Truss: An Asset Tokenization and Trading Platform

Transcription

1 Truss: An Asset Tokenization and Trading Platform Truss Chain December 6, 2018 Version Abstract The Truss platform uses a two-tiered blockchain-based security token structure underlying an international online exchange for trading asset shares; thereby making real estate and other asset investing more accessible, robust and liquid. The Truss token (TRS) acts as the currency of the system and is the unit of account for pricing asset tokens that are issued for each property listed on the exchange. These tokens are backed by a legal and financial foundation built on traditional securities. Truss makes investing in large assets accessible by offering token shares of equity with beneficiary rights. This means even retail investors can buy a small token share of even the largest assets such as commercial real estate (CRE) properties. The global and decentralized nature of tokens means that investors can easily invest in foreign assets as well. Once an asset token is listed on Truss, it can be liquidated as quickly and easily as selling stocks. This paper details the motivation, design and vision of the Truss asset-backed token (ABT) platform. 1

2 Contents 1 Introduction 3 2 State-of-the-Art Review Results Analysis Truss Platform Design Legal Structure Mongolian Legal Framework Truss Property Lifecycle Existing Properties New Development Real Estate as a Liquid Asset Delisting Process Lifecycle Example Benefits Opportunities for Social Good Vision and Roadmap Phase 1: Foundation Phase 2: Refinement and Expansion Phase 3: Application Development Environment Phase 4: An Open Asset-Backed Token Platform Conclusion 14 Appendices 17 A State of the Art Methodology 17 A.1 Goal and Scope A.2 Data Collection A.3 Screening Method A.4 Keyword Extraction B TRS Token Issuance and Allocation 18 2

3 1 Introduction Blockchain technology effectively represents an Internet of value rather than information, a way of securely and verifiably digitally representing and transferring value like currency or assets. Blockchain-based security tokens promise to greatly increase the efficiency, reach, innovation in and number of securities. This will help increase the liquidity and availability of capital and get it where it is most needed and where potential returns are greatest. However, so far regulatory uncertainty has hindered the development of tokenized securities. An asset-backed token or ABT is a security token that is connected to a tangible or intangible object that has economic value. An asset-backed token is essentially a digital representation of an asset. For example, a real estate property could have a set of tokens issued for it. These property tokens could then be traded on an exchange just like stocks of a company are traded on the stock market. This brings liquidity, the ability for many investors to share in the equity of a large property and the speed and global reach of the Internet to the real estate market. The Truss platform uses blockchain technology to create such real estate and other asset-backed tokens and provides an exchange in which to trade them. These tokens are supported by a legal and financial foundation built on traditional securities. Truss Chain is actively collaborating with relevant Mongolian government agencies to create a legal framework that will support this kind of next-generation digital infrastructure, helping to overcome regulatory uncertainty and realize securitized investment vehicles such as ABTs. In the case of real estate, this approach allows us to break down barriers to investing that currently face the industry. Real estate has always been in demand; from the basic survival need for shelter to modern uses such as providing a place for commerce and social activities. As such, it is quite an attractive asset class to have in your portfolio; it is relatively resilient to fluctuation from external influences and usually not correlated to movements in other markets like stocks [1]. However, investing in real estate has generally been considered very difficult because of the high cost, complexity, and illiquidity. These problems have not been tackled in the modern advancement of the real estate industry. In fact, in many cases innovation has been stifled because these barriers form a gated industry. Real estate investment is not a game in the favor of retail investors. Initial investment costs are high [2][3][4] and shared ownership in the current system is only a partial solution that creates its own additional problems. Due dilligence and operations are complex and full of risks, even more so for foreign properties [5]. All of this contributes to the illiquidity of the asset which limits the speed and ease of exit strategies. Because of these barriers, real estate investment beyond the family home has been accessible only to high net worth individuals and institutions. Consequently, the real estate industry has grown to cater to these inside players and not to the average investor. Truss makes real estate investing accessible by offering token shares of equity with beneficiary rights. This means even retail investors can buy a small token share of even the largest commercial real estate (CRE) properties. The global and decentralized nature of tokens means that investors can now easily invest in foreign assets as well. And once an asset is listed on Truss, it can be liquidated as quickly and easily as selling stocks. This document describes the Truss platform and approach using real estate as our primary example and use case for a tokenized asset, the general background of the state of the art of the intersection of real estate and technology ( PropTech ), as well as a discussion of future applications that a platform like Truss enables. 2 State-of-the-Art Review We conducted a systematic review of blockchain-based real estate projects and startups in order to provide a comprehensive overview of the current attempts at systemic disruption of the real estate industry. Please note that this is not an in-depth analysis of any individual project. 3

