Bringing Real Estate onto the Blockchain with Natalia Karayaneva & Adam Brown of Propy
This week, I’m exploring the future of real estate and how Propy is enabling the transaction of property on the blockchain.
My guests on the show are Natalia Karayaneva, the founder of Propy, and Adam Brown, the VP of Sales.
The day before we recorded the podcast, they enacted the sale of the first ever property to be sold in the US as an NFT (exciting!).
Here’s what I learned from the episode:
As web3 begins, real estate may (finally) be in for some major changes.
Wire fraud and title fraud are still major issues in the US and even moreso globally, with the FBI reporting billions of dollars that are stolen every year.
Title insurance doesn’t cover cyber attacks nor identity fraud. (What DOES it cover then?!)
It is difficult to be an early-stage company in the Proptech sector; building trust is challenging, the MVPs are big, and you may have to do some pleading to get people to try your product.
Propy is aiming to make closing almost instant, and they are taking more of a bottom-up approach, targeting agents first.
In the future, we can expect more liquidity of property.
The real estate market may become more global, with platforms like Propy making it easier to transact property in different countries.
Transferring ownership in a digital, decentralized way makes a ton of sense, and NFTs can serve as a tool to transfer analog things like homes.
Currently, Propy’s transfer process involves creating an LLC with the property placed inside. By buying the NFT, you can buy the ownership/rights to the LLC and thus the property.
Smart contracts are not purchase agreements, but the terms from the purchase agreement are used to drive the transaction.
Propy’s utility token is essentially for the presale of the service. Participants can use the tokens for transactions on the platform – they buy the token so they can use the product. The tokens are not like an equity stake in Propy.
Learn more about Natalia Karayaneva, Adam Brown, and Propy:
Additional episodes if you enjoyed:
Sean O’Connor: How Blockchain is Changing Society with Costless Transactions
Shane Mac: Building Messaging Protocol for Web3 (XMTP), Company Culture, and Scaling Trust
Episode Transcript:
Adam Brown: We shouldn't over convolute, overcomplicate the ability to transfer ownership of anything, whether it's real estate, whether it's digital art, whether it's your service records on your new Alfa Romeo, which they've just launched. The ability to transfer those things digitally decentralized makes a lot of sense.
Eric Jorgenson: Hello again, my friends, and welcome to Jorgenson Soundbox. This show is a sidecar on the magical motorcycle of my curiosity and brings you along as I try to figure out how the future will unfold. Today, my guests are Natalia Karayaneva, the founder of Propy, and her VP of Sales, Adam Brown. And together we unpack the future of one of the biggest markets in the world, which is real estate. We talk about the first property ever sold in the US as an NFT. That was the day before we recorded this, very fresh. We talk about how the Propy token worked like a pre-sale of the product usage and how the blockchain and smart contracts help Propy solve the core problem of their vision of making a global liquid real estate marketplace. Natalia is a brilliant founder with a wonderful story of grit and persistence. I learned a ton about international real estate, blockchains, and company building from her. If this conversation is interesting to you, many of the topics on my blog will be as well. Please visit ejorgenson.com to read more and sign up for the newsletter. Now, please enjoy this conversation arriving at your ears right after one quick message from a sponsor.
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Natalia and Adam from Propy, thank you guys so much for coming on. I'm really super looking forward to this conversation, and I expect I'm going to learn a ton from both of you in the next little bit here.
Natalia Karayaneva: Thank you, Eric, for having us.
Eric Jorgenson: Natalia, you have a super interesting background, and I'd love to maybe start with both of you guys’ like lives running up to Propy. And then, we'll get into what Propy is and sort of all the interesting questions that unfold around it.
Natalia Karayaneva: Well, again, thank you so much for inviting us. I'm the founder of Propy, and my background is in software engineer first, then I transitioned to real estate development and [constructing 3:11] properties and selling [inaudible 3:13] in Europe. And then I was just wondering why had technology drastically changed everything we're buying online but not real estate. And so, five years ago, I decided to move to Silicon Valley and dedicate the rest of my career to automation of real estate transactions. And this is where I met all those blockchain, smart contract geniuses, and we decided that the best infrastructure to build this new generation of technology is blockchain.
Eric Jorgenson: Is that when you met Adam?
Natalia Karayaneva: Yes, he is one of the geniuses.
Adam Brown: That is not accurate. She was doing those great things well before I joined.
Eric Jorgenson: Adam, what's your origin story?
Adam Brown: It's not as exotic or as fun as Natalia’s.
Eric Jorgenson: I should have let you go first.
Adam Brown: Thanks for having us. Super exciting times here at Propy. Just really honored to be part of the team that's kind of doing things for the first time ever in real estate, which doesn't happen very often. But I spent about 20 plus years in real estate, whether that's through media or through home services, working with brokers and agents all across the country. My claim to fame is I've been in and out of real estate offices in all 50 states. So, I've seen a lot of how real estate is transacted across the country, been really blessed to work with some of the nation's top brokerages and realtors. And to this day, I consider most of them my friends. So whenever Propy reached out to see if we could work together, for me, it was the first time in my career that I was super duper excited about the technology and the way it's going to impact real estate in 20 plus years. And so, Natalia's built a really, really smart team, much smarter than she gives people credit for because on the front end, you'll see my boss or I, and we're not quite as smart as the rest of the team. So really excited to be here, really excited to be part of the team and to kind of do something unique for the first time ever in real estate with the NFT yesterday.
Eric Jorgenson: Yeah. I mean, as you say, real estate doesn't tend to change super often. And as you were saying, you'd been in a real estate office in all 50 states, I was imagining that that just consists of a blur of beige like all over, no matter where you are.
Adam Brown: It's funny, with realtors and brokers, everyone's got a unique story. I think if you work in the finance industry, you meet a lot of kids who went to college for a finance degree and they became a finance major, and then they went on to work at Ernst & Young. You kind of get that background that's probably pretty similar. But with realtors, you meet them from all over, and it's really interesting. And so, the people stand out a lot more than the offices per se to your point.
