. Visit PropyKeys.com to learn more. Again, that's PropyKeys.com to learn more.

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Starting point is 00:03:02 Visit supra.com slash pomp to learn more. That's S-U-P-R-A dot com slash pomp. All right, guys. Bang, bang. I've got Natalia here. I thought a great place to start the conversation is the real estate market is massive. You know, residential real estate is the largest asset class in the world. Commercial real estate is this huge, huge thing.

Starting point is 00:03:23 And for years, maybe decades, people have been saying technology is going to come to the real estate world. I promise we're not going to use physical paper. We're not going to use fax machines. We're not going to use wet signatures. All these different components that historically have really made up the real estate market. Now, maybe we're starting to see it. We have obviously prop tech type companies that are starting to make a dent in this problem. But you all are taking a different approach.

Starting point is 00:03:45 You're using blockchain technology to go after the real estate market. And so describe, like, what is the problem that you really see that you all think that you can solve? Hi. Hi, Pom. Hi, everyone. Thank you so much for having me. I'm super excited to be here today to kind of show and illustrate the potential of this innovation in real estate, but also try to explain what are the main issues that we're solving here, because there are a tremendous number of issues and challenges in the real estate industry today. First of all, as you mentioned, it's a $300 trillion industry that is very prone to hacks and fraud cases due to the digitalization.

Starting point is 00:04:32 So even though it's becoming easier to transact, the real estate market is becoming more liquid. At the same time, this innovation introduces a lot of problems for the end user, the consumer. Today, when the real estate markets are more expensive than ever, and a lot of markets is unaffordable, yet many savings of ordinary people are locked in this asset. and they have huge risk to lose it. So title fraud has been increasing every single year. Last year, it accounted for $400 million of losses in the United States alone.

Starting point is 00:05:14 In many markets, real estate is not accessible and there are $9 trillion of unrecorded land, which was laid down by this phenomenal economist, Hernando de Soto in his book, The Mystery of Capital, which I guess I will point out a little bit more about his concept today. And as you start to play around with the problem, why is it that other technologies haven't been able to solve this, right? What is it about the blockchain technology that you really think can help solve this?

Starting point is 00:05:50 That's a great question. First of all, let's kind of go back beyond blockchain. Overall, the venture capital world has been afraid of the real estate asset, mistakenly thinking that it's too hard an asset to innovate within, or it's very complex from the point of legality. And thus, this industry, the prop tech, became kind of overshadowed, didn't have enough attention from the resources, capital, talent, and so on. And thus, the industry has been very slow to adapt new tools and new innovation. And now, when it comes to the blockchain technology, the problem becomes even bigger.

Starting point is 00:06:39 In this fascinating world of Web3, we find ourselves navigating through paradoxical landscape where many crypto VCs are paying attention to DeFi, Layer 1s, Layer 2s, Bitcoin derivatives, a myriad of tools, infrastructure. And so the capital, both the talent capital and the funds capital, are going towards the infrastructure project, again, not paying enough attention to the real-life applications. And one of those real-life applications, obviously, is real estate. And the blockchain technology, which is the next big phenomenon after internet, is built to transfer value, right? Internet has been introduced to transfer information, which absolutely changed all our lives. And then the blockchain technology, the essence of it is to transfer value, whether it's money, property rights, real estate. And here, the venture capital world, the crypto enthusiasts still don't understand, especially the DJ folks, don't understand that real estate behaves as a digital asset. And in this, there's people, let's just take residential real estate.

Starting point is 00:08:04 We use them as the example, right? Obviously, when I'm buying and selling, there's transactions that are occurring. Is that kind of the point at which you think there's real efficiency and efficacy of new technology? Or is it something while I'm owning or while I'm looking for real estate? I'm obsessed about transactions and automation of the transaction. And thus, I'm putting all my time and efforts towards transaction itself, even though there are so many real life applications in managing properties, building homes in a better way, fundraising for real estate development and construction. So when we're talking about transactions, there are two major applications of blockchain that I'm very excited about. First, it's a smart contract, smart contract settlement, because obviously such a high value asset should be transferred securely.

