You know how the pandemic sparked your interest in moving to a different location? You know how we all spent lockdowns looking at new houses and fantasizing about living in different cities?
Unfortunately, it is almost impossible to invest in or gain exposure to the real estate you dream of owning without buying the entire physical property. But if you can take a financial position in physical commodities such as oil, wheat, and even orange juice without ever touching the physical asset, why not real estate too?
We have entered a period of heightened real estate volatility, which is not only likely to persist, but also likely to become the new normal. The pandemic exposed how limited the options are to invest, hedge, and gain exposure to real estate in a liquid, low- cost way.
While there are a variety of fractional ownership opportunities, most offer a scarce selection of investments, large minimum investments, and limited liquidity. Similarly, tokenized real estate on the blockchain has yet to reach critical mass given scale, liquidity, and property management constraints.
We believe these conditions have created an opportunity to rethink the fundamental nature of how the entire real estate market operates.
I am a former portfolio manager who worked within the technology and payments sectors at several hedge funds, and my focus was identifying relative value trades (the winners vs. the losers). During COVID, these types of relative trades were abundant in real estate, but there was no practical way to capture any value from these price movements.
For example, Manhattan was down 30% during the depths of the pandemic while the suburbs had appreciated by up to 30%. That represents a 60% spread in what is, for the vast majority of people, their single largest holding.
While the opportunity seemed irresistible, there was no viable solution. So I asked myself: ”Why can’t I trade the value of general areas like neighborhoods, zip codes, towns or cities? Why couldn’t an investor be offered exposure to a neighborhood or region instead of having to choose an exact house or building?” Is there a way to avoid a hyper-specific investment that requires so much cash?”
Concomitantly, as the entire DeFi (Decentralized Finance) sector started to explode, new and innovative capital formation opportunities began to emerge.
And these innovations in DeFi helped to substantially inform our thinking on how to address this market, ultimately letting us merge exposure to real estate price movements with DeFi — giving birth to Parcl.
Parcl is a digital real estate protocol built on Solana, a blockchain specifically designed to host decentralized and scalable applications.
The Parcl Protocol allows users to invest in and trade specific geographical markets, which can be used for directional investment and hedging strategies in a traditionally opaque and walled-off asset class.
An individual parcl or pAsset is a digital representation of the price per square foot in a given geographic area that has been collateralized by crypto assets.
How it’s done | Our thesis is that every real estate market has a price. And that price is denominated in price per square foot for relative purposes. As such, we have created the Parcl Price Index to capture the price per square foot of any given neighborhood or city, and it moves dynamically in real-time.
The inputs include but aren’t limited to: real estate listing data, real estate transaction data, property tax record data, and geospatial data (boundary files, points of interest such as restaurants and bars, etc.), making the Parcl Price Index highly-responsive, accurate, and secure.
Over time, as Parcl scales, we will continue to refine the fidelity of the Parcl Price Index, increasing its responsiveness and coverage (both locally and internationally) by continuing to expand our geospatial and machine learning capabilities.
Longer-term, we will continue to incorporate additional dynamic, complex, and intensive data pipelines into a distributed network so that index pricing validators can emerge. These validators could include realtors, appraisers, and other relevant real estate market participants.
Creating and trading pAssets | A Parcl is a digital square foot of physical real estate, but instead of being backed by traditional assets, it is backed by crypto assets.
A pAsset — a tokenized version of the Parcl Price Index — is created when a minter deposits collateral into a Parcl protocol vault and mints the desired pAsset against their deposit. The minter can subsequently deposit the newly minted pAsset tokens into Parcl’s Automated Market Maker (AMM) to earn a portion of AMM trading fees as well as optional LP token liquidity mining.
Also, traders will be able to buy and sell pAssets on the Serum decentralized exchange as an additional venue for high-quality trade execution.
The pAsset creation process explained (minting) | Alice wants to mint the Brickell neighborhood of Miami, which has a Parcl Price Index of $615/sqft. pBrickell’s minimum collateralization ratio is 110%.
