People who focus on crypto love to talk about the importance of bringing “real-world,” hard-to-trade assets like real estate onto the blockchain. Why? The advantages go both ways.
For the crypto ecosystem, bringing physical assets (and their associated cash flows) on chain would unlock immense value and help end the reliance on fiat-to-cryptocurrency exchanges like Coinbase and MoonPay as the only ways to bring those assets into the digital realm. It would also dramatically accelerate the adoption and immediate usefulness of digital currency and help solidify crypto’s place in the economic world.
Perhaps even more important, we should not, in 2022, live in a world where only things like the public stocks of big companies and U.S. dollars are liquid and tradeable. Crypto is the key to making physical assets easier to hold and trade.
Many have tried to build platforms for the digital trading of physical assets, but so far no one has succeeded at any meaningful scale. Now, my Slow Ventures colleagues and I think we have a good answer—a template that can be applied broadly. We call it the simple distributed autonomous organization, or sDAO.
How Does It Work?
At a high level, an sDAO is a vehicle for a group of people to buy physical assets. Every single member, up to 500 total, is an accredited investor and goes through full identity and anti–money laundering checks before joining. Up to this point, what you have is a standard limited liability company. There is absolutely nothing special about it.
The group then proceeds to propose and vote on which hard assets to buy. This is where crypto first comes into play. If this group is formed and funded via crypto, it becomes easy for the members to vote in a secure way on whether to buy or sell assets, distribute funds as dividends, wind down and so on. That said, using crypto isn’t completely necessary for a group to vote together on what to buy. So again, there’s nothing too special here.
After a one-year cooling-off period, the sDAO issues up to 500 indivisible tokens among its members, each one representing a person’s interest in the fund. Members can hold the tokens and continue to vote on community matters and receive dividends—or, if they choose, they can sell those tokens to other accredited investors. Traditional exchanges are unlikely to list those tokens or make a market for them, but that’s all right. As we speak, the crypto ecosystem is creating many exciting avenues for peer-to-peer trading and accreditation services around non-fungible tokens, which can easily be modified to serve other kinds of tradeable digital assets.
The final important twist is that any sDAO share that’s traded away from a fully accredited and vetted member loses the right to vote or receive dividends until the new holder reregisters and goes through compliance checks. There’s no hard requirement that the owner must register with the sDAO; they just lose the benefit of voting and dividends if they don’t. This final stage means there’s no possible scenario in which the sDAO would be sending dividends to a criminal enterprise, nor would anyone not fully accredited be actively participating in the sDAO.
What this all adds up to is a very vanilla LLC with all the benefits of the DAO structure—or in other words, physical assets traded in the frictionless crypto ecosystem.
The Montana Land sDAO
This isn’t all theory. We have an active test running right now, an sDAO set up to manage a plot of land in Montana. Here’s how it works:
- Anyone can register their interest in joining the Montana Land sDAO on our website. In return, they get a Solana address where they can send the amount of USD Coin they would like to put into the fund.
- After submissions are in, administrators will pick up to 499 members to join the sDAO and will return everyone else’s initial stake. Membership will be decided primarily based on size of contribution, with no one person holding more than a 15% interest.
- Those people who are invited to join the DAO will go through the vetting process. If any of the selected members don’t meet the requirements, their contributions will also be returned.
- Finally, we’ll get down to business—the members of the DAO will vote on what land to buy.
- A separate company, the Slow DAO Hard Asset Manager LLC, will take on the grunt work of executing the DAO’s wishes, managing filings and so on. Just as in the case of real-world fund administrators, the members can always vote to replace the LLC administrator with someone new.
- At the end of year one, the Montana Land sDAO will issue members tokens representing their ownership stakes, which members can then trade using existing crypto infrastructure. This will be nearly frictionless compared to the process of trying to buy and sell fund interests today in the physical world through lawyers and paperwork.
- Any new person who acquires a Montana Land token can choose to register with the DAO.
The net of all this is that with a reasonably simple structure, we will have Montana land owned by a DAO, with membership that is tokenized and easy to trade on blockchains. This might sound boring, but that’s the point. It should be boring to bring real-world assets on chain, but it should also be valuable, because in so doing you are making those assets far more liquid.
(This is obviously just an overview of some of the key points. If you’re interested in the details, find them at montanaland.slowdao.xyz.)
Where This Is Going and Why It Matters
There are two possible roads from here. One is that the crypto-digital economy and the physical-traditional economy will continue to exist and grow in independent, largely parallel directions. Many people will choose to stay primarily in the physical economy, but an increasing number will spend their productive lives in the crypto one. Wealth will move between these two separate economies, but the bridge between them will remain highly constrained. Someone might be very wealthy in one sphere but not particularly so in the other.
Personally, I don’t like this option very much, because I think it misses the massive opportunity of integrating the two distinct economies.
The vision of the future I prefer is one where they become deeply coupled—to the massive advantage of both. The crypto ecosystem is generating amazing tools for trade, but without a connection to the physical world those tools have far less impact than they otherwise might. In time, the metaverse and digital worlds might well become important enough that the purely digital assets natively supported by crypto become very important, but that will take a long time.
It is abundantly clear that we would live in a better and more efficient world if more things could be traded with zero friction. Will the sDAO template be the fundamental key to unlock that possibility? I don’t know, but I do know that for a groundswell to happen, the world needs a map.