When DAOs Get Real — Managing Real Property on a Blockchain
How to manage Real Property in a DAO (part 1/n)
Continuing on from this great article by eaglelex https://medium.com/lexdaoism/nfts-evolutions-from-collectibles-to-real-estate-72d657cec4b1. Real entities can manage real property, which is a captain obvious point. But DAO’s can also be real entities when they are basically companies that want to govern assets on a blockchain. RealDAO, LLC is a series LLC formed from Ricardian, LLC. RealDAO, LLC is formed to ideate around managing real property assets with DAO’s on the blockchain, tokenized as NFTs to start.
LLCs can, according to the states that they are organized under, buy, sell, rent, property in real life (“IRL”). Series LLCs are in a somewhat more legalistic purgatory. They are recognized in some states, such as Delaware, but treated as persona non grata in others (for example California). That said, they are regularly used and a growing component IRL and are often used for real property ownership and development.
You can see the RealDAO, LLC here which uses a DaoHaus front end to manage the DAO smart contract, that controls membership and assets.
For DAO-curious, you will also see the Ricardian LLC ‘NFT’ that is held via the DAO’s controlled minion, which is essentially an extension of the DAO’s authority that can execute more complex smart contract operations. Perhaps this is sufficient notice to those doing business with RealDAO to realize that they are contracting with a series LLC that is organized under the state of Delaware. It also demonstrates that the DAO can now control NFTs and manage them on behalf of the DAO. Further, the ‘master’ Ricardian LLC would/could theoretically ragekick RealDAO from the series by burning the NFT for sketchiness and malfeasance under its legal umbrella, as described in its operating agreements.
Why on God’s Green Earth would we want to have a DAO own real property?
The purpose of having a DAO own real property is not to “supplant” the real property records at the county courthouse and put land titling on the blockchain. The purpose is to layer a digital layer on top of the existing land records with legal entities that are DAO’s through code deference. It may be the case that legal land titles on the blockchain become a reality, but in likelihood this will be a 10 year process to adjudicate claims and move the existing chain of title onto a blockchain. This process will take political will as well, since many title companies and attorneys have invested heavily into having the books and records necessary to insure title.
What can a DAO as a legal entity do?
Legal DAOs can handle their internal governance “vote” to enact lease agreements, or other actions that govern assets held by the organization. From the starting point of legal entity “DAO” or “LAO” it is a short step, for the legal entity LAO, to enter into agreements, sales, loans, or just simply handle estate transfers and manage the property as a family LLC DAO. The following Venn diagram attempts to show the interplay between having a legal settlement layer IRL and also overlap for the smart contract settlement layer to handle digitized rights and governance:
What if you want to mint an NFT and use it as a placeholder to auction off real property?
For this tutorial we will use the following
- We will use a RealNFT contract to mint the farm NFT.
- Data and images are hosted using Pinata on IPFS.
- Farmapper application creates a farm project with various documents, parcels, and data to publish a public URL. This is some of the ‘legal data’ to relate back to in the NFT metadata.
- The LexLocker contract to lock the NFT into a double sided (buyer/seller) escrow smart contract. There are no intermediaries unless either the buyer or seller hail a resolver, locking the NFT for swift resolution. This escrow pattern will be fleshed out in Part 2 of this series.
Avid readers remember when we built a due diligence room on Farmapper in the cloud using tax assessor parcel shapes, legal descriptions, USDA Cropscape, and document storage to visualize a farm target for a purchase.
Similarly readers may remember using this pattern to prop up a gated due diligence room for interested parties. With the pattern shown in this article, much more powerful “real” asset management patterns become available.
If this is your first time hearing about Farmapper.com, it is a web application that allows a user to click on a point on the map and load shapes from a database to overlay over the map interface. These shapes can be saved, have documents saved to them, place icon stickers to mark improvements, and much much more. All of the information and data can be saved to a Farmapper project, that can then be used to generate a public URL or shared with other authenticated Farmapper users.
Can NFTs be wayfinders to the world?
An NFT is a token that is individually related by a certain NFT contract via a ‘token ID’ that points to certain metadata. For most NFT’s, that is a digital art file that is referenced through the metadata. At LexDAO, we want to develop a standard to relate the metadata to the information that might be useful to describe the “corners of the farm” and relate the real property to the “four corners” of a legal document.
Walking through the metadata, we show a .json file that the unique token references for its legal information. So when we look at a NFT on Opensea.io, these kinds of user-friendly front ends read such metadata and will reference the image and description of the real property, making links to off-chain legal documentation easier to digest.
