Frax <> CitaDAO Partnership Proposal

Author

Ethan | CitaDAO

Summary

Create a CitaDAO AMO to provide liquidity to the Real Estate Token (RET) lending Pool, which will earn Frax non-crypto correlated yield and provide RET holders with the ability to take an overcollateralized loan with RET as collateral.

Background & Motivation

As Frax grows, it becomes increasingly important that its collateral mix diversifies into safe yield assets with interest rate revenues coming from non-crypto correlated economic activity.

CitaDAO is a decentralized marketplace for tokenized real estate designed to bring off-chain assets and the yield generation on-chain. At CitaDAO, we are building up our TVL of tokenized Real Estate. Our vision is to onboard billions of dollars worth of Commercial Real Estate on-chain and unlocks greater value for these assets. We achieve this by creating on-chain use cases/composability for tokenized Real Estate. For example, a primary use case of CitaDAO’s RET is collateralized borrowing. RET holders would be able to deposit their RET as collateral and borrow assets against their collateral.


Dune Dashboard

  • CitaDAO recently tokenized an asset worth over US$600,000, and we seek to unlock greater capital efficiency with the tokenized asset through a collateralized loan. Holders of this RET can take out collateralized loans against the RET.
  • CitaDAO has a pipeline of commercial properties, with total value amounting to millions of dollars, to be listed on our platform. We believe that a partnership with Frax would allow us to continue to access the true potential of Real Estate together.

CitaDAO Proposal

We propose creating a CitaDAO AMO that provides collateralized debt to RET holders. This would generate yield for Frax that is uncorrelated with the rest of crypto, while providing liquidity for real estate token holders. We propose the authorization of up to $2m worth of liquidity for use in the AMO as a Proof-of-Concept (PoC). Subsequently, as CitaDAO continues to build up our TVL, we will request a larger authorization amount.

Risks / Structure / Protections

  • CitaDAO is currently at its infancy stage with $600k TVL, and scaling up with real-world assets is slower than the typical crypto project.
  • CitaDAO’s smart contracts have been audited multiple times by ABDK
  • Each real estate has its respective off-chain income. The income varies by real estate, but the IRO process allows the community to decide if an asset will eventually be tokenized.
  • We are integrating with Chainlink for an oracle that provides valuation of the tokenized real estate. This creates a reliable and transparent price feed for the real estate IRL.

How Does This Benefit Frax?

  • Grow the TVL with a safe, attractive yield that is truly uncorrelated with the rest of the crypto markets. Real world asset can help increase FRAX TVL uncorrelated to the crypto volatility.
  • Diversified and scalable source of income - Each real estate tokenized will be a standalone asset. As more listing comes on chain, the demand for FRAX would also increase and hence help to create a sustainable source of alternative income for the protocol.

About CitaDAO

CitaDAO is a marketplace for tokenized real estate that allows real estate owners to list and tokenize their commercial Real Estate. Introducing Real Estate On-chain (IRO) is a process where the community decides if the Real Estate gets tokenized.

Participants can participate in the IRO by contributing any amount of stablecoins to the IRO. A successful IRO leads to the tokenization of the Real Estate asset into Real Estate Tokens (RET). The RET is ERC20 tokens distributed to the crowdfunding participants on a pro-rata basis.

More information about the IRO process can be found at https://docs.citadao.io/intro/how-iro-works/overview.

Proposal

Yes: Create an AMO for CitaDAO as a PoC.
No: Do nothing.

6 Likes

I believe Frax should be open to experimenting with tokenized real world assets like those from RealT, CitaDAO, and maybe others.

as a long term FXS staker and FRAX LP provider, I believe it is wise for us to experiment in this area, and move forward with baby steps.

Having real estate tokens as treasury would strengthen FXS’s ability to mint new FRAX and further expand the ecosystem. Interesting proposal, and one that is surely feasible!

This is interesting. Would do some good for Frax to start diversifying into more stable assets to back FRAX.

I think it’s a good idea to include RWAs into the frax ecosystem so the protocol can further attract non-crypto native folks while diversifying the overall risk. IMO, CitaDAO is blurring the line b/w off-chain and on-chain. It takes RW interest bearing assets to the on-chain world, which are essential for the next wave of overall crypto adoption imo because I believe there won’t be any clear line separating the off-chain and the on-chain world eventually. LFG !!

Great proposal! personally, I am into diversifying assets for frax, but could you please answer the following questions:

  1. Is the project open-sourced?
  2. Has the project been audited?
  3. does the project have any bug bounty program?
  4. Who are the team members (if they do not prefer to remain anonymous)?
1 Like

Yes and we will be making our github repo public soon. Our contracts can be viewed Deployed Contracts - CitaDAO Docs

Yes. The source code was audited by ABDK Consulting

Yes. You can read more about it Security at CitaDAO - CitaDAO Docs

Our core contributors are doxxed. You can read more about us on our website

1 Like

I really like this proposal and believe RWAs such as real estate are essential for Frax growth. I do have a few questions though.

  • What real estate is in the pipeline for CitaDAO to acquire? Where is the real estate usually located?

  • Are there any plans in the future to accept FRAX for IRO pools? I think that would help align incentives more between the two protocols.

1 Like

The partner working with our team is a Singapore-based family office with real estate all around UK. We are also concurrently discussing with a few other institutional landlord to explore listing their assets in Singapore via CitaDAO

Yes. In fact, this is something we’d like to explore with our upcoming IRO to kickstart the partnership.

2 Likes

Sweet thanks for the answer!

