[REINNO] MIP6 Collateral Onboarding Application

This is a MIP6 Proposal for the addition of REINNO’s tokenized commercial real estate backed loans to MCD by REINNO.

1. Who is the interested party for this collateral application?

The asset originator is REINNO as is represented by Viktor Viktorov (@Viktor_REINNO, [email protected], Co-Founder and Chief Executive Officer) and Hristo Piyankov (@Hristo_Piyankov, [email protected], Chief Data Officer).

2. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

REINNO is a financial technology company offering a new solution for lending and real estate tokenization with a focus on providing liquidity. Our services cover the technology, corporate structure, legal compliance and marketability of tokenized real estate assets. We are positioned to be the first company to accept tokenized real estate as loan collateral. Our proven expertise in lending and financial services allowed us to realize this tremendous opportunity. Lending using tokenized real estate as collateral provides much higher flexibility, simplifies the application process and reduces costs for end customers.

REINNO is a turnkey solution for anyone who wants to tokenize real estate and who is matching our eligibility criteria. Through our offerings, property owners obtain new ways of both replacing their existing bank mortgage and borrowing against their equity in a property. Using digital tokens as loan collateral allows for greater liquidity and cheaper funding, benefiting the end customer. In effect, by tokenizing their assets users can trade real estate in fractions with higher liquidity and lower costs. REINNO’s ultimate goal is to build the first truly international real estate tokenization platform, which will provide the full spectrum of blockchain-based financial services for consumers worldwide.

REINNO is the company behind the very new Tokenized Instant Lending (TIL) concept for real estate. This new approach is possible because of the blockchain technology that underpins it and the rising security tokens popularity.

TIL is making real estate associated loans (mortgage, HELOC and home equity loans) efficient, fast, flexible and with no need to foreclose. Using tokenized real estate as collateral allows us to tremendously improve the way these loans work today. REINNO combines the benefits that you could have from having a mortgage, a HELOC or a home equity loan and bundles them in one product adding even more benefits. Usually a mortgage blocks the entire property, making it hard for the owner to sell any equity from it. Even if they have already repaid $4,900,000 of a $5,000,000 mortgage, the entire asset is blocked by the bank.

However, by using tokens (fractional digital ownership) borrowers are able to take out an instant loan backed by just a fraction of the real estate value. This way, only the tokens used as collateral are being blocked; the rest of the equity remains free and can be accessed for additional funding or sold as needed. Moreover, when a portion of principal is repaid, the borrower receives an equity equivalent back. The more principal is repaid, the more tokens are freed from the collateral. Furthermore, if two people are holding tokens that represent the same property, a loan taken by one person will not affect the tokens (or ownership) of the other in any way.

REINNO will bundle multiple tokens representing tokenized real estate into a single REINNO token, which in turn will be used as collateral for obtaining DAI.

REINNO tokenizations to date:

  • Collateral: US-based commercial real estate
  • Total value tokenized : $355,137,266
  • Completed deals: 8
  • Deals in the pipeline: 9

3. Provide a brief history of the project.

The idea for REINNO was born in December 2018 when Viktor Viktorov, it’s CEO, was working on another project related to cryptocurrencies. He saw the potential that tokenization had in the real estate space and decided to start a new company. Since then, REINNO has reached many important milestones.

The company completed its first tokenization of a commercial real estate fund worth $105.5 mln in January 2020. It also created a unique legal and technical structure that allows REINNO to streamline the tokenization process. Since then, it tokenized a total of eight projects worth over $355 mln. All of them include income-producing properties located in the U.S., including residential, retail, healthcare and industrial real estate.

REINNO launched the demo version of its lending platform in August 2019. The company created a proprietary lending model that accounts for the risks associated with both real estate and digital tokens. Currently, REINNO is in the negotiations with a bank that will originate the loans.

The company also built a marketplace where investors from all over the world can invest in tokenized real estate. With the recent amendments from SEC allowing investors with certain professional knowledge, experience or certification to qualify as accredited, even more people can participate in the offerings.

