This is a MIP6 Proposal for the addition of New Silver’s tokenized real estate backed loans to MCD by New Silver. New Silver originates and administers the asset collateralization using Centrifuge. This is the continuation of a joint pilot together with the Maker Foundation in summer 2019 where we tokenized a first mortgage as a pilot transaction.
1. Who is the interested party for this collateral application?
The asset originator, New Silver, is represented by Kirill Bensonoff (@prankstr25, [email protected], Managing Partner at New Silver) and Alex Shvayetsky ([email protected] Managing Partner at New Silver).
Centrifuge is providing the technology and framework for bringing real-world assets to MCD. The main contact on Tinlake for the application is Lucas Vogelsang (@spin, [email protected]) of Centrifuge as well as Lea Schmitt ( username:_LS, [email protected]).
2. Provide a brief high-level overview of the project, with a focus on the applying collateral token
We will start with a brief summary of New Silver, the Asset Originator, and provide information on the Tinlake Protocol, the technology that Centrifuge has built and how they interact with Maker later.
The asset type we are proposing for inclusion in MCD is slightly different to the majority of collateral applications: the Asset Originators will be using MCD directly as a line of credit to originate new loans against asset-backed real estate. This means they will add large amounts of debt likely using up the assigned debt ceiling for the collateral type while paying a stability fee in return that is in par with industry standard rates. In fact, New Silver is proposing a slightly more conservative rate to ease real-estate backed loans into the system: the yield on the collateral is projected to be around 6% (our current warehouse line is 5.25%). New Silver is convinced that these rates can be securely lowered over time and DeFi will evolve into a cost effective competitor to the traditional financial system.
About New Silver
Founded in 2018, New Silver is a technology enabled non-bank lender primarily focused on providing real estate-backed financing for the United States ‘fix and flip” market with a concentration on single-family residential assets. New Silver’s proprietary technology automates loan originations and speeds up underwriting, while using data science to reduce loan default risk. Furthermore, New Silver’s FlipScout tool uses intelligence in order to help find projects with the highest ROI.
These assets have the following characteristics:
- Collateral: US-based residential real estate
- Average Loan Size: $ 176,898
- Maturity: 12-24 months
- Historic Loan Default Rate: 0%
- Advance Rate: Up to 85%
- Interest rate charged to Borrowers: As of today, from 10.875%-13% per year
- Types of Advances: Fix and Flip, Refinance
The following describes an exemplary use case of a rehab loan (also referred to as a fix and flip loan). Rehab loans allow real estate investors to finance both the purchase and the construction, or in some cases, refinance an existing investment property with sufficient equity.
Overview of Tinlake Smart Contracts
Centrifuge is building a full stack of tools to bring real-world assets into DeFi:
- Centrifuge provides the technology stack to tokenize real-world assets in the form of an NFT. Each NFT represents one unique real-world asset, a loan, with a unique default risk that is priced by an off-chain oracle.
- Tinlake is the securitization protocol that handles the bundling of these individual loans and issues an interest bearing ERC20 token against the pool to allow investors with different risk profiles to invest into the pool. For the New Silver asset pool these tokens will be called [NS-TIN] and [NS-DROP]
- [NS-TIN] represents the junior tranche and takes first loss. For New Silver the ratio is set at 20% to establish confidence in this asset class. For comparison, New Silver’s current warehouse line with a bank merely requires 10% equity. Please find the documentation on our tranche structure here and the forum thread about how they work within MCD.
- We propose [NS-DROP] with a 6% stability fee for the MCD inclusion
Along with the necessary technical infrastructure to bring these assets into DeFi, the Asset Originator sets up a legal structure that provides the necessary support to ensure that anyone that owns a DROP token has a legal claim to the underlying assets. This is done with a legal structure very commonly used in the traditional financial system: The collateral for the individual loans are assigned to a legal entity, the “special purpose vehicle” and investors get an ownership interest in the entire portfolio of this entity (with this entity the assets are in an a bankruptcy remote structure that is not influenced by the Asset Originators).
3. Provide a brief history of the project
About New Silver
Kirill and Alex, the New Silver co-founders, have known each other for many years. Over the last 20+ years, Alex has worked his way up to a CFO at a large commercial real estate operation in Connecticut. Kirill has started and exited a number of technology companies (such as Unigma by Kaseya and StratusPointIT ). Both co-founders were introduced to the “fix and flip” market by a mutual friend who ran a fund that invested in these projects, where Kirill and Alex joined as Limited Partners. After exploring the technology landscape of the vertical, the partners decided they can add value on three fronts - making the loan origination process faster and easier by providing instant, online loan decisioning; using data to reduce default risk; and building value-add tools to help investors be more profitable.
To date, the company originated over $30mm loans and had no defaults. Prior to Covid19, the company was originating $3-5mm per month, and took a pause during the pandemic to assess market risk. Today, the management team is confident in the single family residential (SFR) market - consumer mortgage rates at all time lows, mortgage applications are near their all time highs and increasing while home mortgages in forbearance are decreasing and foreclosures for the year are lower than in the past years. While the commercial real estate market may be temporarily affected by the pandemic, the management team feels strongly that the SFR market is substantially different and will continue to have a scarcity of supply thus driving demand and price appreciation. New Silver anticipates to originate around $50M in the next 12 months.
New Silver strongly believes in DeFi and its revolutionary effect on financial systems. DeFi will eventually touch every corner of the economy, and real estate backed loans will not be the exception. Single family residential assets are a strong asset class that has been performing well over the past decade, and will add value and diversification to the MCD collateral portfolio. For New Silver, MakerDAO will provide a bank-alternative financing option that we hope will expand sustainably over time.