1 Like

@samkazemian mentioned having $200m RWA on Fraxlend in the FRAXBP proposal on Curve. We think we would be an additional supply of stable, scalable and decentralized collateral in the form of real estate tokens to Fraxlend. This will help to increase the revenue for FRAX since we are replacing the mortgage market IRL.

We would be excited to accept FRAX for the IRO too. That way we can create both the demand for FRAX and Fraxlend when it launches to help bring on real world yield to FXS holders

2 Likes

As I understand, you want the RET tokens to be used as collateral in Fraxlend, so users can borrow FRAX.
The two most important requirements for collateral are:

  • Good oracle (chainlink is fine)
  • Sufficient on-chain liquidity (in case there are liquidations)

Is there any liquidity?

:+1:

We have a concentrated liquidity pool on uniswap v3 link. There’s approximately $143k TVL on it right now - about 23% of the real estate tokens in circulation.

2 Likes

Concentrated liquidity is great for trading, but unfortunately not as good for liquidations. The reason is that liquidations are likely triggered due to a large drop in price and in that case the price will be out of the concentrated liquidity range, so there is no liquidity left for the liquidations.

The liquidity needs to be structural (unlikely that liquidity will be removed) and deep enough to handle liquidations at the price level that they are likely to happen.

1 Like

Good point. However, we foresee that the price for real estate should be relatively stable and there’s shouldn’t be crypto-like volatility to trigger the liquidation. Because of our unique process to detokenize the real estate, we think that the valuation of the real estate IRL becomes a floor price for the real estate token. IE if the RE token falls into a range without liquidity, there will be an arbitrage opportunity for someone to detokenize the asset and transact it IRL, hence driving the token price back to the range of liquidity. Let me know if this makes sense?

2 Likes

The detokenization process means that someone offers to buy all the tokens and thereby the whole object and then tries to sell it in the real world?
The Frax protocol is only on chain, so that can not work for us, but I guess for a significant discount somebody would be willing to do that. The liquidation fee should then be large enough to cover this discount.

3 Likes

In this case, maybe you should change the proposal from an AMO creation to a Lending pool creation in the upcoming Fraxlend protocol.

2 Likes

I can’t seem to edit the earlier post but agree with you. Fraxlend seems to be the perfect place to kickstart the collaboration.

1 Like

So if I understand this correctly, the RET token acts as the tokenized equity in the real estate? Then the borrower deposits their RET tokens and draws stable coins against their RET token collateral, paying interest? If I’ve understood correctly, my question is how are the RET tokens priced? Is there dynamic pricing on-chain or off-chain data input (eg from a 3rd party underwriter like Savills who provides a valuation every 3 months, as would happen in TradFi commercial real estate loans)?

Also, can you elaborate on the nature of the commercial real estate loans. Are they: development loans, investment loans (2+ yrs), bridging loans etc? And do you propose the AMO targets the senior tranche of the loan, and if so at what proposed interest rate?

1 Like

Great questions @Justin1066, appreciate you taking the time to ask. Let me address them and hopefully clear things up. Would love to get your further feedback too.

1/ The RET acts as a fractional right to redeem the title deed.

2/ The borrower doesn’t HAVE TO draw stables if they don’t want to. However, perhaps we can use ETH and MakerDAO as an analogy here - DAI is collateralized by ETH.

We are proposing that a stablecoin such as FRAX can be collateralized by RET. Collateral is returned/unlocked when the minted stablecoin (ie FRAX) + any interest is repaid.

3/ The pricing of RET is determined by the market. RET is the tokenized real estate which could deviate from the real world valuation. However, the pricing of RET should reflect what RET is, answered in #1 – RET acts as fractional right to redeem the title deed.

4/ There will be real world valuation appraisals conducted on a regular basis (monthly, and this information will be put on Chainlink price feeds) which we propose to be used as the basis for the amount of FRAX that can be minted. We propose to use the Chainlink price feed data (based on real world meat space appraisal of the property), as opposed to say, on-chain trading data.

For example, say Property A is worth $10m (based on real world meat space appraisal by reputable real estate appraisal firm), and there are 10m RET-A in circulation. Using an LTV of 50%, a user that holds 200 RET-A tokens, would be able to mint a MAXIMUM of 100 FRAX.

Couple key points. a) RET-A, as indicated in 3/ (above), is free-floating and represents the public’s view of the value in the ability to redeem the title deed. As an example, it could be trading at $0.90 each or $1.20 each, and due to this uncertainty, we propose to use the real world valuation and the decided-upon protocol’s LTV rules for RET to determine the amount of stablecoin that can be minted using RETs generally. b) If the real world valuation appraisal updates and shows that the value of the building has gone down to an extent that would cause a breach of the minimum LTV that must be maintained, then there would need to be liquidation of the minimum appropriate amount of collateral in order to bring LTV back to the required minimum.

5/ I might be missing something here, as I don’t follow the thought process behind this question. I would view this proposal as analogous to allowing RET to become a collateral similar to ETH when minting DAI and no a specific type of commercial real estate loan. How a user may use DAI, the duration of the loan, is not relevant to the mechanism of the lending. In our case, we are hoping that FRAX would allow users to use RET as collateral to borrow FRAX (similar to ETH in the case of MakerDAO and DAI).

On the interest rate for the loan, we are keen to have a dialogue with the FRAX community as soon as the proposal is approved to see what makes sense for both parties.

In the meantime, we are definitely open to hosting AMA or other forms of dialogue with the community to answer any questions too.