‍Katherine

Hello everyone and welcome to Episode six of Cross-Chain Examination. I'm your host, Katherine Wu. Each week on cross-trained examination, we have on the smartest and most interesting people working full time in the crypto industry to tell us what's top of mind for them. So there's a well-known joke at this point that millennials cannot afford to buy homes because of our obsession with avocado toast and expensive oat milk lattes, which is funny for sure, given how visual it is, but it's also a very dismissive and frankly incorrect portrayal. The reason why millennials can't buy or invest in real estate has a lot more to do with macro reasons and real barriers to entry than avocado toast. Parcl is a company that is using crypto in a super innovative way to try and give millennials a way to invest in real estate without actually having to buy it or go through the process of getting a mortgage.

So with us today is Trevor Bacon. He's the CEO of Parcl. He's going to come on to give us a glimpse into what he's building and why exactly crypto solves this problem. Okay. Welcome to the show, Trevor.

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Trevor

Thank you for having me. Super excited to be here.

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Katherine

So before jumping into Parcl, I wanted to touch on real estate as an asset class, which there's a funny meme about how millennials can't afford to buy homes because we love avocado toast too much. But I think the real reason is probably more complicated than that. So can you just tell me and also our listeners, why is home buying such a broken or like impossible dream for so many millennials today? And furthermore, can you talk about the barriers to entry for real estate from an investment perspective?

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Trevor  

Yes, certainly. So thanks for having me on. So real estate is a very good asset class. It's the largest asset class in the world. But what makes it somewhat difficult for many to invest is that it requires a large amount of capital at one time. So basically you need to save up to participate. And you also need really good credit to get a mortgage. And then so that's on the traditional home buying side. On the crowdfunding or shared or fractional experiences that you could undertake, you need to be an accredited investor. So that's the kind of the financial hurdles that many face.

And then there's some other structural hurdles. One is financial, which we're seeing a lot of institutions buy up homes. So they're seeing that the returns on actually owning the homes and then renting them are better than mortgages. And so institutional purchasing is at the highest level it's ever been. And then same thing with iBuyers.

And then with respect to millennials, I think also just from a preference perspective, I think people want more flexibility. Now, we've seen the power of remote work. We've seen that you can live outside of your place of work and still be productive. So I think millennials are looking for more flexibility because it is a very big decision to put down the majority of your net worth into a home all at once. It does constrain you in many other ways. So providing flexibility to folks without limiting their exposure to real estate as an investment class is something that we're trying to do.

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Katherine

Actually, this reminds me of conversations I have with my friends just like people who work in crypto full time. I've been in the space long enough where all my friends also work in crypto. And so one of the issues is not just about the financial portion, it's that they can't get mortgages because banks are not friendly to your crypto assets. So sometimes, even though you may have enough to show for, you still can't get a mortgage just because maybe banks are averse to what your net worth is made up of. So I feel like there are more burdens is oh, you can't put a down payment. It could be what is your net worth comprised of?

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Trevor

I mean that's another, kind of a newer element. I think generally speaking, I think that folks are trying to understand how to grapple with the risks of crypto. And banks are slow to move obviously and they're very risk averse. And so yeah, they're trying to wrap their minds around exactly how crypto functions, especially as what would be a collateral or kind of worst case scenario backstop within the loan giving process.

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Katherine

And it's not even home buying, it's different renting. I read an article that said in New York City, the median rent is at $4,000 a month now, which boggles my mind. It’s insane. So given this problem with people wanting to buy homes, they can't do it for multiple reasons. How are you solving this problem at Parcl? Walk us through on a high level what Parcl is, how it works or even like why you wanted to start it in the first place.

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Trevor

Yeah. So rent is actually a great example because if you're renting, you're short your neighborhood because if the landlord’s asset goes higher, they'll charge higher rents and the tenant is on the hook. So you actually just end up paying more without any benefit. So we are addressing many of these issues of Parcl. Parcl is a digital real estate platform based on Solana. What we're doing is we're creating price feeds via publicly available data that mimics the price per square foot. So we use the data available and we get to a price per square foot for a city or a neighborhood and then allow you to gain exposure to that in an investment capacity on the blockchain. So we have Parcl labs which ingest billions of data points to arrive at a very representative price per square foot of New York City, Manhattan, Brooklyn, Tribeca. And then we bring that on-chain. And then we have a decentralized exchange that allows Katherine or anyone to actually gain exposure to the city or neighborhood.

