JSR Profile picture
Aug 9 16 tweets 5 min read
How #Crypto will unlock $100B+ of value in mortgage-backed securities

BEWARE: A very boring🧵ahead (Nerds only!)👇
This can be applied to any asset that gets securitized, so lets start with the basics of what this means:

Securitization = pooling assets so they can be repackaged into interest-bearing securities

i.e mortgages, cars, or other loans

There is a MAJOR problem
There are up to 14 middlemen in the process of securitization, that all need a cut

@PwC gives a great visual Image
This can add up to 1% over the life of the security

Take the 14 TRILLION dollar securitization market and that accounts for $140B or...

$5,000 savings PER YEAR for a family with a $500,000 mortgage

Not to mention the fees associated with obtaining a mortgage
Blockchain enables a cheaper cost of capital though efficiencies and removing friction / middlemen

How does this actually work?

Lets start with how a mortgage payment gets into the hands of an investor today

Payment processing

• Borrower sends $$ to originator
• Servicer remits payment
• Agent tracks loan performance
• Agent calculates amount to send
• Agent wires $$ to tranche
• Clearing system sends $$ to broker
• Broker pays investors
• Auditors review
Now with a smart contract implementation:

• Borrower sends $$ to originator
• $$ converts to stablecoin
• Program tracks performance
• Program distributes payments

Why do we need a blockchain?
1) Interoperability -- Our existing infrastructure comprises to siloed databases -- terms, credit profiles, and collateral information are not standardized

Middlemen need to find and read the data to ensure different systems can communicate
2) Liquidity -- The blockchain increases transparency -- loan terms and performance are readily available to investors with greater granularity

Remember the housing crisis? Firms packaged loans into tranches that reduced transparency

Transparency⬆️ Investors⬆️ Liquidity⬆️
3) Auditability -- When transactions take place, they are timestamped and immutable

Repayments and terms are automatically tracked

If a borrower misses a payment, the smart contract can automatically send a notice
We are seeing the early stages of this happening already

@CoreVestFinance recently announced it was using @liquidmortgage for a $313M securitization for a single family renter loan

Investors can view loan repayment data daily instead of every 6 weeks
Each loan is represented as a digital asset sitting in a wallet

As loans get repaid, the balance in the wallet reduces

The loan document is logged on-chain with a hash so it doesn't release private data
Investors only need to do diligence on loan origination

It removes the need for diligence when the loan changes hands

They are automating the process one step at a time!
Another company, @centrifuge, is experimenting with real world asset loans on chain

An asset holder can lock an #NFT into the system that represents a real world asset

Financing amounts are determined by an on-chain pricing scorecard

Upon repayment, the NFT is unlocked
This is a huge untapped #crpyto market that has potential to impact so many lives, getting cheaper access to capital. I am excited to see how this sector of crypto develops

I write about businesses building real use cases in #web3. Follow / RT for more!

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More from @MrCryptoXD

Aug 9
I don't think #BITCOIN will be the #1 token in the next decade

The token that drives the most economic value will

A few things I look for👇
1/ Which chain will capture the 14 trillion dollar real-world-asset (RWA) market

2/ Which chain will capture the social media / metaverse market

3/ Which chain will capture the on-chain bond and equities markets
4/ Which chain will capture the e-commerce market

5/ Which chain will capture the supply chain market

6/ Which chain will capture the infrastructure of communications protocols
Read 4 tweets
Jul 11
Crypto use cases 🧵
Buy Goods

Authenticate to e-commerce websites with a digital wallet and pay with a stablecoin in one click. Lower friction, lower processing fees, lower cost to do business
Global Currency

Enable anyone in the world to transact in the US dollar (Dollar / US treasury backed and FDIC insured stablecoin)
Read 24 tweets

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