4 This is an attempt to classify the real estate blockchain industry as a first step towards a general taxonomy. Our methodology is described in detail in appendix A 2.1 Results From search engine queries, we have collected 219 links, where we found 71 articles that described real estate blockchain projects, and based on our searching method (see appendix A), we narrowed those results down to a total of 45 blockchain-based real estate projects. Of the 45 projects, 33 of them passed our inclusion criteria and were used for keyword extraction. Below is the list and frequency of all the keywords our human readers identified: Keyword Protocol 12 Platform 10 Real estate broker / middleman 10 Equity crowdfunding 10 Asset-backed token 7 REIT 5 Leasing 5 Project Financing 4 Peer-to-Peer loan 4 Rent loans 2 Fix-and-flip 1 Market prediction 1 Frequency Table 1: Keyword frequency in blockchain real estate project articles From search engine queries, we found 212 links, where we found 60 articles that described nonblockchain real estate projects, and based on our searching method (see appendix A), we narrowed those results down to 28 real estate projects. Of the 28 projects, 26 of them passed our inclusion criteria and were used for keyword extraction. Below is the list and frequency of all the keywords our human readers identified: Keyword Equity crowdfunding 11 Real estate broker / middleman 8 P2P loan 7 Rent loans 2 Virtual Reality 1 AI-based investment 1 CRM Software 1 Frequency Table 2: Keyword frequency in non-blockchain real estate project articles 2.2 Analysis A few patterns are readily apparent in the keyword results. Firstly, the contemporary nonblockchain real estate businesses mostly try to tackle a very local and limited problem. Most of the businesses are focused on brokering and funding of real estate purchases or rents. We identified a very few extremely niche innovative businesses such as VR-based home tour services, AI-based investment, and B2B CRM solutions for realtors. There are almost no attempts at systemic innovation in the non-blockchain real estate sector. 4

5 With the adoption of blockchain technologies, this is changing. From the number of uniquely extracted keywords alone, we can see many more attempts at innovation. One thing to note is that the most frequent keywords used in blockchain-based real estate projects are platform and protocol. Many of these projects are implementing a way to contain exhaustive information about real estate on a distributed ledger, which opens up a lot of applications to the raw data that we might get access to. Traditionally, data pertaining to real estate were obfuscated behind complicated and inefficient procedures making access difficult. But by recording data on a distributed ledger that is publicly available, the utility of the data increases significantly, opening a lot of doors to services that were not possible otherwise. This, however, highlights another problem; there are many competing projects that claim or aim to be the standard for a blockchain-based real estate protocol. With the vast possiblities of blockchain technology a lot of projects state that they are a unified real estate platform or even a protocol. Fragmentation of userbases when a standard is nonexistent is inevitable, and although we strongly believe Truss has the potential to be one of the dominant platforms, we have to fully acknowledge this fact and be cautious about the effect of it. One of the problems with this user fragmentation is that it also fragments the total liquidity for the market, limiting the liquidity available for any given platform. At this early stage of the industry, it remains to be seen which platforms and protocols will build successful projects and evolve to meet the needs of the industry and the market. Indeed, it is too early to define comprehensive standards and protocols without the practical knowledge that will be gained through experience in this emerging area. At Truss, we are one of the few that have already built a functional prototype and that have a clear legal and financial foundational path forward. But undoubtedly, there will be other successful projects as well. As the market matures and the few successful projects survive and refine their approaches, we plan to reach out and work together with these other projects to build industry-standard interoperability protocols. 3 Truss The Truss platform consists of 4 main components: 1. Property tokens, which represent a stake in an individual property 2. The Truss token (TRS), which acts as the currency of the system 3. Truss Real Estate and asset Exchange (TREE), where property tokens can be traded using TRS 4. A secure document store built on top of IPFS These components are built on top of holding and asset management companies that adhere to regulatory frameworks. This Truss ecosystem of technical platform and foundational legal structure constitute our solution approach to break down barriers to entry for real estate investing and to bridge the benefits of a blockchain-based approach with the realities of regulatory frameworks. The monolithic nature of property pricing and ownership is broken into manageable stakes in the form of property tokens that even retail investors can afford. The barriers of foreign property investing are also broken down as holding companies handle regulatory procedures during the listing process. The investor need only choose from the listed properties on TREE and place a bid for tokens to invest in a foreign property. Finally, with Truss, real estate is no longer illiquid. Once a property has been listed on TREE, liquidating a property position becomes as trivial as setting an acceptable asking price for the tokens you wish to sell. Our goal is to make a platform for trading real estate akin to a stock exchange. Just like there are countless stocks listed on a stock exchange, TREE will publicly list real estate properties as property tokens available for trading with TRS. Using the Truss platform, investors can access 5