And the reason we started this was, well, there are multiple reasons and they kind of keep expanding and the world kind of is presenting more of an opportunity. But during COVID, we saw a massive move in prices across the country and not all at once. There was a very large disparity of prices in different regions. So New York City was going down, Miami was going up, L.A. was going up, Austin was going up, San Francisco was going down. And so that type of volatility we've never actually seen in the real estate market - so much idiosyncratic movement. And my background, and same with Kellan who was a co-founder, we were at a hedge fund, so we were very used to relative value trading. So we were like, man, I wish we could go long Miami and short New York or any kind of variation of that. And so that was kind of the genesis.

And we'd seen fractional players emerge, fractional ownership. But those are difficult. They don't scale well because you need capital and time. So imagine you needed to buy a house or a building or any type of asset. You need the capital upfront to get the loan and then it takes a while to close. So you can't bring on the inventory to satisfy the demand. That's why we are coming at it from a different angle, which is top down, basically creating these indexes, which are the reference price and really representative of actually what's happening on the ground. And then as this has happened, as we got going, the structural flaws in real estate continue to emerge like the inflation is at all time highs of housing. There's a huge supply shortage of housing and that's structural. And then rents are going through the roof and folks are kind of getting squeezed. Their real earnings are now being diminished by inflation, making it harder to own a home. Plus the iBuying scenario that I laid out earlier. So there's a lot of structural tailwinds for some sort of alternative investment in real estate and those are emerging as we’ve been building.

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Katherine

You know what I really like about Parcl but I imagine what makes it also really hard is not you don't just separate it into New York or Miami, you break it down into neighborhoods too, right? So you can long Williamsburg, short Chelsea or something, which I think is amazing. And actually it's pretty tailored to what people would want to do anyway. I want to buy a home in a certain neighborhood because I think it's a good value. But I imagine the data collection process is probably pretty intense. How do you ensure that the data that you have accurately represents like real time pricing?

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Trevor

Yeah. So initially we're going to think of it like a product rollout. So we're going to touch six major metros and then roll out the neighborhoods after that to get folks understanding it because it is a completely new idea and system. So we don't want to overwhelm. So we'll start out in Miami, Manhattan, Brooklyn, L.A., San Francisco and Phoenix. And then from there, we'll break down the neighborhoods within each. So we'll test Williamsburg and Tribeca and the Upper East Side, South Beach, Brickell, etc..

And the data collection process is something that - our data team is hands down, best in class -  and we had to really architect this in a scalable manner from the start because there is no fee that we can use. Initially we were trying to find a third party source, but there were various constraints and then we wanted to control our own destiny. We decided to do it ourselves, which is a massive undertaking. We're using the most cutting edge data technologies. We continue to push the envelope there with scale in mind. Right now, we cover about 2200 zip codes in the country and we'll have full coverage of the country by the end of the year. And then we'll be moving into international regions shortly thereafter, after we assess the data landscape in the different countries. Paris, Singapore, some places in Latin America are on our roadmap, hopefully by Q4.

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Katherine

You wanted to start a derivatives product and ended up building a data company or having a lot of really proprietary data, I imagine.

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Trevor

Yeah, so the goal of the data is, is multifold. Obviously we want to create a very representative index. But what has happened in that process is we've started to have all properties in the country indexed by latitude and longitude. And then there's a lot of other types of data sources that you can lay on top of that. And we've designed a very scalable ingest process. And from that we can provide analysis and other types of indexes that are interesting. Aside from Parcl the protocol, teams put out a couple of pieces on affordability work from home index, which catalogs various different attributes for work from home to help identify which areas are the most friendly. We have amenities, weather, wireless, all of this is now layered on top of our core data, which allows a lot of flexibility in the future.

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Katherine

I like that. Sometimes you hear an idea and you're like, “Oh, man, like that's such a good idea.” As you say it, it sounds so obvious. I think fractional ownership is starting to pick up. So I think I first noticed it in art. Obviously investing in art is expensive for the same reasons. And so I've seen just like pop ups and galleries in Soho and startups just wanting to do fractionalized art. And so when you talk about real estate, which is 10-20x the price of artwork probably, it kind of makes sense to do it like an investment, but fractionalized so that I don't have to put up all of the money to buy it. I don't know how much SoHo one bedrooms go for these days, but probably too much money. But as you build out a product, obviously you're amassing your own data. I guess a big question with anything built in crypto is, why crypto? Why do you have to use blockchain technology for this? And so as you were thinking through it, what led you to decide to build this in crypto?