Other achievements include winning Startup World Cup regionals (2020 edition; the finale was postponed due to the COVID-19 complications), appearing as experts in industry-specific publications and media (e.g. Decrypt, Value.Tokenized), and building a strong team. REINNO brings together experts in commercial real estate, fintech, IT, law and business growth. It also has a global tea of sales people around the world - from the USA and UK to Nigeria and Russia.

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.

Examples of tokens issued by REINNO:

Token 1

Token 2

REPO LINK

Pitch deck

5. Link any available audits of the project. Both procedural and smart contract focused audits.
Not available at the moment.

6. Link to any active communities relating to your project.
LinkedIn
Twitter

7. How is the applying collateral type currently used?

For the time being, REINNO tokenizes individual commercial real estate locations and real estate portfolios, and issues their own individual security tokens which represent fractional ownership of the building or portfolio (and the underlying cash flows).

As part of the integration with Maker, REINNO will issue a single REINNO token (not yet existing) which will bundle multiple tokenized real estate assets. The token itself will be a stablecoin with a fixed price of one USD and it will essentially function the exact same way as multi-collateral DAI does. Subsequently, this token will be used as collateral in order to produce DAI. The reason for the second step is to provide liquidity to the REINNO token in order to disburse loans to the projects which lock their security tokens in the REINNO contract.

8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

WE as Reinno Tokenization LLC or Reinno Property Management LLC, USA, Delaware

9. Where does exchange for the asset occur?

Currently, the REINNO token is non-existent. The security tokens produced by REINNO as a result of commercial real estate tokenization will shortly be available for sale on REINNO’s marketplace and subsequently on REINNO’s secondary market (still in development).

Even after the REINNO token is created, it will not be made available for trading on any exchange, since its only function will be to bundle multiple security tokens and obtain a loan against them. As such the liquidation sequence will be:

  1. Obtain REINNO token in exchange for DAI (at a discount)
  2. Obtain a security token in liquidation in exchange for REINNO token (at a discount)
  3. Sell the security token on REINNO’s secondary market (or any other marker where it is listed) OR hold the token and benefit from % of its cashflows.

10. (Optional) 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.

LINK

11. (Optional) 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.

Not applicable.

12. (Optional) List any possible oracle data sources for the proposed Collateral type.

REINNO will perform regular audits and re-appraisals of any real estate which is subject to tokenization and subsequently loan disbursement.

13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type

REINNO will act as a liquidator both for the REINNO/DAI contract and for the REINNO/(tokenized real estate) contract.

8 Likes

Hello @Viktor_REINNO,

REINNO appears to have progressed quite far on this so I hope you do not mind me asking a few questions:

  1. US based investors buying REINNO tokens would need to go through KYC - am I correct? If yes - what is REINNO’s process regarding this?
  2. If REINNO is the only place that trades REINNO, it means Maker faces a counterparty risk. Can you please detail the liquidation process for Maker Vaults containing REINNO?

Above you state REINNO will not be listed on exchanges and then two sentences later it is sold for DAI at an exchange. Maybe it is just me but I think this requires some clarification.
3) Bundling individual properties into a single token has some advantages as well as disadvantages. Can you describe how Maker (or rather a Maker appointed auditor) ensures both the quality control process behind each application and the value of the bundled token?
4) Is Maker planned to be the only source of capital for REINNO or is Maker only providing only a part with traditional sources of financing providing the rest?
5) Once DAI is generated, how are you planning to get this to your customer’s bank account? How is the backend of your business set up?

6 Likes

Hi @Planet_X,

Thank you for your questions.

Yes. We do our own KYC for all registered users and our escrow provider does KYC for everyone who actually invests.

At the core of REINNO’s business is the tokenization of individual commercial real estate properties (or portfolios) into separate tokens. We are then looking to provide loans against those tokens.
The REINNO token is not part of the original REINNO technology stack, but rather a derivative tool, specifically designed to enable us to integrate with Maker. We are currently in discussions with Centrifuge on what is the best way to handle this. We are also, very much looking for feedback from the Maker community on the best approach, since this is not one of our core competencies.
To address question 3 in particular, in our design, REINNO will be exchangeable for DAI via a smart contract, when a liquidation is triggered, but REINNO will not be listed on exchanges for trading. We apologize for the poor wording of the original text.