6 TRS Document Store TREE Prop Token A Prop Token B... Title A Title B... Digital Legal & Financial Private Fund Security A Security B... Holding Co. Title A Title B... Property A Property B... Figure 1: The 4 main technical components of Truss (TREE, TRS, property tokens and the document store) are built on top of traditional financial and legal infrastructure. Holding companies maintain legal ownership of properties which are securitized in real estate funds. Relevant ownership documentation are securely recorded in the document store. Property tokens are issued for each property backed by the traditional securities and can be traded for TRS on TREE. assets via direct acquisition that were otherwise very difficult under traditional real estate investment methods. 3.1 Platform Design Truss uses a two-tiered token structure: TRS tokens and multiple sets of property tokens. Each property needs to have its own set of tokens in order for the value of an individual property to be able to move independently of other properties and the value of the TRS token itself. The TRS token is a utility token used as the currency for the entire system and is used as the unit of account for trading on TREE. This standardizes the pricing across properties on our international platform and helps avoid the problem of liquidity drying up when it is divided up among too many trading pairs. Since property tokens and TRS are blockchain-based tokens, every single transaction related to an asset listed on our platform will be recorded on a distributed ledger. TRS can be purchased on TREE or from third-party exchanges and transferred to your account on TREE in order to buy and sell property tokens. TRS acts as the currency of the Truss platform in much the same way that fiat currencies like US dollars are used in a traditional stock market and is also used for fees, paying out dividends and for redeeming the value of property tokens if a property is liquidated and delisted from the platform. Please see appendix B for issuing details. Each property is issued its own set of tokens on the Truss platform when it is first listed. The tokens represent a stake in that property and earn the tokenholder dividends and voting rights in proportion to the amount of tokens they hold. The current market value of the property is easily calculated by taking the latest price of a token on TREE and multiplying it by the number of tokens. 100 tokens are issued for each property which makes calculating a tokenholder s percentage stake trivial: it is simply the quantity of tokens helds. Each token is divisible up to 18 decimal places. This ensures that even for multi-billion or (in the future) trillion dollar properties, the 6

7 smallest unit of tokens still remains affordable for retail investors. Just as stock investors have a voice in decision-making through shareholder meetings held for a publicly traded company, property tokenholders can have a say in what should happen to the assets they hold a stake in on Truss. To illustrate, one could vote to increase the rent for a property, or to liquidate the property and delist it from TREE. Tokenholders votes carry weight in proportion to the number of tokens that they hold. A 2/3rds majority of tokens results in the execution of the proposal. When a decision is made, the details are also recorded on a blockchain. This provides transparent and permanent records for future buyers. Please note that the above examples are used to better explain the concept of voting rights and it might not represent a comprehensive list of voting rights that will be implemented. While stocks allow for derivatives such as futures and options, these kinds of sophisticated investment instruments have not been possible for real estate transactions. With Truss and TREE, trading real estate futures and options is possible as real estate are tokenized assets and virtually functionally identical to stocks. 3.2 Legal Structure Land and property titles are one of the most anticipated use cases for blockchain technology as it promises to help reduce title disputes, provide a near-permanent record that cannot be easily destroyed during times of government instability (such as war or revolutions) and bring greater transparency and accessibility. This kind of infrastructure could greatly simplify the implementation of real estate platforms and applications like Truss. There are a number of countries that are experimenting and moving forward with pilots in this area, but as yet there are no mature systems. Where possible, Truss will engage in public-private partnerships with relevant government agencies to assist them in implementing blockchain solutions for land and property registries. In the absence of such infrastructure and in order to adhere to and work within local regulatory frameworks, the Truss platform makes use of a Mongolian holding company for all properties acquired around the world. When a property is listed on Truss, the title is signed over to our holding company which handles any other relevant paperwork, fees and regulatory processes as needed for each country. Once the holding company has established ownership of the property, property tokens can be issued to the previous owner (or owners) of the property Mongolian Legal Framework We are working closely with government agencies and regulatory bodies in Mongolia to collaboratively establish a legal basis for blockchain- and token economy-based projects. One of the major results of our collaboration will be a legal framework that supports security tokens. Since our property tokens are indeed a kind of security token (asset-backed tokens, specifically), this ensures that we will have a solid legal framework to operate within. It also paves the way for Truss to be able to list other kinds of security tokens on our exchange (TREE) in the future. The financial foundation of this legal framework will be traditional securities legally created through our own as well as partner asset management companies in Mongolia. Our integrated full stack approach creates a vertical path starting from the property itself up through traditional legal ownership of the property through our holding company. We then securitize the property through an asset management company. We are currently working to establish and work within a legal framework to tokenize securities. Finally, we issue property tokens on our platform representing an equity stake in the property with beneficiary rights (see figure 1). We are also reaching out to other relevant stakeholders and have signed a memorandum of understanding (MOU) with the Industrial Development and Innovation Agency of the Mongolian capital Ulaanbaatar and have signed an MOU with the Mongolian Ministry of Construction and Urban Development. 7

