OpenDAO - Real World Assets for DeFi

Nick Sawinyh on 15 Dec 2020

Sean Qian shared OpenDAO backstory and told us how real world assets could be tokenzied and used in DeFi ecosystem.

Disclosure: This article was sponsored by OpenDAO.

Hello! What’s your background, and what are you working on?

$550 Billion, that’s roughly the entire crypto market cap. In comparison to a company like Apple, or the $217+ trillion dollar real estate market, we have a long way to go. The next step for DeFi, and indeed crypto at large, is to engulf traditional finance.

I’m Sean Qian, and I have a background in fintech and in particular, real estate development finance. I bought bitcoin back in 2014, and at the time I had no idea what I was doing. I sold it for a small profit shortly thereafter! Haha! Oops! However, it was this experience that brought me here…

Moresh (my co-founder and OpenDAO’s tech lead) and I originally started OpenDAO because crypto seemed like a good way to widen the investment distribution for the real estate projects we were working on, but the project gradually expanded in scope in line with our understanding of the DeFi space. As such, OpenDAO’s concept has evolved to be much larger than what we had originally envisioned. Now, it’s a protocol for interfacing multiple real world assets with DeFi.

The OpenDAO protocol, with its own real-world-asset backed stable coin, serves as a conduit between on-chain and off-chain assets. The protocol is a “DeFi Bank” where people and businesses can borrow against tokenized assets and lenders can be rewarded by providing their stable coins for liquidity.

Our goal with OpenDAO is to allow anyone with something of value, whether it be crypto, stocks, or real estate, to unlock its value by minting a stablecoin.

What’s OpenDAO backstory?

One could say this story started before Moresh and I came together to make OpenDAO; it was while I was working as a startup advisor and Moresh was founding Estate Baron, a real estate equity development crowdfunding platform which helped raise over $50 Million for a number of projects all across Australia.

Afterwards, we co-founded Konkrete.io as an STO platform to reach a wider distribution for Estate Baron’s real estate clients. Eventually, it made sense for Estate Baron to be rolled up into Konkrete and it continues to exist today as a separate entity, offering technology and compliance solutions for those looking to raise funds. The experience in this space led to a deep understanding of the problems in real world capital formation, and is where the need for OpenDAO stems from. It is perhaps the final puzzle piece to something we’ve been putting together for years.

Like I said, OpenDAO is the current iteration of a long process. Figuring out “the legals” required years of research and planning … Many similar projects are still figuring out that fractionalization creates security issues. To get around that we decided to tokenize the assets, but instead of selling the fractions in tokenized form, we borrow against them via a money market. This means no direct token sales are conducted and that OpenDAO’s OpenMarket (opm.opendao.io - a fork of Compound’s) is fully decentralized and separated from the tokenization side. The process becomes a bit like a DeFi version of borrowing from a bank against your house (or other asset.)

It’s live and fully functioning! It has been quite the journey, but the work has just begun.

We are very fortunate to have backers including Signum Capital, Moonwhale, TRG Capital, DeltaHub, and BlockBuys, as well as wonderful partnerships that made this entire project possible - we would like to thank them whole-heartedly. I’ll delve further into partnerships in a moment …

What went into building the OpenDAO?

Regarding the building process for OpenDAO, it would be remiss to avoid one very glaring “demon” that terrorizes the entire space - security. It should be expected in any new unregulated industry, but it truly is what keeps developers up at night and, in line with establishing the protocol, has been our number one priority.