This means the dollar value of the deposited collateral must always equal 110% or more of the outstanding pAsset dollar value. Therefore, in order to mint pBrickell tokens, Alice would need to deposit ~$677 per token, or more, in collateral.
Since Alice’s pBrickell position must be 110% collateralized, or she could face liquidation, she is implicitly short pBrickell. While short exposure may be Alice’s desired outcome, if she prefers a more neutral position, then she might deposit her pBrickell tokens into the Parcl AMM to earn swap fees and to participate in liquidity mining.
This strategy of minting pAssets and providing liquidity to the Parcl AMM allows Alice to earn fees in proportion to pAsset trading volumes — along with protocol-sponsored incentives — which may neutralize her implicit short position.
With liquidity in the Parcl Protocol, traders and investors can gain access to the pAsset of Brickell through our swapping interface shown below.
pAsset selection | For our initial rollout, pAssets will be available in key neighborhoods within Manhattan, Brooklyn, Miami, San Francisco, Phoenix, and Los Angeles. Parcl will continue to initiate new pAssets, potentially at the request of the community. Parcl also plans to expand to international markets in the coming months.
It’s the right time, for the first time; capitalizing on a convergence of Megatrends.
Everyone has a relationship with real estate, and we strongly believe some form of digital real estate assets should be in every well-managed portfolio or wallet.
Structurally, we see several tailwinds which include: heightened real estate inflation and volatility, accelerating DeFi TVL, and the rapid mainstream adoption of digital assets.
We also have several idiosyncratic advantages that will help us capture this opportunity, including: first mover in defining a new primitive, a seasoned and experienced team (14 FTEs and growing), Solana’s low cost and scalable infrastructure, and world-class investors advising us on strategic decisions.
Real estate has long been a cornerstone of the “American Dream,” yet participation demands large amounts of capital as well as exceptional credit.
Additionally, the recent housing shortages, partially led by banks and private investment firms gobbling up inventory, have put homeownership further out of reach. The homeownership rate in the US is approximately 65%, near 20-year lows, and appears to be continuing to decline.
Parcl’s mission is to give everyone access to real estate investment. We believe broadening the stakeholder base of real estate investors can align community members toward creating collective value.
As individuals, we are all more likely to clean up, improve, and invest indirectly in our neighborhoods if we are and feel directly invested in them.
Parcl will be publishing a series of Medium articles in the upcoming weeks, but here’s some of the TLDR in the meantime:
Team | I’m biased, but our team is truly awesome. At Parcl, we are focused on building a culture of growth toward our mission of delivering real estate investing for everyone.
Our team currently consists of 14 people, and possesses an extremely diverse experience and expertise set ranging from Wall Street to Big Tech to Ph.D. level research.
Companies our team members have worked for include: Microsoft, Millennium, Pudgy Penguins Project, NetJets, Nomura, Data Robot, Billion Dollar Boy, Afito, and Capital One.
Why Solana | With its faster transaction speeds, lower transaction costs, ease of scalability, and its new Proof of History (PoH) technology, Solana is — in our estimation — what every blockchain aspires to be.
Roadmap | While Parcl is deployed on devnet, our full website is currently internal-only. Our plan is to make it public to a select few external stakeholders soon. Code audits will begin in 2022 by multiple professional audit firms.
Shortly thereafter, we plan to deploy to mainnet in a closed alpha release. After troubleshooting, debugging, and hardening the protocol, we will open the site to the public in late Q1. Later in 2022, we plan to launch additional complementary and composable protocols and ecosystem primitives, such as Serum order book-based products as well as additional data tools.
Funding | We’ve raised $4.1M to date. Our Seed round closed in October and was led by Archetype (Ash Egan), and included Dragonfly, ParaFi, Solana Ventures, Coinbase Ventures, Shima Capital, Not Boring Capital, Slow, Tribe, and FJ Labs.
Fun Fact | Our closed mainnet alpha will be gated by an NFT (with rarity features). Stay tuned for details.
🌐 Join our Waitlist: https://parcl.co