8 No No Submit KYC/AML information KYC/AML Verified Yes Submit property information Property criteria met Yes No No Listing agreement met Negotiate listing conditions Yes Suitable for listing Start due diligence Yes Transfer ownership Issue tokens Post investment prospectus Open trading Figure 2: The typical listing process for a property on TREE. Primarily property owner-initiated action steps are in boxes with rounded edges. Truss-initatiated actions steps are in boxes with sharp corners. 3.3 Truss Property Lifecycle Existing Properties The owner of the real estate property must gauge the cost and benefits as well as the consequences and prerequisites before deciding to publicly offer their asset. Sound financial records and mature management structure is advised for real estate that are under consideration for public listing. The primary benefit of offering real estate on the Truss exchange is that the asset will be traded in an active trading market with much more liquidity compared to the traditional real estate market where most of the transactions are in the form of direct acquisition. This comes with the caveat that during the listing conditions negotiation process, it may be agreed that shares of publicly offered real estate assets owned by the existing investors will be locked up for a certain amount of time, closely akin to stocks of newly listed public corporations on the stock market. There are no strict prerequisites for a real estate to be publicly offered. However, the general rules of thumb when it comes to eligibility for a public offering is that the real estate should have: Sound financial records Well-managed risks Mature management structure Transparent disclosure of internal administrative and management procedures The listing process (see figure 2 above) starts when a property decides to tokenize and list their property on TREE. They register on the Truss website and go through KYC and AML checks just like any other user. They then fill out a request to list a property, providing basic information about the property (e.g. type, dimensions, year built, etc.) and providing all relevant legal documentation such as the title. 8

9 Once the details of the property, including legal ownership, have been confirmed, and a Trussaffiliated underwriter begins the due diligence process. Delivering accurate information about every aspect of the real estate to the potential investors is a critical task. There should be a joint effort to achieve this; underwriters should consider a vast spectrum of topics, and the real estate owner should provide clear answers. The following is not an exhaustive checklist for every real estate asset. What constitutes as a standard procedure and reasonable investigation, by nature, is highly subjective and specific to each asset that will go through this process. Ultimately, the due diligence process serves as a way to minimize risks and liabilities for the underwriting party, the existing investor, and potential investors alike. That is, any detail that could potentially be a risk, when looked over, would be detrimental to the success of the public offering. These are the general information one should look for in the due diligence process: Year the property was built Current ownership status Any history of registration changes Inspection reports Details of the property If residential: size of the complex, nearby schools, infrastructure, total stories, etc. If commercial: usage of nearby land, analysis of the trade area, dominant age group of the commercial area, status of nearby residential areas, floating population, etc If industrial: land usage, nearby industrial infrastructure, roads, etc. Accounting information: revenue, current rent, rent history, rent comparison Management : Survey of the building s state, human resource in management, history of maintenance, renovation, etc., parking, heating, garbage disposal, fire inspection, noise, floor plans, etc. Price: price of real estate in the general vicinity, survey of nearby brokers and institutional reports on price, price history, auctions, etc. Once the property has been deemed suitable for listing, Truss prepares an investment prospectus based on the information gathered. The owner and Truss then negotiate the listing conditions. The main deciding factor of the price and number of tokens listed is how much the existing investors want to liquidate. With that number in mind, they could find an adequate range for the token price. To protect the general investors after the real estate has been listed on the Truss Real Estate Exchange, there may be an agreement to lock up some of the existing investors tokens for a period of time before they could be publicly traded in the market. By locking up a portion of the total token volume, we can expect less volatility until the market finds an adequate price for the token. Once the listing details have been decided, the holding company and owner sign the ownership transfer contract including clauses that ensures the holding company will issue the asset tokens to the owner as payment for the legal transfer of ownership. 100 property tokens specific to that property are then issued, some are transferred directly to the former owner and some are held in a lockup contract. The property information and investment prospectus are published on the Truss website and support for the new property tokens is activated on TREE. The former owner now holding 100% of all tokens effectively still has access to the same benefits as when he was the owner, but now receives any dividends or income from the property in TRS and is able to liquidate a portion of the property near-instantly by selling it for TRS on TREE. 9