Eric Jorgenson: Natalia, what was the- I know you have sort of a deep background in real estate development and you had been sort of building and selling real estate internationally in the lead up to Propy. So, what was the problem that you initially saw in real estate that you set out to solve when you started this company?
Natalia Karayaneva: Yeah, I think the main problem is that the buyers sell, homeowners are acquiring one of the most valuable assets in their life, and yet that's one of the most stressful times in their life. And I've been helping hundreds and hundreds of buyers to acquire real estate in the past when I was building those properties, and I just wanted to solve this problem. It can be a more enjoyable and more secure process because the wire fraud is thriving right now in the US. There are different problems around the world. In the US, it is wire fraud and title fraud, stealing ownership from people from reporting offices, if they don't have inheritance, for example. There's so many problems that we even don't know about. In other countries, it's corruption when again the home ownership could be stolen as a right from people who cannot afford to go and fight. There are 9 trillion dollars of unreported [inaudible 7:21] in developing countries. And so basically this eliminates those countries to have financing and basically further enhance and empower [inaudible 7:34].
Eric Jorgenson: Wow. Like, you know that fraud exists in the real estate world, especially sort of the wire fraud is something I've been familiar with, but title fraud is not a problem I had really- I kind of took for granted that all of the slowness and expense around title fraud was like kind of doing it's- around the title companies was actually kind of doing its job. What is the scale of title fraud? And I'm sure it varies, as you say, country by country.
Natalia Karayaneva: Well, the wire fraud problem is actually a very US native problem because the banks in the US are not verifying the recipient. They just approve the transfers to the account, but they don't verify they belong to escrow companies. And the FBI reports billions of dollars stolen every year in wire fraud. And so, there are a number of examples where a family sends the down payment, and sometimes it's like 70% of the home in down payment, all their life savings they're sending into a particular account, and they cannot restore that because title insurance does not cover this type of fraud, and title and identity fraud also is not covered by title insurance. Title insurance is great for claims for the problems in the past, but not for cyber-attacks, not for identity fraud.
Eric Jorgenson: Wow. That was completely unknown to me. When you started Propy, you were trying to sort of solve the challenges, the frictions in the market, the problem for the buyer and sort of bring real estate transactions closer to what it feels like to transact online when things are nice and smooth and easy. But your original vision didn't necessarily include the blockchain, did it? So, how did the blockchain- like when did you realize that this was the technology that you needed to use to solve the problem that you had picked to solve? I think that's a really interesting sort of coming together.
Natalia Karayaneva: Yeah, absolutely. Well back in time when I lived in Silicon Valley, when I had just arrived and didn't have any connections, I just knew that I had this idea, and the core team got together to automate the transaction. And I was trying to figure out how we can address [inaudible 9:54] payment and settlement. So, I just was meeting people at meetups and asking them please introduce me to some engineers in the core FinTech companies that are solving those issues or working on a similar issue. So, I got connected to some engineers in PayPal and some startups. And suddenly, I started to hear about blockchain from all those, and I began to read books about smart contracts, and that was the aha moment when I learned about smart contracts and how they are basically playing the role of a settlement for any types of rights. And now we are seeing that with NFT art where you basically transfer art via smart contract.
Eric Jorgenson: You have the perfect background. You had been selling international real estate. You have a background as a computer scientist. You were in Silicon Valley trying to solve this problem and encountered smart contracts and blockchains sort of for the first time in this beautiful like confluence of problem and technology and experience that puts you as the founder in this sort of amazing spot. What did it feel like to feel all those pieces come together? And you already had a team in place, too, by this point, right? You said you've got a core team. You had some funding raised already.
Natalia Karayaneva: Well, fundraising didn't come once, no. Initially, it was just a prototype, and all co-founders were just working, bootstrapping, working for free for a couple of years before really people started to trust us and believe in us with not only emotional but financial investment. And then we got investors like Tim Draper, a number of amazing angel investors that we've met throughout the journey. And yeah, in the end, everything came together, but definitely it was a bumpy road where we all had to make sure we were passionate enough to stay on this journey.
Eric Jorgenson: And I swam in the waters of real estate just long enough to know that it is hard work, and it's a slow industry and you need big- it's a very difficult industry to launch an MVP, as you say, like it takes sometimes years, it takes sometimes very big products. So, I wonder if we can talk about sort of that early product development stage, like picking through to find like what was this first specific problem that you solved and all the different stakeholders in real estate? Because that's I think a challenge as well, at least we found it to be a challenge as a young company in the industry.
Natalia Karayaneva: Oh yeah, for sure. It's really hard to be an early stage company in PropTech because agents wouldn't trust you. Consumers will not trust you with such a valuable asset. And initially we were just begging agents to do first transactions. And so literally begging , but then when you remember the Uber story, also, the founder was just running around and asking people, hey, take my [100 box 13:00] and use my taxi. So, it was a similar story. But we tried with a number of MVPs. So, the transaction platform was the most successful and we just bet on it. But besides the transaction platform, we also made software for counties, so that recordings are happening on the blockchain, some MVPs for tokenization and fractional ownership, and there were just a number of different blockchain applications in real estate that we tried that would compliment the automation transaction. And then we realized that the fastest way to grow is through the transaction platform through automating the process and inviting the agents to use our technology, and then the agents are incentivized to invite the consumer.
Eric Jorgenson: Got it. Okay. So, tell me about- so that's the core product today, the transaction automation platform?
Natalia Karayaneva: And basically, so you asked about the MVP. So, the first MVP was a very simple smart contracts and very simple user interface where the buyer agent is invited, the buyer is invited too, and they upload a couple of documents and then in the end, we record the deal on the blockchain. And one of the first transactions was that property in Kiev. And so that was the first ever government approved deal on blockchain. And then the second one was in [inaudible 14:25], also government approved, recorded on the blockchain, so these were through MVPs. But again, besides that, we had to build the MVP. It was also begging agents and consumers and our advisors to try.
Eric Jorgenson: So, the product today, the transaction automation platform, am I correct that brokers are the main customers for that?