Starting point is 00:08:58 And the smart contract settlement is the best technology to transfer assets simultaneously when the funds are transferred to the buyer. And we have this example where a property was transferred as an NFT, RWA NFT, from one wallet to another wallet in a form of a smart contract-enabled auction, right? So that's a huge application of smart contracts in real estate when it comes to transactions. And this technology, first of all, can help with affordability in the U.S. Because today, about 10% of home values are lost in different transaction fees. 10%. Americans are paying $25 billion every year to escrow and title services. That is a massive industry that is utilizing and penalizing the consumers because the real estate industry is still so behind.

Starting point is 00:10:00 And as you're doing this, obviously you can automate the actual transaction, but there's like a legal side to this, almost like a regulation side to it. There's obviously where the title store, the local county, maybe even the state, they all want to understand who owns what property, when is it transferring, how much can we tax it? How do you think about the technology innovation, but then also having to play within some of these antiquated systems or have to interface with, you know, whether it's the county or state? Yeah, that's a great question. And actually, again, the blockchain technology is the best technology to track and record all those transactions. Today, counties are recording a very small amount of information about transactions, which is basically a scanned document of a title deed. And rather, with the innovation in blockchain immutable records, we will be able to have the full transaction data on the blockchain.

Starting point is 00:10:59 It could be encrypted for the consumer, but the government will have the better ability to tax, as well as to track all the transactions. And that's when we have full data set and the historical data on chain. Then obviously, this industry is a title insurance that is, again, $25 billion every year consumers are paying. This would be obsolete. And so do we need the counties and states to do anything differently? Or can your technology operate within their system? And what I start to think about is like, you know, what are the long term ramifications?

Starting point is 00:11:37 If all of a sudden everything is being transferred automatically, instantaneously on a public ledger in terms of titles, like do people lose their jobs at the county or at the state? Right. Are you reducing bureaucracy? Is there a world where you could actually reduce costs for local taxpayers or are they going to fight this thing? They're going to actually hire more people because they're like, now we need a blockchain team or something like that. That's such a great question, and I would probably address it in another one-hour conversation. But first of all, I've been to many counties in the U.S. We had, in early days, we had this proof-of-concept partnership with a couple of counties, one of those in Vermont. I've been to the counties in Denver, in San Francisco. And normally it's a one person or two people doing the records.

Starting point is 00:12:29 Often in small cities, these are part-time personnel working on recording the deeds. Often they're not even verified, which again, the technology can help with. So you can imagine that some counties would want to preserve those jobs. And in the scale of 3,000 counties, that's probably 10,000, 20,000 people. But here I'm speculating about the number. But we have to work towards the efficiency of the new generation when they build wealth. And the new generation, as you know, they hate bureaucracy. And yet, we want them to invest in homes.

Starting point is 00:13:12 We want them to have equity in one of the most valuable assets, which is real estate. In one of our transactions, for example, we had this software guy from San Francisco. He is 27 years old, and we did the first ever real estate transactions via NFTs, via smart contracts. And he admitted that he was afraid to buy real estate because of bureaucracy. He hates legal papers, reading those, making sure that he's doing everything right. So here, for the first time, he decided to tap into a real estate ownership and with just a couple of clicks, connecting his wallet, reading inspection reports, consent to become the homeowner. He became such within 24 hours. At the same time, we had this woman who has never had any crypto, 50-something, 50-plus years old Airbnb investor that, again, she preferred to be onboarded on the blockchain rails within a couple of hours.

Starting point is 00:14:15 And she became an owner of this asset through smart contracts. And she was very impressed with the efficiency, user-friendly experience. And she felt it as a secure process, because at this point, I think the U.S. consumer is aware of the main aspect of blockchain smart contracts, which is security and immutability. And what is the kind of downsides of this, right? Let's say that you guys build the technology, it gets adopted. What are the areas that maybe actually are good today and those are going to go away or the risks that either the state or individuals have by moving to this kind of fully digital, you know, kind of transparent system? yeah um well first of all our investor tim draper believes that we should not change any laws or we should not do any lobbying to change laws and policies to start recording uh deeds and data

Starting point is 00:15:18 on chain and yet introduce it to the consumer so eventually it's the consumer who would push for this innovation, just like what we're seeing right now with Bitcoin. Consumer is pushing for the Bitcoin adoption and better environment from the U.S. regulation. So I believe that at some point, the government also will come to look at the better data, which is blockchain recorded deeds. And in terms of the risks, probably it's too early to say what could we see from the grand scale, because as we increase the automation, the liquidity on the market will increase. Right now, we sell about 4 to 7 million homes in the U.S., and with better liquidity, we may see 20 million homes changing hands at some point. Will this decrease the prices, affect the prices, or increase them?