10 3.3.2 New Development The process for a new development begins with the real estate developer submitting a development proposal on the Truss website, including development milestones. The developer also pays a fee in TRS to cover the cost of the holding company evaluating the reliability of the developer and the feasibility and potential profitability of the project. An investment prospectus is prepared from this information and a funding page and a smart contract published. Investors who are interested in investing can transfer TRS to the smart contract address. If the project meets its hard cap at any time or has hit its soft cap when the funding period expires, the project proceeds. The smart contract releases funds from escrow in increments to the real estate developer who is required to make regular updates on the progress of the project in order to access the next round of funds. Property tokens for the development are issued and distributed to investors in proportion to their contributions. If funding goals are not met, the smart contract returns all funds back to the investors and no property tokens are issued. During construction if milestones are not met, the project requires more funds, or otherwise stalls, the investors can vote on whether to contribute more funds or to cancel the project and recover all remaining funds held in escrow and destroy issued tokens Real Estate as a Liquid Asset Once an owner of a property has listed their asset on TREE and has been issued property tokens, they can sell tokens as soon as a buyer accepts their sell price. They can then take the TRS proceeds from the sale and convert it to USD on TREE or trade it for another crypto- or fiat currency on a 3rd party exchange where TRS is listed if they require a different currency. This is significant because it effectively makes real estate a liquid asset. There is, however, the caveat that the specific market for a certain property may not yet have attracted enough buyers for the seller to liquidate quickly. One solution to this is to offer token funds of several similar-type properties to pool liquidity. Another solution is a planned feature for phase 2 of Truss platform development: property token-collateralized loans. By using their tokens as collateral, sellers can get near-immediate access to liquidity. hey can even keep a limit order open on the property token collateral that automatically pays off the loan when filled Delisting Process In some situations, tokenholders may want to liquidate a property entirely and de-list it from TREE. Perhaps an offline buyer has made a good fiat offer for the property or a developer wants to acquire the property to renovate it or demolish it for a new project. Once the offline buyer has contacted the holding company with their proposal, it is presented to the tokenholders in the form of a tokenholders meeting. If two-thirds of the property token holders of a specific property come to a consensus, it can can be sold in some fiat currency; the profit made from this transaction is converted to TRS at market rates on TREE and divided among the stakeholders in proportion to the number of tokens they held. To claim their TRS, the property token holders must send their property tokens to a smart contract address. The smart contract burns (destroys) the property tokens and transfers TRS back to the former tokenholder Lifecycle Example The following section will illustrate the typical life-cycle of a real estate property getting tokenized and listed on the Truss Real Estate Exchange, and exchanged between investors. To show the general flow of real estate investment from both the seller and buyer side, we introduce several participating parties: Alice, the owner of a 2-bedroom apartment unit, and Bob and Carol, two small-time investors who are looking to invest in real estate. Alice, the owner of a 2-bedroom apartment unit, is trying to liquidate her property through Truss. After starting the listing process on the Truss platform, the property goes through a due diligence process in order to ensure that it is adequate for listing. For the sake of brevity, we will 10