REINNO will perform an independent assessment for each property applying for a loan. Furthermore those properties will be re-assessed on bi-annual basis. All the documents produced in the process will be made available to the appointed auditor. Furthermore each property is a cash-flow producing assets, so they can also be assessed by the actual money coming in.

Maker will only be one of the sources of financing.

We will offer our clients a choice - whether they want to receive the loan in USD or DAI. If they choose USD, we will exchange DAI to USD immediately and transfer the money to the client’s bank account. If they choose DAI, we will just send them DAI.

I hope this helps! Let me know if you have more questions.

5 Likes

With real world assets, REINNO being one example, it looks like the liquidation mechanism is going to be the most critical item.

@spin Centrifuge has come up with a possible solution for this Vault Liquidation Mechanism for Centrifuge Trade Finance Assets: A Pre-MIP Discussion for short term (around 90 days maturation or less) which looks promising, the working principle being restriction on further debt and focus on debt repayment if certain conditions are triggered.

For longer maturation periods nobody has yet come up with a better idea than auctions. However, from the REINNO promo video on Youtube I saw you were planning a flexible repayment period. Because of this plus you are bundling loans together you will have both continuous revenue stream as well as a continuous need for capital. I guess it depends on your average maturation period if the short-term repayment model could work for you as well.

With regards to your sources for finance I think it would be an advantage if Maker was only supplying part of the capital needed. The reason for this is first and foremost robustness and second that it could allow stability fees/interest rates to be set with increased accuracy. Example: a real estate investment company is financed by 3 fiat banks charging an average interest of 3.75%. In this case Maker needs to take into consideration that if Maker rates exceeds let’s say 4% we are prizing ourselves out of this particular market, while if we charge less than 2-3% we loose profit. If collateral companies have multiple sources of capital and Maker knowing (or recalculating) the approximate cost of capital will allow Maker to finance a much wider span of industries compared to a situation where we would have to guestimate the rates a sector can stomach.

4 Likes

The liquidation mechanism we propose actually can work for loans that have a longer maturity period. If the asset originator has a way refinance these loans off-chain. New Silver has a track record of originating loans and selling them to other lenders for example. Both our legal framework and our smart contracts support a mechanism by which the asset originator can be required to attempt to refinance the loans if any investors want liquidity before maturity. There are two ways that this can be done:

  1. Some loans can be quite easily financed, mortgages can be sold one by one to other banks for example
  2. Backup line of credit: instead of selling the loans one by one, an asset originator can also have agreements with banks and lenders to provide a blanket line of credit against their loans.

When there are investors that want liquidity (for example when the Vault needs to be liquidated) then the asset originator could simply make use of these off-chain mechanisms, repay the DAI to the investors on chain and Maker would see DAI repaid before the maturity.

Perhaps that’s a mechanism that would work for REINNO as well?

3 Likes

@Planet_X Thank you for your comments. We do hope that Maker supplying a part of the capital needed will be beneficial for all the parties involved.

Hi @spin, we are currently talking with other credit line providers and are looking to onboard multiple such providers. Eventually those credit lines could offer liquidity to one another.

2 Likes

An update from REINNO:
Yesterday we launched the marketplace mentioned in the original post. Tokens that investors buy there can be used as loan collateral. The value of real estate currently listed is $237 million, and the minimum investment starts at $5,000.
You can see the properties here: https://app.reinno.io/campaigns
And read about the launch here: https://cointelegraph.com/news/tokenized-real-estate-marketplace-launches-with-237m-in-assets

4 Likes

Is this proposal being expedited along with the other major RWA proposals?

Surely I am not alone in thinking REINNO is an amazing type to have in the collateral portfolio.

Hopefully we can go live with this sooner rather than later!

Hello @Viktor_REINNO Just a quick question, or 2?

If I own a commercial property in Wicker Park, Chicago–say a Mix-Use, a clothing store on the Ground Floor–and 8 apartments for the rest of the property. How do I tokenize my property? Do I need to register it as a Security offering?

2nd, when I put up my sweet Mix-Use property as collateral–say, for a $250,000 loan–I will receive U.S. dollars, correct? If so, how and where do you convert DAI to USD? And are you doing it under REINNO, or a subsidiary? If you perform such transaction in the U.S., how does tax implications effect your revenue stream?