[FIP-125] Exploratory Partnership to Pursue Propfi (RWA) AMO

Greenlight collaboration on the design of a PropFi AMO to allocate stable liquidity to an initial property pool of high yielding single family real estate (SFR) assets.

Background and Motivation:
PropFi is a real world asset (RWA) investment protocol, which will enable on-chain exposure to broadly diversified property portfolios, as well as other real world assets. PropFi has partnered with a number of firms which traditionally provide institutional-grade acquisition, development, and property management services to large insurance companies and private equity entities.

The sum total of this approach enables exposure to RWA at significant scale, in an on-chain environment. The PropFi solution also seeks to disrupt traditional REITs (both public and private equity) by using DeFi infrastructure to provide far greater efficiency, and thus higher net returns, greater liquidity, and unprecedented transparency.

Focusing initially on SFR due to its resilience, relatively low volatility, low correlation with crypto investments, and stable yields, the protocol takes advantage of several unique characteristics that place it above previous attempts at incorporation of real estate or other RWAs into the blockchain space.

These include:
-Scalability - working in close partnership with a nationwide tech-forward institutional manager capable of deploying $125M per month in capital (and climbing), manage 200+ simultaneous renovations, and get us access to economies of scale in portfolio insurance, financing, and liquidity.
-Frictionless user experience (easy on-chain access to institutional grade portfolios of properties, without needing to leave the blockchain infrastructure layer, no hassle of withdrawals or bank transfers etc)

This is a particularly opportune time for integrating RWA to on-chain investment strategies, as it provides secondary access for institutional grade capital to the digital asset space, while offering digital native investors and protocols easy and seamless exposure to a countercyclical market hedge. This effectively enables preservation of wealth and provision of relatively high yields, even during crypto market drawdowns.

Propfi will seek to deploy a $25-$50 million genesis pool of properties within the next 6-12 months, at such time as our advisors feel the macro picture is advantageous. This will be done within geographic regions targeting a 7-10% average total net annual return for all capital deployed into property (rental yield + capital growth).

In the interim, Propfi will seek to deploy invested funds into high interest very low risk cash and cash equivalent options.

Background & Motivation:

The long term health and stability of FRAX will, in part, require proper management of the underlying collateral pool. Portfolio management to preserve and grow assets as well as generate predictable income is incredibly difficult on-chain. There are relatively few diversifying assets available to digital investors and diversification is the cornerstone of long term institutional portfolio management.

For decades, large investment managers (e.g. insurance companies and private equity et al.) have used Single Family Rental real estate in their broad portfolios for exactly the reasons FRAX should: to hold an uncorrelated, relatively low volatility, stable-income producing asset with positive expected returns. PropFi is the first, and only, institutional-grade, real estate portfolio token and our product is aimed at assisting organizations exactly like FRAX.

The Genesis PropFi fund is a fully on-chain, portfolio of USA-located SFR real estate. The Genesis fund token represents a fractional claim on the underlying real estate fund allowing an investor access to ongoing exposure to net capital appreciation and net rental income - with target returns of 4%-6% pa net capital growth and 3%-4% pa net rental yield (for a target net total return of 7%-10% pa). Unlike other on-chain real estate products, we are building a geographically diversified portfolio of quality properties, in quality neighborhoods, with an emphasis on stable returns, predictable and resilient income, and liquidity.

The real estate for the genesis fund will be acquired, renovated, and managed by one of the top (and very few) institutional TradFi R.E. operating companies in the U.S. The founder of the OpCo is a partner and advisor to PropFi and brings 20 years of SFR investment experience having closed over $10B in acquisitions. His current firm, and our trusted partner, has $1B invested with $1.5B of dry powder from large insurance companies. The same quality portfolio available to large insurance companies and private equity firms will be offered through PropFi. Our portfolios will have no degradation of service, quality, partnership, returns, or economies of scale due to our growth stage that other institutions might impose on a startup.

Through our partners we have an extraordinary edge: We can tap into up to $125M per month of acquisition capacity (predicted to be $200M/mo in 2023). We can also tap into 200-250 simultaneous renovations. We can access institutional portfolio insurance, with pricing based on our partner’s portfolio (worth north of $1B). We have financing available from TradFi bulge bracket banks normally reserved for much larger organizations. We have also secured an advisory relationship with the former Head of Risk of a $14B SFR fund. She will operate as our acting Head of Risk while we are launching.

On net, PropFi is offering a diversified institutional-grade SFR investment that competes with some of the best private equity REITs, with no minimum investment, and vastly greater liquidity - all fully frictionless and completely on-chain for organizations like FRAX.

For full documentation and a detailed breakdown of protocol structure, see this presentation deck:
PropFi presentation deck

Vote Outcomes:
For: Agree to establish an ongoing strategic dialogue with the PropFi team leading up to the initial pool seeding and fund deployment. As the exact makeup of the initial fund are finalized, agree to discuss terms to greenlight an AMO allocating a fraction of collateral to the PropFi SFR Pool.

Against: Do nothing


I support this proposal, tapping in RW yield is important to diversify our income revenues!


Against this proposal, PWA brings Frax protocol too much risks, Fraxlend & frxEth are much better alternatives for the protocol

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Appreciate the proposal, but agree with tan here. RWA inherently has off-chain components that bring all sorts of risk. Hope that in a few year we see more blockchain adoption by traditional companies and regulatory clearity. I don’t believe that Frax as a protocol should be exposed to RWA currently.

FRAX can distinguish itself from DAI by not exposing itself to off-chain risk. FRAX is perceived as more risky than DAI because of it’s undercollateralized design. But on this point, the tables could turn.

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Appreciate your input and feelings on this. It would be helpful for us, for you to identify what risks you associate generally with RWA, so we can better understand and attempt to address them.

It’s worth mentioning that with respect to regulatory concerns, one of our formal advisors is the head of a well established blockchain-focused legal firm, and has provided us with a clear regulatory framework within which to operate PropFi.

Also note that this proposal is purely to discuss the prospect of deploying a small proportion of frax funds into a fund under development, designed to consist purely of high quality US single family rental properties, as an early adopter, with no binding commitment whatsoever at this stage, so no downside.

Our analysis indicates that this small exposure would provide significant risk reduction and risk-adjusted return maximization via diversification into largely uncorrelated (compared with on chain options) and stable, USD denominated returns.

This proposal is up for voting here: Snapshot

As an addendum, as some confusion seems to have arisen conflating what our approach is with that of an organization such as Maple, Goldfinch, or another lending-based protocol, that PropFi does not utilize any form of credit/leverage - no loans are being issued here, no mortgages are being purchased, and there is no undercollateralization - we simply within the SFR fund (as PropFi will eventually integrate a variety of fund offerings including different classes of real estate, as well as US Treasuries, backed by the US Government) invest in and purchase real physical assets (properties) themselves, off the books of our partner acquisition entities - there is never any risk associated with non-repayment from a third party such as a borrower.

All holdings will be fully viewable and auditable, and so all we’re facilitating in propfi’s first stage is a high yielding, highly liquid REIT (yields akin to or higher than top line private equity funds that aren’t available to the public) that investors on chain can quickly and safely allocate capital to, and one with full transparency that all of us crypto natives demand