Adam Brown: Well, it's built for brokers as well as agents, high-performing agents. It creates streamlined efficiencies within teams, especially in a market like now where you're getting multiple offers on one listing. We had an agent here, and it was in Phoenix actually, that had 30 plus offers in the first 12 hours. And so, to be able to have all those in one platform, to be able to manage them in an effective way, to be able to communicate back to all those other agents and communicate in an effective way, then also be able to prove to your seller, hey, listen, I've kind of showed you all offers are present on the table. It does a lot of things. One, it prevents a tremendous amount of fraud. Two is it makes the transaction much more seamless. But from a seller's perspective, to be able to kind of see all of those offers in real time, to kind of see that when your agent and you kind of huddle up and say, okay, what's our best to work with here, it really is powerful for the seller as well as the agent. And from an agent's perspective, to be able to kind of say, hey, I can prove that I showed all offers, it also reduces the amount of liability in terms of if the seller down the road was to say, hey, did I get every offer? Did you show me everything? And did you lose one in an email? Did a document get caught up in the ether somewhere?
Eric Jorgenson: Yeah, that happens.
Adam Brown: It really does. And I met with an agent today, and this is a true story out of Miami, they use a Google Doc, an Excel spreadsheet, and Telegram internally for each offer. They've got different pieces here and there. And so, to kind of combine that and make it easy and to be able to kind of export that into their title partner or our title services, that helps.
Eric Jorgenson: Adam, when did you climb on board Propy?
Adam Brown: It was a little less than a year ago that I joined the team. To be honest, the momentum was already well underway. We had already done the first NFT in Ukraine. So just enjoying it.
Eric Jorgenson: Yeah, you kind of brought the real estate experience and presumably some of the relationships and background to kind of help Propy grow and get adopted in the industry. Is that the thinking? Natalia is nodding. Adam's going to be too humble to say that he can do anything helpful.
Adam Brown: I thought I would. But the first time we went to NAR, which is the National Association of Realtors, which is the CES of real estate, it was a little bit like being with the pied Piper with Natalia, all these people wanted to talk to her. And I'd say, “Hey guys, how you doing?” “Oh, Hey Adam, is Natalia coming back?” And that is, one, it's a credit to Natalia, but really, it's a big credit to smart people in this industry see what she's brought to the table. And there's a lot of people that get really excited about it. There’re some people that are afraid of innovation and change, but we tend to work towards the abundance crowd who knows that this technology is going to bring a lot more volume and drive the business forward. But that was a real eye opener to me. I thought I would take Natalia and introduce her to people. Everyone kind of knows who she is and what she's been doing.
Eric Jorgenson: Her reputation precedes her.
Adam Brown: In a really good way, in a really good way.
Natalia Karayaneva: Thank you, Adam. Well, I'm very, very honored to have Adam on board because when the industry participants have trust in us, we can get to faster adoption of agents because agents are those who are bring the consumer to our transaction platform. Because at the end of the day, it's a consumer centric product. But right now, the consumer trusts the agent. So, it's very important for us to help get participants to trust blockchain, to trust the technology that we have built. So, we're very thrilled to have Adam on board.
Eric Jorgenson: I have walked some of this path, so I know how hard- So you end up selling to brokers or at least getting access through the broker. And then usually that means, and tell me sort of what it means in Propy’s case, but just because a broker works with you doesn't mean an agent necessarily works with you. So, you sell the broker, then you sell the agent, and then you have to get the agent to actually refer to the customer. So, it's a slog, and there's multiple sort of gatekeepers between a real estate product and the end user who is actually the home buyer or seller. Does that describe your guys’ journey too, or have you figured out something smarter to do than we did?
Adam Brown: Well, you're kind of comparing the traditional top down versus bottom up approach. We work a lot with brokerages, and we would like to implement a broker level, but we will really work with a lot of industry experts that are just real estate agents. And so, we work with a lot of teams who are driving forward. So, it is a bit of a bifurcated mix. We would love- And most companies in our space would love to go broker, just push it out. But the TM, the transaction management platform, the offer management platform at a broker level is very convoluted. You have three or four companies that are working on freemium models. They get pieces here and there. So, what we try to do is work with top producers to kind of show them our platform, whether it's a broker level or an agent level, put them on there, get high volume through there. Because if you go through the broker training rollout phase, it can be very tedious.
Eric Jorgenson: Yeah, I understand. So, talk to me a little bit about Propy in the context of existing sort of transaction management platforms. Because there are like web2 giants that are transaction management. I don't know a ton of the details of them. But is this a sort of like you're front running a phase shift that's kind of like you're building backwards compatible to web2, but you're ready for the next thing to take place and you expect to out-compete them eventually? Or are those things going to try to transplant their whole selves onto the blockchain eventually? Like how do you see this next sort of 20 years unfolding? Because I agree with your vision that we're all going to end up on the blockchain for a lot of this stuff. But the Propy sort of like- I don’t know. How do you expect the competitive dynamics to unfold with what's happening today?
Natalia Karayaneva: Well, let me start because I think I would probably disagree with Adam on this one. So, I absolutely disrespect this category of a management platform because the technology has to evolve to wizard-like technology, to wizard-like tools that automates the whole flow of a transaction. And right now, there are improvements that are management kind of even storage of documents and we're thriving to become self-driving transaction platform or just a transactional platform. So, we don't position ourselves as a transaction management platform. And our goal is really to make closing almost instant on these smart contracts, and the numerous integrations that we're doing that our competitors in the platform space don't do. So as Adam mentioned, we expect the bottom-up approach where agents will start using us and then forcing brokers to switch to our platform. But we don't necessarily like try to replace aggressively those platforms. I think everything will just come into place. And besides that, our main user is the agent. They are reaching out to us, and we are imploring them. Also, there a very big percentage of our user base is the consumer. So basically, the sellers and the buyers, they're reaching out to us, and they're willing to close on blockchain or do an NFT or find a tech savvy agent. And that's why also agents like us very much. And brokers that are competing for agents, they also are watching out and trying to collaborate with us and do a partnership. Adam, do agree with my management platform?