11 omit the details of this process and assume that the property was deemed adequate. Once an initial property investment prospectus is made, the information is publicly announced on the Truss Real Estate Exchange. TRS holders, like Bob and Carol, can freely peruse this data and make a decision on whether to invest their tokens. On a pre-arranged listing date, 100 tokens (let s call it ALC) are generated specifically for Alice s property, which will then be available for purchase through the exchange as soon as Alice opens sell orders at her desired price. This process is very similar to how private companies offer stock shares of their business publicly through an Initial Public Offering (IPO). Bob owns some amount of TRS. After reading the the investment prospectus of the initial listing offer of Alice s property, Bob decides to invest 100,000 TRS when it is listed. At the current market price, Bob can purchase 5% of ALC s total token shares. With his TRS, he puts in a market order for ALC and now he owns 5% of the voting rights of Alice s property. Similarly, many other investors place bids for token shares of Alice s property, one of them being Carol. Carol decides to invest 500,000 TRS, which amounts to 25% of the total ALC. A month after Bob and Carol purchased ALC, the investment prospectus is updated and expenses are deducted from earnings from the rental income for the property. 5% and 25% of the profit, respectively, is paid out to Bob and Alice according to the percentage of tokens that they hold as dividends in TRS. A few months has passed since Alice s property has been listed and publicly traded on the Truss Real Estate Exchange. The management company in charge of overseeing this property has filed an annual report on its status as well as the costs incurred and profit made. In the report, a few agenda items have been put forth that need decisions. The current tenants will move out at the end of their lease in three months and the tokenholders need to vote on whether the management company should look for new tenants on a year-long contract or to invest the next three months dividends in furnishings to try a short-term rental approach. A tokenholders meeting is held through the platform for everyone who holds ALC tokens. The weight of tokenholders votes are given according to the percentage of tokens they hold (again 5% for Bob and 25% for Carol). All votes are transparently recorded on the blockchain and after the meeting has been concluded, the tokenholders have decided to invest in a short-term rental strategy. Carol, who owns 25% of the ALC tokens, decides to diversify her portfolio. She liquidates 10% of her ALC shares (or 2.5 ALC tokens) to TRS, which can be executed as quickly as buyers accept her asking price. With the TRS proceeds, she now invests in other properties which are also listed on the Truss Real Estate Exchange. 3.4 Benefits The core value of Truss is two-fold: 1. It reduces barriers to real estate investing including cost, location and lack of information. 2. It makes real estate a liquid asset even for difficult-to-liquidate properties like CRE in the mid-range price point: too high for individual investors yet too low for investment trusts. The Truss platform also reduces administrative costs for real estate transactions while improving their reliability and making real estate investment more accessible. There are many factors that contribute to the high cost of real estate investment, and costs incurred during the administrative process are one of them. This is a highly antiquated, tedious process. First, the registration cost of altering real estate rights is proportional to the size of the asset. The larger the asset, the higher the transaction fee. Moreover, the overhead increases with the number of owners or stakeholders. With Truss, the entirety of the information you need to access during the administrative process is secured by a distributed ledger. This information is verified and stored more efficiently and is more accessible as compared to traditional methods where piles of documents are archived in a 11

12 central location. Secondly, proving the rights to real estate and providing tamper-proof records have always been key challenges in real estate transactions. This is made even harder for those who do not have industry-specific knowledge or experience in analyzing real estate properties to enter this market. Also, in emerging economies real estate transaction fees tend to be unreasonably high due to lack of trust in the system. Truss can tackle both problems related to distrust and high transaction fees by using a blockchain system to provide a resilient platform where every record is trustworthy and can be accessed by any given party. In general, if one wishes to invest in real estate usually they will have to use one or a combination of methods using exchanges for investing in stocks, futures and derivatives, and/or hiring a real estate agent whom they rely on for all the relevant information. This makes it ultimately hard to invest in real estate assets directly. But with Truss, anyone can access those assets conveniently without all the complex activities that existing solutions entail. In addition to the problem that trading is mostly only possible through brokers, there has always been the problem that some amount of physical inspection and due diligence is necessary. Although there have been attempts to digitize the necessary documents and processes, we still need to rely on physical meetings and arrangements with real estate agents and stakeholders for concluding contracts and transferring titles. Truss records all information pertaining to real estate transactions including the contract, title and lease in the document store for better accessibility. Selling and buying real estate requires complicated measures when it comes to the rights of utilizing and benefiting from the profit generated by selling the properties. In most cases, the seller is required to provide thorough information on a property s durability, management state, parking lot conditions, amenities and space measurements and on top of that they go through heavy negotiations with brokers while reviewing and following related laws. This is a time-consuming and tiring process that takes an enormous amount of money, energy, time and expert knowledge. To solve this problem, we record all this information related to property rights and supporting matters in the document store and secure them by storing hashes of each document in a blockchain. Once recorded in the document store and secured on the blockchain, the documents will be tamper-proof, resilient and transparent, so that anyone can access them. Truss provides a platform for real estate transactions that can be performed by trading on TREE using Truss(TRS) without relying on any fiat currency. This solves many of the fundamental problems of existing methods of real estate investment and allow users to invest in real estate internationally and in whatever amounts they wish. Ultimately, we are tackling the the inefficiency and mistrust of current real estate transactions by listing a diverse real estate portfolio of properties all around the world secured by a public blockchain ledger. 3.5 Opportunities for Social Good While Truss primary focus is on providing a trading platform for investing in real estate properties worldwide, there are opportunities for leveraging our platform for social good: the two primary areas we focus on are on providing low-income housing and supporting environmentally-sustainable projects. We will highlight environmentally-sustainable projects and energy-efficient properties that have passed internationally-recognized standards such as the LEED certification. We will passively encourage investors to include environmentally-friendly properties in their portfolios by displaying their green portfolio percentage and providing a ranking of top green investors. We will enter into public-private partnerships with government and work with non-profit organizations to fund low-income housing projects and housing projects for the homeless. The funding process for these projects will be nearly identical to that of normal new developments except that the property tokens issued for such projects will be largely symbolic and will not be expected to 12