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Trevor

So I think for one, we're a defi platform, and defi provides a new and novel way to kind of accumulate capital and liquidity. And you need capital to do this. So that is a way to crowdsource capital or allow people in a permissionless way to participate in the system. So both on the liquidity providing side or on the trading side. And because real estate is so distributed, there's so many stakeholders, obviously, banks provide loans for mortgages. But it is probably the most distributed asset in terms of all assets, just given the fact that people own houses, everyone more or less lives in a house. So we do want to provide the opportunity for people to express a view that could be on the liquidity providing side. If they want to take a synthetic short or earn yield on their capital, they should be allowed to. And a centralized system would only allow a bank to do so. So that was the main reason behind it. And then also just providing access for the broader world to participate, I think is something that crypto allows you to do in a pretty frictionless way. You can scale pretty quickly. It's a changing regulatory environment, but at the same time, having permissionless systems allows network effects to take place much more quickly.

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Katherine

And so I guess the whole idea, as we talked on earlier, is in order to use Parcl, you don't have to go through a bank, you'll have to go through that middleman process. And so, again, the whole point of democratizing investing is that people can just invest what they want. You get educated, you do your research, you just can do it. You don't have to wait for approval. My friends in crypto who can't buy homes because banks don't recognize crypto as their real asset. So I think that's very core to the ethos of crypto.

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Trevor

Yeah, exactly. It's an open system.

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Katherine

Switching gears, for our listeners as disclosure the fund I work at, Archetype, is an investor in Parcl. But also personally, I've been following along just like what you guys have put out and you recently had this big homeowners association mint where you made little houses and I got like a little New York brownstone, which I was happy about. Lifelong dream to own a brownstone, and I now have it in an NFT. But I wanted to ask about the thinking behind launching the HOA NFTS and what you were thinking about allowing holders to do and even just like why you decided to do a drop like that.

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Trevor

It was a great experiment. We were kind of once we first got together in October, our first offsite, we thought an NFT would be a really good idea for community building. And so we went forward with it. We got a really great artist. The marketing team did an incredible job pushing it. And what it is, is it's the homeowners association. It's a collection of 7777 various houses that span Miami, L.A., New York and Phoenix. And so the idea behind it was to create a community at the start. And then NFTs are pretty powerful, once you get it out and into the hands of people you can do a lot of stuff. So we've done several things with it to start. So one, we hosted a real life taco truck event around NFT NYC. We just dropped our merch site yesterday.

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Katherine

Tell us the URL, tell us the website.

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Trevor

Shop.hoa.house.

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Katherine

Oh my God, I love this.

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Trevor

And if you have an NFT, you get a free hat of the place that you hold the NFT of and a shirt and then we'll gate the alpha with the NFT. So it's a great thing to have out in the universe because you can do a lot with it, and that's what we're doing. So we'll find different ways to provide value to the HOA community, the Parcl community. We like it a lot now that we've gotten it out there. The middle one really well, we sold out in about 15 minutes and yeah, we couldn't be more thrilled. So it's fun to have. It's a community building initiative and we'll continue to reward our holders with various things, various jobs, various early access, etc..

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Katherine

I need to pay attention to you. So I'm not trying to redeem mine right now, I'm going to leave this open here.

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Trevor

If you’re a whale you get a hoodie, hat, etc..

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Katherine

So amazing. What I really like about aside from homeowners associations I think traditionally, I think of really angry older people who march around the neighborhood. And I just associate it with a cute little house I own that’s an NFT.

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Trevor

That was a thought. It was like homeowner's associations are very kind of stodgy. So it's like this is cool - if you go to hoa.house like it'll say the coolest homeowners association. So yeah, the marketing team just nailed the name.

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Katherine

I think that's also really fun. It's like a crypto company, you're building a Defi platform, but you're also experimenting with NFTs and everything else crypto has to offer. A couple episodes ago we talked about NFTs and what they're for and how do you really build community around it? And I thought of that as a marketing angle, but also how do you build your early community before you really launch a product? How do you get people to buy in on what you're doing and feel like a part of the club?

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Trevor

Yeah, it's a great tool. It's a lot of work too. And you got to market it, right? But it's a phenomenal tool and then it's there forever. So I think we have the wallets, you can drop stuff. There's just a lot you can do with it once it's out there, it's just getting it out there. We didn't know how it's going to go. We worked really hard to do everything we could to make it a good mint. And so now it's just rolling with the punches and seeing how we can do more fun stuff for the community.

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Katherine

Yeah. And have you thought about, before the launch, if it goes well, what will we use the funding for? Have you thought beyond, you sell the NFT, what you want to use funding for and aside from merch is there anything else like governance-wise?

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Trevor

Yeah there's the merch but we also are giving away a house. So Ndamukong Suh, he's a very well-regarded football player, but also very active in financial literacy communities. And we partnered with him and we're donating basically a down payment, so $100,000 of the proceeds are going to buy someone a house. We did a TikTok competition and we've selected a winner. It's still being verified via legal, but we are paying their down payment for the house. They actually got priced out of a home last summer. We are going to actually buy them a house. So that's where the proceeds from the mint were going towards for the most part. And then other various initiatives, obviously merch future drops and other stuff for the community.