Adam Brown: Yeah, I do. I'm bit antiquated in the sense that I always try to bring the real estate community on with us, which trying to bring 1.6 million individual thinking people is probably not the most realistic. I think the thing that Natalia and I do agree on is a hundred percent of what we focus on at Propy is what's best for the homeowner. And we know that if the homeowner is, at the end of the day, satisfied, taken care of, a hundred percent transparent, the safest with their funds, with their investment, I think ultimately, we all win. I think a lot of really smart real estate professionals are looking at web2, now web3 and saying, hey, how will the industry evolve? And I think Propy and Natalia and the team does a good job of kind of initiating those conversations. But you're going to have a certain percentage that want to kind of keep things very antiquated or Byzantine in terms of very segmented and almost overly convoluted for the sake of the industry. And that's where technology really does come into play because the homeowner is going to start to see, hey, should really take this long to close on a house? Should I really pay this much title fees for a house that might've been sold two years ago? Do I really need to pay title insurance for a house I’m buying from my parents or new construction as it may? So, I think that's where technology is going to open a lot of people's eyes. And we're trying to make sure the real estate community understands that and we all move towards that together.
Eric Jorgenson: Yeah, I think that's a very interesting- real estate is just such a perfect sort of place to explore how all these things come together, which I think is- it's something everyone sort of interacts with, it's particularly far behind, but it's really sticky, but the value for automating and improving some of these things with technology, like the value unlock is massive, massive.
Natalia Karayaneva: And Eric, what kind of problem were you trying to solve in PropTech, may I ask?
Eric Jorgenson: Sure. It was much more around home services. So, we were building a marketplace for like plumbers, electricians, lawn care, housekeeping. And we found that it was very difficult to- We found basically that around real estate transactions was a huge surge of demand for like fixing up old homes or moving into them and renovating, fixing, fixing unacceptable conditions. And so, we found that we could go to a real estate agent who was getting asked for all these referrals and we could basically automate, we were like an API for home services. Whenever you get a request for something, whether it's a mover or something like that, we could do that on behalf of the agent. And so, then we started going through brokers and automating the outreach and timing all these things out. So, it's like, all right, it's 30 days from closing; you need a mover. It's two weeks from closing; you need to schedule your painting or your flooring, that kind of stuff. So, yeah, I spent plenty of time in real estate agent offices and with brokers. And so, I can at least understand the distribution channel, though, I was far enough from the details of the transactions that I can't claim to have any black belts in that.
Adam Brown: It's funny you say that, Eric. I spent two years helping the same process, worked closely with Amazon when they launched their home services platform. It is funny, home services, and if you boil it down to they would call them chucks and trucks, they are a very localized. And if you look at your best plumbers in Kansas City, they might be different in Johnson County than they are in Overland Park. And so, it is really one of the last really, really localized pieces of day-to-day that you have some companies that have dabbled in it. And then to try to put technology into a lot of those really smart plumbing, HVAC, electrical companies, they're a little bit challenged with that. And so, it was fun. It was a fun couple of years.
Eric Jorgenson: Yeah, it's a huge- it's a difficult industry. It's a huge industry. There's a lot of value to unlock there. It's a grind. I still think it will happen, but it's a tough one.
Adam Brown: We worked with Google briefly and they dabbled in it. And then they pulled out of it quickly and said, hey, it's just too much work for us.
Eric Jorgenson: There's a lot of carcasses on that path. It's like the old Warren Buffet quote about the industry maintaining its reputation for being challenging despite how good the managers are and well-intentioned. So, tell me about the final sort of vision of Propy. Like when Propy is full power and potentially the majority of real estate transactions in the country if not the world are sort of enabled by this automatic platform with what I expect is nearly perfect sort of data capture and transparency, what does that market look like? Do we have real estate agents anymore? Is property like perfectly liquid? Do we even own it individually anymore? Or do we just kind of have this weird portfolio? Like are the rights of occupancy totally separated from the rights of ownership? Like how do you guys all see this unfolding over the very long arc?
Adam Brown: So, maybe before Natalia gives her kind of vision, maybe I'll kind of level set on what we're doing today, and then I'd love to have Natalia kind of level set to the next iteration of that. So, the interesting thing about Propy now is we can talk to, let's say you have six meetings a day with six different brokers across the country. You might talk about NFT-ing a home, which we did successfully for the first time yesterday. We might talk about training in crypto and blockchain either from very basics to the high-level tokenization of homes, etc. We also talk about the platform to make it bring transparency to the homeowners. We also talk about our learn and earn platform where agents can build equity to help drive back their business through the Propy token. So, we have- and there are more things. There are seven or eight topics that we talk about at any one time. We are launching a metaverse course for the first time for real estate agents across the country. I always say that we're kind of the industry leader and it's mostly Natalia and the team that are planting the flag in the ground and saying, hey, real estate agents, if you want to come learn about what web3 is going to bring to real estate, even today's technology, come to us. And the metaverse class is unbelievable. We have more seats in the class than we can- We have more people wanting to be in the class than we actually have space for. So, there is a lot going on.
Eric Jorgenson: I saw Natalia tweeting about that – who wants to be the first real estate agent in the metaverse? Bring it on.
Adam Brown: It drives you crazy when she does that because then a thousand people reach out to me saying I’ll take it. And I say she wasn’t talking to you per se. But the metaverse class is a really good example of Natalia is already thinking about that and how to position realtors to be in the right position. And then it is upon the team and I to kind of roll that out to the masses, but that's what it is today. And Natalia can speak much better about where it's going to be, 5, 10, 15 years from now.
Natalia Karayaneva: Well, definitely there is a lot of opportunity for real estate market participants in the web3 world for the new real estate industry, but when it comes to the consumer, I think we would expect more liquidity, and instead of 6 million homes, maybe 12 or 18 million homes to be sold, and primarily the trading would happen between people, not the institutional players. And hopefully we'll make the next generation very comfortable in acquiring homes when they move to another state, when they relocate, that the purchase process itself will be more affordable, they will not lose 10% of home value every time they acquire a new home. And hopefully they will just have more control over the housing in the hands of people, whether it's fractional ownership or full ownership, but in the hands of people rather than institutional players.