Centrifuge has been working on enabling businesses to borrow money using their assets in DeFi since the project was founded in 2017. It was founded by a team of experienced entrepreneurs who at their previous company, Taulia, built supply chain finance products for over 120 of the Global 2000 companies focusing on financing assets in the global supply chain. Centrifuge has received $8.2M in VC funding from a list of experienced & reputable investors and its core mission is to change the rules of global commerce by bringing fairer financing options to business around the world. With Tinlake we are building the tools to make these assets liquid and truly DeFi native.
Centrifuge shares Rune’s vision that real-world assets in MCD will be the essential driver to scale adoption to the masses while diversifying risk. We are closely working with the community on how real-world assets should be integrated into MCD and how we aim at minimizing trust as we bring these assets live.
Centrifuge and the Maker Foundation have collaborated on helping numerous asset originators prepare for bringing real-world assets into DeFi. Centrifuge is currently actively supporting the onboarding process of the two asset classes that have received the most votes of the Community Greenlight of the first MCD governance cycle (see CF-DROP,PC-DROP) and preparing more asset types to come - such as real estate-backed loans.
4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
Technical documentation about Tinlake can be found here:
- Github: https://github.com/centrifuge/tinlake
- Tinlake Documentation
- A detailed walkthrough of the Tinlake smart contracts; Recording: here
5. Link any available audits of the project. Both procedural and smart contract focused audits.
Centrifuge has conducted several audits of its technology stack. The audits can be found here: https://github.com/centrifuge/security/tree/master/audits
6. Link to any active communities relating to your project.
- Centrifuge Discourse Forum
- Participating in Maker Community Calls , 
- We are hosting occasional Collateral Onboarding Calls with the Maker community; the recording of previous calls can be found here: , , , 
7. How is the applying collateral type currently used?
Centrifuge Tinlake has been in development since early 2018 and is evolving rapidly. We currently have three active pools with three different Asset Originators and a total transaction volume of more than 1.6 million DAI. Find both active and closed pools on https://tinlake.centrifuge.io/.
New Silver DROP tokens in DeFi:
Summer 2019: First test transaction. In summer 2019 New Silver funded a real-estate backed loan of 70,000 SAI to real estate developers. This was one of the first transactions we did testing Tinlake (v1). The Tinlake smart contracts have evolved and have been audited since then. Funds for this txs were provided by the Maker Foundation.
July 22nd, 2020: Tokenized Current Fund. A couple of weeks ago we tokenized a portfolio of seven 12-24 month real estate bridge loans that are extended to real estate developers. The total volume makes up 1,021,597 DAI. Find more details here.
Inclusion in MCD: In the coming weeks the 1.02M DAI fund already in existence will be opened up to external investors. Upon onboarding to MCD New Silver intends to include Maker as one of their senior investors using the NS-DROP as collateral to open a Vault on MCD.
8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
New Silver has incorporated New Silver Pilot LLC, a Delaware (USA) limited liability company (the special purpose vehicle, “SPV”). This SPV has been formed to finance New Silver’s assets.
This SPV structure creates a bankruptcy-remote entity whereby owners, debt holders or interested parties of this newly created SPV are left unaffected by the parent’s financial, operational and/or legal health.
9. Where does exchange for the asset occur?
The SPV enters into a subscription agreement with investors who are receiving DROP from the SPV in turn for providing DAI. The DROP token can be redeemed against the cash flows of the underlying collateral directly from the SPV by any DROP holder. This is ensured by the Tinlake smart contracts and the primary way for interacting with these tokens.
10. (Determined by Legal Domain Team) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
We do not have any materials we can provide at this time.
11. (Determined by Legal Domain Team) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
12. (Optional) List any possible oracle data sources for the proposed Collateral type.
Determining the correct price of a real-world asset behaves differently from pricing Ethereum native collateral tokens. In order to adequately price a real estate-backed loan several factors must be considered (please read our fundamentals of pricing real-world assets for additional information). Tinlake requires not just an accurate price of the overall pool but details on a loan by loan basis. As these form the basis as well for the DROP token, we will start outlining the pricing for those first:
In approving clients and determining a risk score, New Silver utilizes a strict process and prudent thresholds with respect to:
FICO score of the borrower
Appraised property value
Automated Property Valuation
Average days on market in Zip Code
Standard deviation from median sales price in zip code
FHFA HPI Maximum Yearly Decrease 2006-2018 in County and State vs National
ZHVI (Zillow Home Value Index)
Median sale price for zip code to ARV %
Monthly sales count by zip code
Census data - average household income, town population
The risk score calculated from these inputs is used to determine approval, advance and interest rates. The Tinlake contracts then use these per NFT values to control how much money borrowers can withdraw.
To determine the value of the entire portfolio (simplified the sum of the market value of all loan NFTs) is usually by doing a net-asset-value (NAV) calculation across the portfolio. Centrifuge is implementing the NAV model in smart contracts that can calculate this information based on individual pricing information in real time based on the NFT price information.
13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
The way this collateral type is used varies from how standard vaults are opened: DROP tokens have a stable USD price and any small fluctuations in the loan portfolio performance should be covered by the insurance provided by the TIN tranche. This means that under normal operation, the Asset Originator would not see their Vault get liquidated. A liquidation would only occur if a large amount of defaults occur across the portfolio that the risk model did not calculate.
In case the Vault gets liquidated, the Tinlake contracts enforce a rebalancing of the pool to bring it back to its required collateralization ratio and will not allow issuing any new loans. Instead the Tinlake contracts are from this point on taking all of the cash flows generated by the borrowers and disbursing these to DROP token holders. New Silver provides financing for real-estate bridge loans with an average 12-24 months terms. So far New Silver did not have distressed loans in their portfolio. If required, however, the following companies have a longstanding history of buying distressed loans to name but a few: Fortress, Apollo, Ares