The Gateway for Real-World Assets into DeFi - Is this the answer to allowing home mortgages and other real estate loans to be collateralized via defi?

I had been thinking about this topic for some time and this is one of the main
reasons the Centrifuge project has captured my interest.

With the traditional realm of property conveyance lawyers take care of the legal
work around transferring ownership of a property from one entity to another.

There may be some kind or public land record that also get updated at the time
of transfer, and there would usually be a deed that provides evidence of the properties
title being transferred from one person/legal entity to another.

If the entity purchasing the property has taken out a mortgage with a bank to
help pay for the property the legal ownership entitlement would shared with the bank and
written into the contract and this collateralizes the loan, so that the bank can claim a
foreclosure should loan become delinquent and the mortgage agreement is defaulted on
buy the entity taking out the loan. The ‘value’ of the property is usually derived from
the market, but also things like professional valuations, and capital valuations by local
authorities (councils etc) to work out property taxes can play a part in assessing the
value of a property in terms of fiat currency.

So what if the legal title of a property could be tokenized (as an NFT)?

Providing the regulatory and legal framework is modernized to recognize the tokenized
representation of the property title, and NFT could be used as an instrument within a
smart contract, and the provision of a loan against the property could then instead
be provided through the means of decentralized finance (removing banks from the equation)

reading through the info on the Centrifuge website it looks as though invoice factoring
going to be a big use case, however this scenario mentioned above seems to be something that
could play into the longer term vision of this project. In my opinion this could be an extremely
disruptive force within global finance structure if able to be realized.

Keen to hear anyone elses thoughts on the matter…


Hi aldawg77
I think you are right on the money. And Tinlake is actually doing just that.
I’ll copy from their website how this works:
"Tinlake’s set of smart contracts pool NFTs that represent non-fungible real-world assets and use them as collateral to finance an asset in a stable cryptocurrency such as DAI or USDC. This is done by issuing fungible, interest-bearing tokens that represent a claim on a fraction of the proceeds of the entire pool. These fungible tokens can be locked in crypto protocols or transferred to investors to draw funding. When liquidity is injected into Tinlake, our risk and yield tokens DROP/TIN are minted accordingly. The same mechanism applies in reverse when funding is paid out and tokens are burned.

Asset Originators can create individual Tinlake pools per asset type, e.g. one dedicated pool for invoices and one pool for mortgages. All Tinlake pools are independent of each other and can be configured individually, e.g. with different interest rates and collateralization ratios. For funders, risk and proceeds are shared for each pool but not across pools.

Tinlake can be deployed with a two-token structure that allows investors to invest in two different kinds of fungible, interesting bearing tokens: TIN and DROP. Both tokens represent the liquidity deposited into Tinlake and accrue interest over time. TIN, known as the “risk token,” takes the risk of defaults first but also receives higher returns. DROP, known as the “yield token,” is protected against defaults by the TIN token and receives stable (but usually lower) returns. This is similar to common Junior/Senior investment structures."