Eric Jorgenson: Interesting. And what about the international sort of nature of real estate? That's something every time I'm on vacation in another country, I'm always like looking up real estate and then I've never- I just assume it's too complicated to even bother with. Will it become easier to internationally own property?
Natalia Karayaneva: Yeah, for sure. We have a global vision. First, of course, we're focused in the US market, and hopefully if we figure out quickly this automation transaction, then maybe we will become a transactional marketplace where you can not only search properties but quickly acquire it via Propy, and then we would go globally. But I had a similar hobby like you. Whenever I traveled abroad, I would always go to listings and talk to agents and talk to buyers and sellers to understand the market, to understand the [listing 32:03] in the real estate industry. And when we launched Propy, in fact, we dedicated one year to international transactions so that we do proof of concept transactions in a number of countries and make sure that when we build infrastructure, we adapt our architecture to be potentially globally applicable so that we can go global, and we made this business model and architecture technology very adaptable to different jurisdictions. And even the NFT, also it's applicable to different homes. Like we had the first time happening in Kiev, but it was still a US based structure, so we can do that in other countries, too.
Eric Jorgenson: Very interesting. So, let's talk a little bit about maybe the specifics of where Propy’s product today- what it feels like to use it. So I think this is another really interesting- like do I, if I'm a homeowner necessarily, and my agent recommends Propy and I use Propy, do I have a web3 wallet or a crypto wallet that I need to use? Or is it really just the fact that the transaction, the record of the transaction is written on the blockchain, but I, as a user, don't really interact with the blockchain specifically?
Adam Brown: Yes. There are a lot [inaudible 33:34] to the platform whether it's your agent just being transparent on offers coming in on your house or vice versa, your agent being a hundred percent transparent when you put an offer in on a listing, whether you participate in one of our NFT auctions that are coming in where you lock in with your Meta Mask wallet, or whether you- There's a lot of different ways that the consumer will interact directly with us. By and large, it's mostly through realtors and brokers right now. But the transparency and the ease to the homeowner is where we're always kind of going. If you think about like Wayne Gretzky, he said the key to my success was not to go where the puck is but where the puck is going. And I think transparency and ease of use from the homeowner's perspective, whether it's being able to leverage crypto funds in a traditional sense, whether it's to buy with crypto, whether it's to bifurcate the deal, use part crypto, part fiat, whether it's leverage and stable coins without having to give up current holdings to avoid taxes, etc. – not avoid, but avoid capital gains. So, there are a lot of smart ways that crypto holdings and people with crypto knowledge can use the platform to buy or sell in a traditional or nontraditional way.
Natalia Karayaneva: Yeah, I will just add that when the consumer comes on board, if it's not an NFT transaction, then they don't have to have a wallet, but we still record the whole transaction on their behalf on blockchain. But very soon I think the consumer will be ready to have a wallet. So even for traditional transactions, we'll encourage them to connect their wallet so that all the data is linked to their wallet. And then for the NFT transaction, yes, of course, they have to connect their wallet. And we saw yesterday that we had some potential buyers that are not coming from the crypto world, and they were able to connect their wallet.
Eric Jorgenson: Let's talk about the NFT transaction. It sounds like that's sort of a separate type of transaction. I know you guys just- was it the first NFT home in the US transacted yesterday? That's amazing. So, I guess tell me that whole story, how it relates to Propy’s product. Like it's a very different kind of transaction it sounds like, if I'm hearing Natalia correctly, from maybe the default on the platform. But yeah, talk me through the NFT home transaction.
Adam Brown: So, and you and I were talking, Eric, a little bit off air, people oftentimes think of NFTs as just digital assets, which is interesting. NFTs are funny in the sense that everyone seems to have a different opinion and no one can quite agree on what they are. And there's a lot of right click save out there that don't quite get it and I don't think want to get it. But NFTs, to me, really just represent the next level of smart contracts, open, transparent, distributed ledgers, the ability for me to transfer ownership to you in a really clean, simple, easy way. People seem to get hung up on which chain are they using, proof of stake, etc., etc. But the realities of each, take a step back and say from a macro level, we shouldn't over convolute, overcomplicate the ability to transfer ownership of anything, whether it's real estate, whether it's digital art, whether it's your service records on your new Alfa Romeo, which they've just launched. The ability to transfer those things digitally de-centralized makes a lot of sense. And so, for us, with the real estate NFT, what we're excited about is to show the country that, hey, it's pretty easy. It's very popular. We had a tremendous amount of people interested in the NFT in one specific house. And even if you think about the term NFT, non-fungible, for me, a kid from Indiana, it means something that's unique, and there's really nothing more unique than real estate. And so, we thought it was a really good fit. Natalia's been carrying this idea for a long time. It's her passion. There will be a lot of people that will do it after us, and it will become the norm, but to be the first to do it and take that vision and fight through a lot of regulation and thought process to get there. Real estate is overly antiquated. It's very convoluted and localized and can be very bureaucratic and almost in self-preservation. And so, kind of the team worked through all that to get it done. And you're going to see a tremendous amount of NFTs on the platform of real estate this year. So, we're excited about it.
Eric Jorgenson: I want to hear more about sort of the future plans for that. But can you tell me a little bit about- there's no detail too great here, so what actually is transacted in the NFT? Like what is the act of creating, turning a property into something that's digitally transactable? Because like take me all the way to the foundation of how do we do it today? Is it just- it's a file in a title office and probably a PDF somewhere. It's some meets and bounds. Like what's in the NFT, and how does that connect to the old world?
Adam Brown: In the traditional sense, when you purchase a home, it goes to the county register. It goes through, I'll make an offer, you accept the offer. We negotiate on the inspection. We come to the paperwork, it pushes through underwriting, title and escrow, and then it gets closed. And that process takes anywhere from 45 to 60 days. Very rarely we see a listing open to close or sell to close in the traditional sense, unless it is cash, in less than 45 days.