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Katherine

Yeah. And I guess now they're on the topic of next steps, what is in the immediate short term, what's next for Parcl? And then just zooming out, what do you hope Parcl gets to in like 10-15 years? But let's start with the short term first.

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Trevor

Yeah, short term, so we've done three test sets. We've had over 100,000 users on the testnet. That's over about 400,000 transactions, about 50,000 feedback forms. So what we've been doing for the last three months is we've been iterating from user feedback from the testnet. We’ve upgraded the UI/UX substantially, we've added concentrated liquidity which helps traders get better prices. We've added a peg stability module. We've done three audits, one from Certik, one from another well known Solana vendor. And we have them on retainer to make sure that our security is best in class. So that's what we've been working on. We're slated to launch our main net alpha, which is gated by the HOA NFT on July 27th. So stay tuned on that. We do think there's a large UI/UX arbitrage in crypto. So onboarding people with more friendly and intuitive experiences that they're used to from what to portfolio views, various different tools that they can use, is something that we're going to be focused on to roll out shortly thereafter. Call it a few months after that. We already have it in the works, but it takes time to develop the code up. That's going to be our next release. And then we'll see what the market's looking for with respect to products. But we'll have other protocols on top of the data that allow exposure to financial instruments around real estate.

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Katherine

Oh, wait, so what do you mean? Like, aside from just price exposure and zip code?

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Trevor

No, so we have to examine what it is, but you could have perpetual futures based on the data. You could have savings vaults. There's just different types of instruments that we could explore and implement once we're out in the wild.

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Katherine

And I guess just as a walkthrough for anyone who might be interested in Parcl, I guess you log in or you get an account or a wallet and you can just start putting like $50 into this neighborhood and $100 into that neighborhood.

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Trevor

Yeah, so think of it like we're your global real estate portfolio. You connect your wallet, it's very intuitive, much like any other swapping interface. USDC x Brooklyn, and you can put as much or as little as you want in that pool. But yeah, you can invest as much or as little as you want. You can also provide liquidity. We have a great liquidity provision interface which helps you monitor and track your vault health, your position health, your collateral ratios. We have a great system for that. It's pretty intuitive. If you just wanted to trade, it'd just be a very simple, swapping USDC for Brooklyn, Manhattan, Miami or any other places we roll out. So we're trying to make it as seamless as possible. But it is your global real estate portfolio.

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Katherine

That's way better than going through like six months of mortgage and closing and negotiating. So that seems a lot easier.

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Trevor

Exactly.

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Katherine

Okay. So in the short term, that's what it is. So what about zooming out like in 10, 15 years?

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Trevor

Yeah. We think that this is an incredible start. Low, low friction to get folks investing in real estate. The goal is to get as many users as possible, to become the actual reference price for real estate across the globe. I think later down the line, who knows what the world will look like in ten or 15 years, but we could see a stack based on crypto where you’re getting loans and actually closing real estate deals on-chain. There’s a ways to go before we get there. But we think if we have the pricing mechanism to do so, we could be the foundation for that. Think if you have title, loan, list, all on a single platform, it is the global real estate platform. So that is the long, long term. I think there's a lot that has to happen between now and then, mainly on the infrastructure side, which is just a lot of catching up to do in terms of modernizing the traditional real estate stack from legal title appraisal. But we do think we can push that forward being a pricing mechanism to help be that reference where you get the loan, get the appraisal, etc..

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Katherine

Yeah, you know what Ash and I always say at Archetype is smart contracts underpin the future of digital commerce and I think real estate is honestly part of that too. I'm with you on your ten year vision. Cool. Well, so where can people go and check out and follow everything that Parcl is doing?

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Trevor

Yes. The first is Twitter. We have the handle @parcl. Parcl.co is our website. HOA.house is our NFT site and then we have a newsletter. So subscribe on Twitter, and there's a button to subscribe. There's about 32,000 folks who subscribe so join them and then follow along. We’ll be live in about a couple of weeks. Stay tuned.

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Katherine

Awesome. All right. Well, thank you so much, Trevor. Can't wait to see you go live.

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Trevor

Thank you so much.

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Katherine

Thank you all for tuning in to another episode of Cross-Chain examination. As a reminder, please remember to like, subscribe, leave me comments, tweet at me. And we also have a Twitter handle for the podcast at Cross-Chain Pod. We have an email that's open, it’s crosschainexamination@gmail.com. I would love to hear any feedback, thoughts, and ways to improve. And I'll see you all next week.