For these purposes and more, our partnership with UMA has been integral and has dramatically improved not only the security of the entire OpenDAO protocol, but also the speed at which we can release the USDO stablecoin; our timeline for stablecoin development has been accelerated from Summer 2021 to Dec. 2020 or Jan. 2021. This was a big change for us; originally, the Mintr was meant to be a Synthetix fork. Instead of SNX as collateral, we had planned to use our basket of onchain and offchain assets with a pegging mechanism similar to Synthetix. However, it was the additional security UMA provides which made it the best choice for OpenDAO, and we are moving full speed ahead …

The security that UMA provides confers two major strengths: Firstly, it fosters community trust because we will not have admin control over the UMA contracts, thus significantly diminishing the potential of a rug pull. Yet, it will not hamper us in our efforts to implement developmental improvements. Secondly, UMA will insulate OpenDAO against DeFi flashloan exploits and oracle-manipulation attacks. Their unique slow settlement process makes flash loans all but impossible and also does not rely on Oracle price feeds, thus making it highly resilient against these forms of attack.

We have a lot more detail regarding security and transparency which includes links to all of our audits available here.

What’s your business model?

OpenDAO functions much like a DeFi version of a standard bank and gets revenue via the interest rate spread between borrowers and lenders. It’s fairly straightforward, except there are no bank board members reaping the benefits of those fees - it’s OPEN holders.

OpenDAO is not the first project to offer exposure to real world assets, but the method of doing it is exceptional. Using an SPV (Special Purpose Vehicle), and our CashBox protocol, OpenDAO creates a layer of insulation so lenders can gain exposure to off-chain assets without the need for KYC, minimum investments, and confidence that all the legals have been handled. This creates a low friction bridge between borrowers who are seeking to fund projects, and lenders, who can confidently lend their assets knowing that they are funding strong reliable projects.

There are others on the market that have similarities to OpenDAO. However, we don’t really see them as competitors, but rather potential future partners. Perhaps, OpenDAO is one of the “cornerstones’’ in a DeFi space composed of financial building blocks. There are projects like DMM that incorporate car titles or Centrifuge, which tokenize real world assets, but we believe the space is headed in a more convergent direction - building a large table rather than another wall, if you will. It is our philosophy that this space should stay focused on the goal of providing fair and decentralized international access to every financial market. We are always open to collaborations and partnerships and are constantly exploring them.

That being said, our target market is probably you. If you have ever been financially restricted by the boundaries of a country, are trying to raise funds for a large project, or have limited access to high return opportunities because of your economic status - that’s what OpenDAO was made for.

What are your goals for the future?

There is a lot on the horizon looking forward. We are closely working with UMA on a daily basis to release a fully functioning product before Christmas 2020, which may align with this release of this article, however there will be several releases throughout the coming month or two. The most pivotal being the USDO stable coin that will initially be backed by highly liquid on-chain assets including Bitcoin (via the Ren bridge) and others. Following that, the collateral will include more highly-liquid off-chain assets composed primarily of high performing stocks. Then, small illiquid off-chain assets, and finally, large illiquid off-chain assets like real estate by Q4 2021.

What are your future thoughts for the DeFi market?

Some may compare DeFi to the ICO boom from 2017, but I believe it is far more pivotal. The next step in crypto is for it to consume traditional finance, and that process is already underway in the form of DeFi and OpenDAO. Throughout history, we can look back and see resistance to new technologies, even abuse of them. DeFi and crypto are no different, though the adoption rate may be considerably faster. I think the general feeling of most people in this space is that the ubiquitous implementation of DLT is inevitable, as the most efficient way to do things almost always wins in the end.

The transition of traditional finance onto, or into, DeFi is inevitable, and perhaps after a decade or so, everyone on the planet will be using and benefiting from it whether they “bought in” or not. Perhaps, as more wrapped bitcoin makes its way into the system, it’s just a matter of time before even the king of crypto finds itself contained under the larger DeFi umbrella. Certainly, there will be hiccups along the way, with regulation and digital identities, but it’s in my opinion that it’s something the space is already preparing to overcome.

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About the author
Nick Sawinyh
Nick Sawinyh is an LA-based crypto entrepreneur. After having spent over four years in the blockchain industry, Nick founded DeFiprime in 2019, with the idea to provide information about emerging DeFi ecosystem. He owns modest amounts of various cryptocurrencies.

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