Eric Jorgenson: And then, is the deed, like the fancy, shiny sheet of paper, is that the core, like the most foundational thing that transacts when a property transacts?
Adam Brown: It is. As a kid, I remember like those old westerns, the guy that had the deed to the property, and even as a kid, I'm like, man, if you lose that thing, your in trouble. But real estate has basically become so centralized that I don't know if we even have deeds anymore, except the county records. It's well within the internet, on the interwebs who owns what. So, there's very little issue with that. And that's probably one of the things that I think as real estate professionals here in the US we often overthink. When we think of blockchain and cryptocurrency and smart contracts, we equate everything to how we do business and how we do business here in the US is primarily pretty safe really. You and I are a couple of Midwestern guys. We don't have a lot of people come knock on the door and say, hey, technically this house was bought by my grandparents 50 years ago, we need to move back in. But if you look globally, a lot of that really does happen. I mean, the volatility of markets, the volatility of governments, the volatility of ownership and who owns what and the ability to enforce that. On a macro global level, that's a real issue. Even something as simple as cryptocurrency and Bitcoin, how it solves a lot of those global issues with the stability of currency. For us, it's just fun and neat and interesting and a good investment in the future. For a lot of people, it's real. Like that's the only way they can cultivate their assets and keep them in a real way. So how it was transacted on this particular property, and I'll have some title lawyers reach out to me and correct me because they always do, but basically think of we create an LLC, and we place that property within the LLC. And then the NFT is you're buying the ownership or the rights to be that sole owner of the LLC. And within that LLC is the property. Which is very common in real estate. A lot of houses are placed within LLCs for a lot of tax reasons that are a way above my head, state by state. And so, when you're NFT-ing this particular property, it was the rights to the LLC. The house was in the LLC. The homeowner, if they choose to, can keep it in the LLC, they can keep it within the NFT. They can take the LLC down. They can burn the NFT if they choose to. It's all incumbent upon what the homeowner wants to do. So, it allows that purchaser to not be bound to anything they're uncomfortable with. And they may do that. They may burn the NFT. They may disband the LLC and just have a traditional home. Or in Florida, they may keep the LLC and use it for some tax purposes that they may see fit. And then they may down the road, want to sell the NFT and the house and the LLC that come with it.
Eric Jorgenson: Was the NFT transacted then in cryptocurrency?
Adam Brown: ETH, ether. Again, people love to debate that. And I don't want to talk for Natalia, but on a macro level, I see the NFT-ing of homes being bigger than having to create an LLC. I think we'll work through that regulation. I think we'll also leverage other types of stable coins or coins that make people a little bit more comfortable in terms of if you don't have a lot of holdings in ETH and you don't want to convert. I could see it becoming much more macro in that perspective, not being so narrow. And right now, our NFT homes have to be owned free and clear for regulation purposes. So down the road as we evolve, and I think it will happen quickly, we'll have a lot more of a pool in terms of how you can transact on the house, the ramifications that go into setting the house up, and then, if you have to have- which type of coin. And I think right now the coins are pretty transferable, but people get hung up sometimes on ETH. Go ahead, Natalia.
Natalia Karayaneva: Yeah, Adam, you're right. In fact, right now today we're discussing a wiretap team for the next NFT that is happening on March 2nd to be able to accept [USDC 43:21] and then for other NFTs to expand the cryptocurrency pool.
Eric Jorgenson: This is a very exciting topic. So, I think, I mean, you guys kind of took for granted the solution there, but I've heard some very credible people make the case that things that aren't digital shouldn't be managed by the blockchain or won't be or aren't sort of native to it. But also, the counter-argument that kind of comes from bology and that I see you guys kind of living is that all value is becoming digital or digitizable. And so rather than transact the home and try to move the- put the file, you create an LLC, you put the home in it and then that's digitally transferable. Like you guys have been thinking about this problem about as long as anybody else. So how do you think about this sort of dichotomy between how do you use a digitally native technology to manage and transact things that are so analog? I mean, there's nothing more analog than a chunk of land.
Natalia Karayaneva: I actually have this article on Forbes, which is, I think, two years old now, claiming that real estate behaves as a digital asset because, at the end of the day, we're talking about rights, and rights, it's a social consensus, which is now digital. And that's why rights is perfect, perfect item, perfect asset to record on the block chain. Even now, when you do transactions, [inaudible 44:57] use like e-signatures, you sign old papers via DocuSign, the emails and so on. So, and then recording in the counties are happening in 70% of counties also on machines. So, it's the concept itself. It's not the physical asset. And because homes are immovable, it's very easy to prove that this particular home is attached to the rights we're talking about. So, it doesn't matter whether we are doing it via LLC or just we record in counties. If counties were more open or if it was one central [inaudible 45:31] registry that is open to record everything on the blockchain, we absolutely would do NFTs directly to the deed. But if counties don't want to evolve, they use very outdated software and because we have developed a software for counties, we know first hand these awful systems, how they look like, how they operate, how they back up work, what kind of IT personnel they hire, and then all those natural disasters and cyber-attacks happening when counties lose data. So that's why we found a way how we can still do the NFT and ownership transfer without county involvement. And in fact, for each house, we create an entity, whether it's an LLC or trust, doesn't matter, then we record it with the county one time. And from that time, every time we transact, we don't change the LLC anymore. We only change the interest, the member in the LLC. So it is related to the county, but once it's on blockchain, once it is in a specific [inaudible 46:39], I will see that we kind of do touch home ownership concept from the government. But we yet declare, we report to the counties that the transfer happens, so here are the people that you have to tax in terms of property taxes.
Eric Jorgenson: Very interesting. Okay. Thank you for that. It was a very helpful level of detail. I'm curious how- so you guys I think are, again, in this unique position of being a company dedicated to solving a problem before you even really knew that the blockchain was the right solution. And so, I imagine you are quite agnostic to what particular chain. You don't bring any dogma to whether it's Bitcoin or Ether or Avalanche or anything else. How do you look at those decisions and how do you say we're a company that's just oriented towards solving this problem. We will use whatever the best technology is that comes around. What's your decision process for like what chain or chains to build on or whether that'll change in the future? How do you think of that?