Starting point is 00:16:27 That's something that is too early to predict. From the cybersecurity perspective, definitely this technology, the way we develop it, we have to be very compliant and smart to not introduce any risks when ownership changes hands. But right now, it's actually the manual work that is reproducing a lot of risks to homeowners. And it's too early to predict yet the founders like us, we've been very careful and building property for a long time with a number of legal teams and proof of concept and being licensed as an escrow entitled company also oblige us to really take this seriously and not just break rules while building. So I

Starting point is 00:17:27 wouldn't foresee any big risks. For example, we get these questions what will happen if an NFT owner will lose their private key and access to the wallet? Well, in our case, first of all, you can transfer those NFT real estate assets only to KYC clients and only when the funds are transferred to the seller, as well as if the NFT is lost in the wallet or the wallet is not accessible anymore, the owner remains the same owner in the LLC that is recorded in the county. So there is no scenario where a property is lost or is unoccupied. Got it. And so what about if somebody transfers the digital asset, but somebody doesn't want to give up the physical asset? Like there's the losing of the keys, but there's also this element of the physical and the digital don't necessarily go together at all times.

Starting point is 00:18:34 So how do you handle that? yeah that's uh really the essence of this concept introduced by hernando de soto in his phenomenal book mister of capital uh of 2000 and um the the moment when you focus your attention on the title of a house uh and not the house the physical part uh then uh automatically you step in this conceptual universe where capital lives, the essence of capital and all the derivatives like mortgage derivatives. The proof that the formal property is a pure concept is when house is changing hands because nothing physically changes. In your deed, you have the property, the rights described, and it's just an economic concept that lives beyond

Starting point is 00:19:28 the physical walls and roof. And that's actually, in his book, he claims that that's a success of the capitalism in the West, because the West could figure out how to properly title properties, property rights, and the rest of the world, the post-Soviet countries, the Latin American countries, they couldn't figure out very quickly or quickly enough how to store title data, how to introduce value above the physical asset itself. And that's the capitalism doesn't work because, again, $9 trillion of assets are not recorded in developing countries.

Starting point is 00:20:17 And thus, you cannot borrow against these assets. And thus, you cannot fund some entrepreneurial ideas. so that's what it's very hard for many folks to understand that the real estate ownership is a digital asset already it's recorded in the d in the did system hopefully one day it will be recorded on blockchain in a publicly available information with privacy protected by by encryption but the property right itself is digital when you buy a book or you buy a bottle of wine, you consume it, you own it, and you consume it. With a real estate asset, it's the title that's being transferred in their ledger, their registry, the county that tracks who owns

Starting point is 00:21:04 the home. And then you can have the right to occupy, you can have the right to sell. But the physical, the walls itself, it's merely recorded in the inspection reports and not even an account, which also would change because we want to track the physical aspect of the property and just attach it to the blockchain for the change of the physical asset. But overall, this sort of makes a compelling case for the pivotal role of those property systems in unlocking the true potential of capital. And it's kind of real estate itself is having this parallel life as capital that is very distinct from their immediate physical purposes and when you talk to real estate agents what are they most excited about like they're kind of um in some weird

Starting point is 00:21:55 way they're not doing the buying and the selling but they're definitely helping to kind of consummate these transactions uh on your website you have a lot of uh testimonials from real estate agents What do they find the most value in? Real estate agents today, there are over 1.5 million licensed real estate agents in America. Those roles are very important to us because they educate the consumer how to close a transaction because a transaction is so complicated and so bureaucratic today that the agent has to kind of help and guide the consumer in the closing. Not only the choice and the finding of a property, the negotiation, but also this 30 days of closing process.