13 significantly appreciate in value. Such projects and properties will also be clearly highlighted like the green projects with investor rankings and statistics. 4 Vision and Roadmap Security and asset-backed tokens potential is becoming well-known in the cryptocurrency and finance worlds, but it remains to be seen what implementations and techno-legal frameworks will be successful. There are a few basic approaches to implementing ABT and other security tokens. At one extreme is to implement a general framework or platform to support them [6] and another extreme is to simply hold what amounts to ICOs for specific assets [7]. We take an applicationbased approach, focusing on a specific asset class: real estate. While all approaches have their place with their corresponding advantages and disadvantages, we observe that the limiting specificity of single-asset approaches trumps their simplicity. And while general platforms are a good fit for tokenizing existing securities, their design may not anticipate innovations in new kinds of security vehicles that the experiences with a specific application may yield. Our focus on real estate also allows us to build a richer and better user experience for investors in this asset class. Of course, we are effectively also building the foundation for a general framework on which our asset class rests. As our platform matures, we will expand to supporting different kinds of ABTs tokens. 4.1 Phase 1: Foundation Our approach in implementing the Truss platform and ecosystem is to build a minimum viable product (MVP) as our first priority. We will bootstrap TREE by directly acquiring properties for listing ourselves. The first few properties listed will be relatively small and simple assets that do not have complicated ownership or other encumbrances. We will start with properties in Mongolia and refine our processes before expanding to offer properties from other regions. 4.2 Phase 2: Refinement and Expansion We will refine our product based on lessons learned through the MVP and build out the fully functional product. From Mongolia, we will begin expanding to supporting real estate properties in other developing countries. We will also expand the functionality of our platform and implement more complex investment vehicles such as futures and options on TREE. We will also provide portfolios of properties for investors who are interested in more passive investments, issuing special fund tokens for these portfolios. We will also provide smart contract-based loan offerings using property tokens as collateral. 4.3 Phase 3: Application Development Environment We will continue to expand to new regions and will build support for real estate decentralized applications (dapps) on top of the platform. Even before supporting applications directly, we anticipate that as our platform and ecosystem matures, users will find innovative ways to make use of our platform. For example, after tokenizing their house, an owner could sell a minority share of tokens to fund renovations for the house, increasing its value for all tokenholders. If we open up our platform to application development, we could imagine that a short-term rental application could be implemented where transactions are conducted in TRS. This would enable an owner whose house was in danger of foreclosure to raise funds for renovations, but then offer rooms in their house for short term rentals, distributing a proportional share of revenue back to all tokenholders in the house. In this way, the homeowner could keep a majority share of tokens and keep their house while generating revenue to help them pay their mortgage. 13

14 4.4 Phase 4: An Open Asset-Backed Token Platform Our long-term vision is to realize a decentralized, open platform for real estate and asset-backed token investment, trading and applications. We will operate as a private, for-profit company to incentivize our early-stage development and growth, but over time we plan to decentralize and open up components of our ecosystem working together with other industry leaders to build standards and protocols. 5 Conclusion The Truss platform uses blockchain technology to create real estate asset-backed tokens. These tokens are backed by a legal and financial foundation built on traditional securities. This approach allows us to break down barriers to real estate investing that currently face the industry. These barriers are due to the high cost, local and illiquid nature of real estate. Truss makes investing accessible by offering token shares of equity with beneficiary rights. This means even retail investors can buy a small token share of even the largest commercial real estate (CRE) properties. The global and decentralized nature of tokens means that investors can now easily invest in foreign properties as well. And once a property is listed on Truss, it can be liquidated as quickly and easily as selling stocks. 14