Adam Brown: We are very chain agnostic. We obviously work a lot with Ethereum, but that can evolve many times over. The chain discussion does seem to get debated and has a lot of passion around it. We stay above that in terms of we're going to do what's best we think for the platform, for the homeowners, the environment. But we try to stay chain agnostic. And also, to that degree, we also stay coin crypto agnostic, what we think is going to be the best for driving home ownership in a fair and equitable way. But Natalia and the team spend a lot of time focused on what that looks like down the road. I spend the majority of my time explaining to realtors what blockchain is. So, there's a bit of a dichotomy in terms of that. And in the Ethereum network, I think for a lot of reasons, is the easiest to teach people on because it's the one that's the most well-known, there's books out about it, it's largely stable. And I hear a lot of people tell me the knocks on it, but for the most part, we use that today. But I can see that evolving, absolutely, if it made sense and was best for our customers.
Eric Jorgenson: Natalia, do you have anything to add to that or want to tell us sort of what you look at when you look to the future of sort of selecting a platform or chain to build on for Propy?
Natalia Karayaneva: Yeah, absolutely. Well, it's very important for us that any chain we are looking at is stable and it's proven by time that they didn't have technical issues. And even if they had, it's not something critical that the chain could be attacked and be exposed. That's, of course, the number one priority in terms of security. And then the number two is the ecosystem because we need to have enough developers knowing how to write code, knowing how to write smart contracts. Smart contracts is probably the third one because we need to have a chain that has a very easy capability in terms of smart contract writings. So yeah, the language of writing, the ecosystem, how the founding team is reacting to challenges, whether they're open and transparent. You're smiling now. You probably know that some chains didn’t go through this proof check.
Eric Jorgenson: Yes. With that lead in, I'm curious what are the things in Propy’s sort of product that are written on chain now or that are handled by smart contracts? Because I think there's a lot of really smart people that I talk to who just haven't yet seen up close a- like they would say there's no use case. It's all speculation. It's people trading. And I think Propy is probably one of the companies that is the closest to or using the most sort of smart contract implementations for something that anybody can relate to. So, I'd love if you'd maybe talk us through some of those that are either currently happening or on the kind of roadmap for the future.
Natalia Karayaneva: Well, I normally like to talk about categories of blockchain, user chain in real estate, specifically three types of use cases. The first one is just pure recording on blockchain, recording of deeds, recording of data on blockchain, because then the data becomes immutable, and it will help developing countries to avoid corruption, developed countries like the US it will help to avoid all those attacks that I just mentioned. That's the first use case. And as I mentioned, we try and build software, we may provide it to more countries when they are ready to adopt this technology. Because at the time, they were not ready, they didn't have awareness and it didn't make sense for us to spend our resources there. The second one is smart contracts for workflows where smart contracts basically execute a number of terms within the purchase agreement. So very important for those folks who are listening [inaudible 52:04] smart contract is not a purchase agreement. Yes, we utilize the terms from the purchase agreement and those terms drive the transaction. So basically, what it means, you pay for a property, smart contract knows that you’ve paid, whether it is [inaudible 52:23] or wallet to wallet. And then the smart contract can initiate that recording automatically. That's kind of the simplified version. Then the NFT transaction, I put it in the same bracket of the same use-case because basically auction NFTs of smart contracts, if you've got the money, if you're the winner in the auction, you will have the NFT in your wallet. So that's the second one. And the third big one is fractional ownership, which we don't do at Propy. There are a number of other companies that are doing tokenization. We may have something where we just may aggregate fractional ownership, all these things from other platforms. And this is security tokens. That's why we don't want to spend a lot of time there just yet. But I would say these are the three main kind of use cases in our space.
Eric Jorgenson: Okay. Very interesting. And do you guys spend any time looking at sort of the like online to offline tools or hardware? Like, do you get excited about the fact that like digital locks could update like based on your NFT ownership and like that's functionally transacting the keys to a house or a gate access or something like that?
Natalia Karayaneva: We actually had some videos shared on Twitter, where you approach a house, you have the wallet and [inaudible 53:40] NFT, then magically the smart lock opens. Yeah, probably we will evolve to this future. It's not necessarily our goal right now, and maybe it will be achieved through different partnerships. But it's kind of natural we're moving towards that. And there were a number of people commenting like it's not easy, what happens with this or that, but then the same stuff can happen with the physical key. And even like when you move to a new house, you have to deal with changing all the locks and all the keys.
Eric Jorgenson: Yeah. Sort of the last question in the like sort of bridging of old worlds, but we haven't really touched on it yet, is mortgages. And I've seen some sort of interesting proposals, I guess I should say, that kind of combine some of the defi money Legos with traditional mortgage products. I know you said the NFT transaction sort of had to go be transacted in whole for legal reasons, but where do you see mortgages fitting into the future of real estate and the smart contractification of these transactions?
Natalia Karayaneva: There are a number of partners that are reaching out to us to help them build the products in DeFi mortgage, decentralized mortgage. So, I think by the end of the year, we'll have at least two very strong companies, and we already have in the space about two companies like [inaudible 55:13] and a few others. But the nearest use case is when the NFT can be used as a collateral and the new home owners of those NFTs can loan, and can borrow against the home. As you know, now you can get the loan against your NFT bored ape, crypto punk, so with NFT home, it is even more secure and predictable.
Eric Jorgenson: Yeah, that's very interesting actually to think like it might reverse the order a little bit, but the people who are already doing collateral against NFTs, JPEGs, like anybody who squints at that, you just tell them that their home is going to be an NFT in 24 months, and then they'll start to figure out that collateral thing real quick. So, one more kind of- this last section that I'm hoping can kind of bring everything together for me. I know Propy did a token sale when it was the fashionable thing to do in 2017. And actually, I also saw that your token was just up-listed, or it doesn't count as up-listed, listed on Coinbase for the first time. And it got me thinking, I felt like I had my head wrapped around Propy as a company, and then I learned about the token, and I was like, oh wait, how does the token fit into the overall product and sort of ecosystem that Propy is building?