Let’s break this down and make it a little easier to see. The files (images and documents) are hosted on Pinata IPFS, and the folder (the KML) is as well. This enables one to download the KML file to use Google Earth to fly to the farm location in the metaverse:
{“Address”: “0xef0ff94b152c00ed4620b149ee934f2f4a526387”,
“tokenId”: “TF”,
“name”: “Twin Falls Farm”,
“description”: “Twin Falls farm with TFCC shares and pivot and wheeline irrigated. This NFT presents data associated with the following real property as described in the legal description. Depictions are for illustrative purposes only and are not a substitute for a title report”,
“external_url”: “https://www.farmapper.com/project/public/ahFzcHJpbmctYmFubmVyLTgzOXIdCxIQUHJvamVjdFB1YmxpY1VybBiAgIC6kODNCAw",
“image”: “https://gateway.pinata.cloud/ipfs/QmVK8C8DNk1Mbc945e4B5vxYpkmdM4KpHHjFDLVzu36kze",
“attributes”: [
{“trait_type”: “Land Classification”,
“value”: “Farm/Development”},
{“trait_type”: “Location”,
“value”: “SW of Twin Falls, Idaho”},
{“trait_type”: “Legal/Deed”,
“value”: “https://gateway.pinata.cloud/ipfs/QmYCq95xPQV3wV2xE8AKJGfQe4Tn7eKb4h4jErXjGEVawr"},
{“trait_type”: “Parcels”,
“value”: “RP10S17E323000A, RP10S17E322410A, RP10S17E323010A”},
{“trait_type”: “Owner”,
“value”: “Passive Rockchuck, LLC”},
{“trait_type”: “KML download”,
“value”: “https://gateway.pinata.cloud/ipfs/QmUFwmvjMn3oZF1Gu4UY714Ba3u8kWbiwNmkpyVciBpK2A"},
{“trait_type”: “Tag”,
“value”: “Irrigated Row Crop”},
{“display_type”: “date”,
“trait_type”: “Created”,
“value”: 1614104534},
{“trait_type”: “Max Supply”,
“value”: “1”}]}
Once we have the json how we want it and verify the format using a json formatter, we can save this in IPFS via our pinning service as well. Here you can review the metadata via its json file.
Let’s Cook…
Next, we go to the RealNFT token contract that is permissioned (“Ownable”) for an authorized account, in this case, RealDAO or its representatives. What this means, basically, is that only the owner can mint NFTs from this contract, ensuring that token IDs can be maintained as consistent, and quality representations of real properties. Again, here is RealNFT. We go to the write function and input what address to mint the NFT to, the token ID (need to pick one that isn’t used yet), and the token URI string. Here we copy in the link that hosts the metadata.
Once the mint is complete, the NFT asset is issued with the legal metadata, and following our test of the escrow contract, ultimately is transferred to the RealDAO LLC-controlled “Minion” wallet.
The NFT provides useful data in the “traits” that reference the 4 corners of the farm “the legal”, as well as the legal description “the deed”, and other reference points to show its location on Earth “the kml”.
We can confirm these representations by going to opensea.io and searching the “Minion” address here. We see both the Ricardian LLC, NFT and the Twin Falls Farm NFT.
Useful legal data is referenced as traits, including the KML of location, the farmapper.com “live” project, the Assessor Parcel Numbers, the deed, location info, classifications, etc. It is truly a 3D NFT file cabinet that holds all the stuff we would need to reference this real property in leases, escrow transactions, buy/sell agreements or estate plans.
‘Push Button DAO’s’ organized as LLC’s using code deference
Tying things together on the side of legal formation, a proof of concept for ‘push button organizations’ is here, where it is possible to organize using options of a “code deference” unincorporated organization or a Ricardian Series LLC from Delaware, all launched on Daohaus:
If one wanted a full LLC “DAO”, then that can easily be done using cool tools such as etherize.io where a la carte entity formation is provided with registration (and upgradable with attorney review). In reality a series would likely be set up by the party to control its series of investments. For example, a property owner would form a master series, LLC, and would propagate its own child LLC’s for each property. Series LLC’s are not recognized in each jurisdiction and do come with additional regulatory uncertainty. So hire and talk to your attorney in your jurisdiction of choice.
After summoning, a Daohaus summoner is called to propagate a DAO smart contract on DauHAUS. This handy front end can be used to manage the tokens and NFT and then the governance of the asset is officially controlled by the DAO. So it is easy to imaging a family using such a contraption to manage their farm or ranch rights stack, even if only, amongst themselves.
LexLocker Decentralized Escrow
Many powerful real world patterns can be replicated and intermediaries removed using “smart contracts” similar to an escrow pattern. Each escrow pattern IRL comes with an intermediary (lawyer, broker, agent) that is often expensive and not user friendly. They go on vacation, sleep and have the audacity to retire. Perhaps in the world of turing complete blockchain these intermediaries are an unnecessary friction cost. The LexLocker v2 smart contract has powerful features that include the ability to lock funds or NFT’s into a smart contract until performance is completed. This pattern is peer-to-peer between Bob and Alice, with the additional safeguard of having a “resolver” if the deal goes haywire. In other words, if Bob and Alice can’t agree, then they agree to bring in a 3rd party to resolve the dispute similar to an arbitration proceeding.
Other perks, besides being noncustodial by a 3rd party, is that certain funds locked in the escrow can be earning yield while the escrow is in place using the BentoBox vault protocol developed by SushiSwap. Money never sleeps. Therefore, rent can be prepaid, or earnest money can be earned in earnest, etc.
Hypothetical pattern:
- Mint Farm NFT that represents the real property that is held “fee simple” ownership in a DAO.
- Transfer the NFT into a LexLocker v2 via a lease agreement from DAO to Alice.
- The Agreement references the lease agreement and the NFT is time locked for the duration of lease.
- Alice mirrors and starts LexLocker for the “deposit” amount, and perhaps a 3rd for rent in advance.
- The stablecoins from the deposit and the prepaid rent are invested in yielding assets via BentoBox so the deposit isn’t dead weight AND the prepaid rent can function like a zero coupon bond to grow into the lease amount “the coupon”.
Surely we are just at the tip of exploring the center of the Venn diagram (first schematic) on how IRL legal systems and programmable legal systems can interact. The next part of the RealDAO Series we will continue down the rabbit hole and see what else we can do, and perhaps generate some form documents and general-purpose Dapps for a pattern that would be even more useful IRL.
Let us know what you think and share and comment if there are other topics to cover!
Special thanks to Ross Campbell for providing feedback.
About LexDAO
LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.
All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.
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