Starting point is 00:22:44 And real estate agents love our product, our title and escrow services that are using both blockchain and AI. They love it because they have full transparency of the flow. So it's not just the blockchain part of the settlement, but it's a user-friendly, wizard-like transaction platform that guides both the consumer and the agent on every single step of the transaction. That is guided, again, by the code of smart contract. And eventually, we aim to eliminate the manual work. Right now, as screen title closers, they have to check the bank account. They have to check every single document. They have to read through.

Starting point is 00:23:30 So, of course, humans are prone to mistakes. And that's where we use AI to fast read through agreements, finding the red lines, the red flags. And then the smart contract gets this data as an Oracle system from the purchase agreements and then tracks whether contingencies were met, critical dates are in line. And once everything, all the conditions are met, the smart contract, because we have integrations with counties, the smart contract sends the ownership transfer, the deed reporting to the county, and also releases the funds from the bank account of our escrow company to the seller. Got it. That makes sense. And then are there like tax implications for this? Does it change anything about the financials of the actual transaction? It sounds like there's like maybe closing costs or something like that that could be impacted.

Starting point is 00:24:25 But what about the actual price of the property? Do you expect there to be any impact there or on the tax side? So, again, we operate in two realms. One of them is quite traditional escrow and title services. We are licensed in the U.S. And for consumers and agents, it may seem as a traditional title and escrow company. And then on the back end and with our platform, they see all the advantages. So there absolutely there are no changes to the tax implications.

Starting point is 00:25:02 On the second side of our business, where we do the most innovative transactions in a form of NFTs, again, there are no tax implications, but the process is very different. At the same time, it's just a transfer of ownership from one person to another person. It's not a security token. It's not a security real estate transaction because you transfer one home to another, one asset from one owner to another owner. So the tax implications are absolutely the same. Now, if you're a Bitcoin holder and you want to take a loan to buy real estate, that's where you kind of defer your taxes and you don't pay capital gains on your Bitcoin holdings while you're having this loan. That's one of the advantages to utilize a different product, which is a crypto mortgage for real estate transactions. Got it. And then like what type of properties are being used for this?

Starting point is 00:26:05 Is this, you know, multi-million dollar properties? Is it kind of a couple hundred thousand dollars? Is it, you know, 20 plus million dollar homes? What are people really kind of drawn to this right now in the market? What size homes? For the properties that we're doing with more traditional title and escrow services, there is a variety of properties from 50,000, 30,000 dollar land pieces to most of them are homes, one to three million dollars and then up to two million dollar transactions that we have seen

Starting point is 00:26:38 going through our platform in terms of those NFTs. Even though we had about 2,000 requests to NFT homes and sell them as NFTs and people would expect a premium on the price tapping into the crypto community. Still, the properties have been only four that have been NFT and sold, and they were anywhere from, as far as I remember, $90,000 to $600,000. Single family and condos. And this would unlock this possibility to sell properties instantly. We'll unlock this year in 2024 when we will introduce instant crypto loans i got it and then what about propy keys i know that that is uh it's something you guys have been working on for a while what exactly is a propy key and how does that work it's a fascinating new project new company in our ecosystem um

Starting point is 00:27:41 that is aiming to gamify the real world asset applications the real estate world where you can mint any address in the world and use this minted NFT in a game. But beyond the game, beyond your home address, which is very cool to hold in your wallet, you can also upgrade it from tier one to tier two. With the tier two, you can add your deal on chain and again, and keep it recorded immutably if something happens with your county. And then you can also upgrade it to Tier 3, which is the RWA NFT that I have just mentioned. Got it.