Natalia Karayaneva: So Propy’s utility token, which was launched in 2017, this year we had the epic news that it was also listed on Coinbase, and it's a utility token that unlocks smart contracts for every single transaction to date. We have processed over $2.5 billion in traditional deals, all done with smart contracts. And anytime there was a transaction based smart contract, Propy token is serving kind of a gas fee utility. And so, there was a period of utility in the settlement protocol, but also, it's being used in our learn and earn program so that we can grow our adoption program via real estate market participants.
Eric Jorgenson: What was the token sale process like for you? I mean, was it exhilarating? Was it terrifying? Like was it hard work to set up?
Natalia Karayaneva: It was very, very hard, but we were super conservative. We hired the best lawyers in the country and made it super, super clean. We gave tokens to any of the founders who were advisors and built a pure utility use case.
Eric Jorgenson: And did you think of it from a company perspective, did it solve the same problem as a fundraising round? Is it like this brings in cash that will help us operate for a while? Or was it just like, hey, we need a utility token and we should spin this up sort of separately?
Natalia Karayaneva: Yeah, the main focus was actually, it's kind of a presale of the service. We were selling the service to market participants that buy it, then they can use the tokens for the transactions that will be occurring within our transaction platform. And this actually happened. Almost all of our buyers were retail buyers, many agents, many real estate participants.
Eric Jorgenson: I understand. Okay so, people were basically, it's almost like putting a deposit down for like a Tesla, like a model three or a cyber truck or something. Like they buy the token in order to use the product in the future.
Natalia Karayaneva: Yes, that is correct. They buy the token so they can use the product.
Eric Jorgenson: So, if I'm an investor and I listen to this episode, and I think like Propy is an amazing company, how do I think about the equity of Propy the company versus like the token? How does value accrue to the token versus how does value accrue to equity? Because I feel like there's people who are treating tokens- like there's DAOs where you can buy the token and it's basically like buying equity in the outcome of the program. But I'm really interested in how – we can speak in general terms, if that's easier – companies with tokens sort of separate those two things and what the division of labor is, for lack of a better term.
Natalia Karayaneva: We'll have some services that we're charging from Propy as a company that cannot be done via tokens, and then we have a transaction platform, which is a [inaudible 59:52] that requires Propy tokens. So, it's as simple as that.
Eric Jorgenson: Okay. So, it is really like some services are sold in tokens and some services are sold in fiat currency. Do you expect value to accrue to the Propy token? Is there like a supply and demand dynamic there, or are they just kind of issued as necessary for new transactions?
Natalia Karayaneva: They're not issued. All the tokens were launched in 2017, so there are no new tokens and there's no [inaudible 1:00:23] mechanisms, so it's a stable and a limited supply of those.
Eric Jorgenson: Okay. So, in theory, as Propy gets used more or those tokens are in more demand, that price may go up, but it's not like those token holders should expect to receive dividends or profits or ownership in Propy or anything like that.
Natalia Karayaneva: That's absolutely correct. So, the tokens give the rights to dividends or to revenue share or voting rights or rights to the equity, because then it would be a pure security token.
Eric Jorgenson: Okay. So, it's like Chucky Cheese, you can buy them and use them in the arcade and somebody might pay you more for them someday in the future if they stop making- you're not making new ones. But okay, this is helpful. Thank you. It's amazing how many varieties of token types and attributes these things have already. And it's really legitimately hard work to figure out who's using tokens to do what in what context. So that was very helpful. Thank you. Natalia, I know that you glazed over this in your intro, probably out of some sense of, I don't know, excessive humility, but I know that you also did your masters in sustainable urban development from Oxford. And I'm curious about your vision for the city of the future and sort of your dreams for that, how those have unfolded and what you see as the city of the future, and that may or may not have anything to do with Propy. That's just an exciting question to ask, and I would love to see sort of the future metropolis that you dream of.
Natalia Karayaneva: Yeah, absolutely. I definitely dream of more sustainable cities and greener housing approaches. That was one of my options, whether to build Propy or to build a sustainable community, smart cities, smart community, which is driven by technology but mostly by the incentives for the community itself to thrive. And whether it's a city or a community, I definitely see again, another use case for colored coins or cryptocurrency where community are. They're incentivized to have the coin of the city or the community. And that's what would contribute to the wellbeing to this community. And of course, there's a lot, like [inaudible 1:03:00] and decision-making, and voting. So, there's a lot of those ideas that could be implemented. And there are a number of smart cities that are experimenting and trying to build this example of the future. So hopefully we'll see more thriving and vibrant communities that have this benefit of technology.
Eric Jorgenson: I love that. This is another hobby that we share, daydreaming about the cities of the future and how they might be greener and more sustainable and more beautiful and more natural and better for all of us who live in them.
Natalia Karayaneva: Even in Propy, one day, once we turn into a transaction marketplace, I want to incentivize greener buildings and assess the buildings and homes with better sustainable and green and give them kind of a priority in this new platform. So yeah, I share this passion with you, Eric.
Eric Jorgenson: I love that. You'll see, it'll all come together in the long run. That's beautiful. Well, thank you both, Natalia and Adam, for taking the time to teach me and whoever stumbles along this journey with us everything that you know or at least a fraction of what you know about the coming together of web2 and web3 and real estate and painting a very optimistic sort of beautiful vision for what a slow crufty outdated marketplace could become with the right technology.
Natalia Karayaneva: Wonderful. Thank you, Eric. Thank you so much. It was wonderful.
Eric Jorgenson: I appreciate you hanging out with us today. Thank you for listening. I encourage you to please leave a very quick review in your podcast app of choice or text this episode to a friend. Those are both incredibly helpful things that I personally appreciate. If you liked this show, you might want to queue up my episode with Sean O'Connor of Block Native and Shane Mac of XMTP, both similar to this, very clear open explanations of how the blockchain works, what the impact will be, and some non-speculative long-term thinking about how the next decade will unfold. I hope you enjoy.