15 References [1] M. Hulbert, As stocks fall, real estate may be the best defense [2] Numbeo, Price-to-income ratio 2018 mid year. rankings.jsp?indextoshow=gethousepricetoincomeratio&title=2018- mid. [3] E. Martin, Here s how much housing prices have skyrocketed over the last 50 years. [4] Reuters, Home pirces rising faster than wages: Report. [5] A. Baum and D. C. Murray, Understanding the barriers to real estate investment in developing economies. [6] Polymath. [7] F. Faraudo, First ico of a building is set to take place on a crowdfunding platform. 15

16 Disclaimer PLEASE READ THIS DISCLAIMER CAREFULLY BEFORE TAKING ANY ACTION. CONSULT YOUR LOCAL LEGAL AND FINANCIAL EXPERTS FOR GUIDANCE. Truss Chain, LLC strives to ensure that all information in this document is accurate. However, we do not guarantee the accuracy, reliability, or completeness of the content. Please understand that the content of this document is in no way professional legal or financial advice. If you are intending to invest on our platform, please do so at your own risk and consult professional advice local to your country and jurisdiction. We reserve the right to revoke and modify any of the content provided here in this document without prior notice. 16

17 Appendices Appendix A State of the Art Methodology In the following sections we define the goal and scope of our review. We will also specify how we collect data in order to acheive that goal, and how we screen them so that it fits our scope of interest. These data will be used for classification and analysis of the current landscape of blockchain based real estate projects. A.1 Goal and Scope We define the goal of this review as follows : 1. Identify the taxonomy of blockchain-based real estate projects. 2. Establish the classification of different types of innovation in the real estate blockchain sector. 3. Map the frequency of such classifications. 4. Identify opportunities for innovation that are not covered by other projects. The scope of this review will be limited to blockchain-based projects in the real estate sector that have publicly-facing websites that provide details about their goals and solutions. As such, we did not include any private projects that we cannot confirm the existence of through simple web searches. While our main focus is to review the landscape of blockchain-based real estate projects, we also survey non-blockchain-based projects in order to identify what the blockchain technology brings to the table. A.2 Data Collection We used a list of simple keyword-based queries on the Google search engine to gather information about blockchain-based projects in the real estate sector. Data: list of keyword-based queries Result: list of blockchain based real estate projects for all keyword-based queries do for all search results in the query do if search result directs us to the project webpage then Record project name Record project website Record link to whitepaper and/or project description end if search result directs us to an article then for all projects listed mentioned in the article do Record project name Record project website Record link to whitepaper and/or project description end end end end Note that we simply omitted the search results that are not shown in Google search due to similarities. Also, on every step of the process, we applied the inclusion and exclusion criteria 17

18 that are specified in the next section. This is essentially a depth-first search of a query result for every blockchain-based real estate project until we arrive at the leaf node (i.e. website of a project) A.3 Screening Method After gathering a list of blockchain based real estate projects, we screen them according to our inclusion/exclusion criteria (stated below). Criteria for inclusion: 1. The project explicitly mentions use of DLT(Distributed Ledger Technology), or blockchain 2. The project s main focus is in the real estate sector 3. The project has publicly accessible document that contains details about their project (e.g. whitepaper, IR deck, etc.) Criteria for exclusion: 1. The project does not define a concise problem statement 2. The project does not define a clear goal 3. The project is not focusing on real estate 4. The project does not have documents detailing their project 5. The project gates details about their methods behind subscription or donations Additionaly, we deliberately avoid using curated lists of blockchain projects made by various rating or review services in order to minimize bias. We also use similar inclusion and exclusion criteria for non-blockchain real estate projects, where we relax the criteria for the use of DLT or blockchain technology. A.4 Keyword Extraction With the gathered and screened list of blockchain based real estate projects, we can extract keywords and classify them. Initially, a human reader reads the project s whitepaper and annotates relevant keywords that uniquely identifies a project and can sufficiently explain what their problem statement and solution is. Most of the keywords are extracted from the abstract of the paper; otherwise the reader has to read through the entire paper to identify the relevant sections and annotate the keywords. During the process, we amass a list of different keywords where some projects have similar scope of interest. After going through the listed projects we can then cluster them into similar categories. Appendix B TRS Token Issuance and Allocation 20 billion TRS have been issued as ERC-20 tokens. Initially, up to 50% of these tokens will be made available through listing on TREE and 3rd party exchanges. 30% will be distributed to the team and 10% will be distributed to partners with the remaining 10% held as company reserve. Proceeds from tokens that have been sold on exchanges will be used for real estate acquisition (50%) to bootstrap our platform, core development (30%), operations (10%), marketing (5%), security/audit/legal (5%). 18