Starting point is 00:28:26 And when you talk about the game, explain a little bit more kind of what people can do in there. There are daily challenges. Once you mint it at home, there are daily challenges, learning about real estate on-chain, minting landmark AIs. minting more homes in a neighborhood so that you kind of have this feeling of a monopoly-like game. And there is a very cool staking protocol that is being launched together with a major launch of PropiKeys. And in the staking protocol, you can stake your address and get a reward from

Starting point is 00:29:04 the pool where all the profits from those minting activities are being collected. And then if you have more neighbors on your street minted, then you have a higher power of staking and higher rewards. Then if you minted, let's say, many addresses of your friends and neighbors, and then you go and convince them to put deeds on Chain and Upgrade, their addresses, then you have more rewards and more staking power, as well as so-called OG NFTs. And I think the most exciting part of this game is AI-generated pictures and images of landmarks that is available only once a month if you are already a Minter. Got it. That makes sense. And where will people be able to do this? How do they kind of evaluate what they want to do? What's kind of the process? so the website of property keys is propertykeys.com but again there is a huge partnership with coinbase and coinbase wallet that have special rewards and special guidance for users to mean homes and to include deeds on chain so i would recommend to go to coinbase wallet

Starting point is 00:30:29 and find those quizzes that pre-fund the wallets with Propi tokens because Propi tokens are needed in order to mint home addresses. And once the wallet is pre-funded, you go to the browser of the wallet and go to PropiKeys.com. And it's a very simple guided experience, very quick. You put your address there. and basically mint it on base which is very affordable. There are two blockchain, again,

Starting point is 00:31:09 that allows us to mint the world, so to say, in a very efficient and very fast and fun way. Got it. That makes sense. And then in terms of like the roadmap, like what else are you guys going to look at potentially building into the game or trying to kind of build that out over time? So over the time, we're aiming to achieve a million means, million address in the next 12 to 18 months,

Starting point is 00:31:37 and then gradually educate people how to add deeds on chain and then how to build those deeds into RWA NFTs. And you can imagine a world where people are accepting putting their deeds on chain. And then finally, this would lead to my ultimate North Star, putting all titles on chain. And then the industry and the government admitting that the blockchain public record is the ultimate evidence of ownership. And then at some point you will see, let's say, 250,000 of properties as RWAs, which means over $100 million of value of assets recorded on blockchain that could be locked, that could be staked, that could be used as a collateral. So this whole notion of mortgages on chain and liquidity on chain will finally become an ongoing adoption of real estate on chain. And so one of the most exciting roadmap milestones would be introducing those instant crypto loans or mortgages for Bitcoin holders and Ethereum holders and USDC holders where they can use their crypto as a collateral together with this RWA NFT as a collateral without the need to exit the market and pay taxes right away. Yeah, that makes a ton of sense.

Starting point is 00:33:10 And then what about your team? Like in terms of who are they, where are they coming from? What's their past experience? And what are you guys really kind of excited about building as you guys continue to push this forward and get it out into the world? That's a great question. And thank you so much for asking

Starting point is 00:33:26 because definitely I'd love to praise my team a lot. We're a very small but mighty team of 30 people. Propykeys is a separate company. They have two people right now. Hopefully, they will grow fast. But primarily, we are real estate experts and blockchain, so to say, OGs, 10X engineers. We're moving fast, building fast. One of the co-founders is a former banker.

Starting point is 00:33:59 Another co-founder is an early Ethereum contributor. Really fascinating team. Another one is a former military that had 20 years experience in the military, the Air Force, and then 20 years experience in Thailand escrow. So the team really has this high integrity, great moral compass, very hardworking people. And I'm very, very proud of the mission that unites and bonds us together, again, to make a big change in this world, to build real-life applications so that we can impact many people's lives. And then where can we send people to find you on the internet or if they want to find out more about what you guys are doing? um it's quite simple uh if you go on twitter x and find propy or propy keys follow both companies they're doing amazing uh stuff uh shipping every single month shipping something

Starting point is 00:35:03 new and this account so provide a lot of information uh we'll have transparency and we've been trying always since the inception which is now probably seven years old we've been trying to be transparent and communicate with our community everything from the roadmaps to execution challenges and so on amazing well natalia thank you so much for your time today uh it's going to be very exciting to see you guys kind of put this out there in the world and keep driving adoption for uh solving what i think every single person who's ever bought or sold a home knows is uh painful uh a complete waste uh of money in many cases there's lots of bureaucracy and frankly, just waste of time,

Starting point is 00:35:45 which I think is probably the biggest headache. So I'm excited to see you guys keep going and we'll definitely do this again in the future. Thank you. Thank you so much for having me.

The Pomp Podcast - #1328 Natalia Karayaneva | How Crypto Is Revolutionizing Real Estate

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