In this episode, Mike Townsend chats with Trevor Bacon the CEO and co-founder of Parcl, a blockchain-based platform that allows users to invest in a digital square foot of physical real estate in neighborhoods around the world. Trevor has seasoned experience as a portfolio manager at several hedge funds focused on the technology sector — specifically software, payments (where he was introduced to blockchain 5 years ago), and internet. Previous to Parcl, Trevor was a Portfolio Manager at Force Hill Capital Management, where he managed a portfolio of over $500M focused on growth technology. He was also a Portfolio Manager & Senior Analyst at Millennium, one of the largest hedge funds in the world. Trevor has an MS in Finance from Villanova and a bachelor's degree from Fordham University.
Mike: Thanks for tuning in to Around The Coin. Today's show is with Trevor Bacon, The CEO and co-founder of Parcl Parcl is a blockchain based platform that allows users to invest in digital square foot and real estate. Neighborhoods around the world. So it's a derivative market, meaning you can invest in real estate without actually owning the hard asset, which is an advantage because the market was more liquid in that way.
We talked about the complexities or what exactly a derivative market is. What our parallel analogies that currently exist in the fiat world and where he sees real estate on chain is likely to go in the. The company has raised over $7 million and they have a few different areas where they're developing both the protocol and the data layer.
So I learned a ton and I hope you enjoy this show today is sponsored by Kickfurther Kickfurther allows you to insert yourself into the supply chain funding inventory for vetted Consumer Brands. Inventory gets purchased all the time. At some point, everything you've been wearing or do wear now was financed.
You can be that finance. Kickfurther users access inventory funding opportunities that profited at an 18% average annual profit over the last four years. Review credibility metrics for brands and review each opportunity by signing firstname.lastname@example.org. Here is Trevor Bacon.
All right, Trevor. You're running a really cool project, company Parcl that is between blockchain and PropTech. Maybe let's just start there. What, how do you describe what you're trying to unlock for value creation or what you're trying to accomplish in the world?
Trevor: Yeah, so thank you for having me. It's, it's great to be here, Mike. So Parcl is parent of several entities. One is a data entity. It's on shore, it's called Parcl Labs, and that is a data aggregator and data basically like a real estate data layer that provides analytics and real time pricing. And what what has been done off of that?
So we have an api, meaning people can access the data in a low cost self-service fashion. And what has been done off of that is there's a protocol that that Parcl parent develops for, that's called the Parcl Parcl Protocol. And that protocol ingests these data points. And what that they ingest is a price per square foot for cities and neighborhoods.
And, and the protocol allows anyone to get long or short these neighborhoods. And the idea of Parcl as a whole is to deliver real estate to everyone through data and blockchain, obviously two different value propositions. One is providing data to everyone in real estate. And we do believe that the market is really large.
For residential real estate analytics. And on the other side, it's allowing people to get exposure price exposure to cities that you otherwise wouldn't be able to for as little as a dollar. You can get longer, short, New York, Miami LA sf anywhere in the world over time. Right now we have six markets that are live.
Mike: And so the primary businesses that Parcl Parcl owns two entities underneath it. One is a data aggregation business and another is a trading platform. Is that the right way to say it?
Trevor: Yeah. There, there's separate entities. Parcl like Inc is a development company for the protocol. So if we want just describe it as the protocol that is a, it's a, a decentralized exchange to, to.
Get exposure long, short to real estate. So again, it's like our businesses, you take a a fee there and Parcl Labs is our data entity.
Mike: Got it. And what, how did you build those out, or what was the order of building them out? Was it first the protocol and then you realized, hey, we need a, a reliable data pipeline and built the data arm out?
Trevor: Yeah, so I mean, so may be helpful to start with a little bit of my background. Sure. So I was a portfolio manager at a few hedge funds prior to starting this. Long short, like equity, long short, always in technology payment software, internet at some alar, a very large hedge fund, and then a startup hedge fund.
Before that I was at a few banks. I'd always been around technology. So again within mostly like growth disruptive tech. And during c I wanted to. And like with one of our, one of my co-founders partners, I wanted to get long Miami in short, New York. So that seemed like an obvious trade but there was no way to gain exposure to do that.
So we under, we tried to understand what the options were with respect to creating a reliable data feed for just like a, the price per square foot or overseas, the price per square meter is effectively the unit of trade in real estate. So it's like, it's relative, doesn't matter the size. If it's a thousand, it's still the price per square foot.
So you know, we, we set out to create a, a reliable price feed over time because there was none. So that was, that's taken a very long time. A lot of work. We have an amazing team here at partial labs. And yeah, we realized that there is a massive need for. Real time residential real estate data.
There's a lot of augmentation data that we have on top of that that's consumable via api, places of interest whether broadband speeds public parks, transportation, et cetera, that can be all indexed to a specific latitude and longitude along with the residential real estate. So that's that was created initially for that purpose.
But there's a much broader purpose than just serving the, the, the price feeds for the, for the protocol. So they are separate.
Mike: And, and sticking out the price feed for a second, where does, where's the origin of the, of the data coming from that you are scraping or pulling from?
Trevor: There's it's, it's all publicly. So we ingest all publicly available sources sales transactions tax records for, and then we have like a internal ID system for and a property resolution. Or like address resolution. So we have every property in the country indexed to our specific ID that's not double counted.
Everything's standardized in one in one database. So it's basically all public. You know, in the US there's a very robust data infrastructure within real estate overseas. We, we, we've started to push into Europe and Southeast Asia. You know, the quality of data starts to fall off a little bit, but we're making it work.
Mike: And is it run state by state? Like would Texas and Nevada have their own like websites where you go to and you like log in and pull the data on some, like CSV file or like, I'm curious about the actual source of it and then it's maintained by title companies and the government.
Trevor: There are some, So most state, most states have certain requirements to, for, for tax purposes, like when there's a sale and a change of hands.
So those are stored in the, at the county level. And then each state there some states have certain restrictions. So, but it's not, we do not go state by state. It's more broad. More broad, Meaning we have all states, but it's not, it's not like an individual website for state or anything like that.
It's, it's like either we rely on vendors or just open data, you know?
Mike: Oh, okay. So you're, so there's some company that is pulling from the state websites and then aggregating that and then you're API into that data?
Trevor: Not quite. So we, there are, there are. We, we have some data that is all the, all of it is public county records.
So we, that we obtain the public county records mm-hmm. . And then there's some more real time data that we we also get. So that's the, the gist of
Mike: It's like a amalgamation of different sources.
Trevor: Yeah, there's a lot of different sources. Exactly. It's, it's not one. There's a lot. But I mean the bottom line is basically we do believe we have the most comprehensive data set in residential real estate.
And they can be
Mike: Is that is the reason you think you have the most comprehensive data set because of the sources or the, I'm trying to just wrap my head around why that statement would be true. Cuz there's other companies in real estate that presumably would be building at least this similar data database and that it'd
have to be the source.
Trevor: Not that we found. Yeah. I think the way that we inject is, is highly scalable. We're using the most efficient technology. And yeah, we, we had to create this so, you know, if it did exist, we would be using that . Yeah, that's actually yeah, we have a team of folks from Microsoft Meta, DataRobot, Capital One.
We have a, a real All Star squad here. And we, we analyze pretty much every option. And the conclusion was build it yourself. So that's where we sleep on that.
Mike: Interesting. It feels like that would be a, a product in and of itself. I mean, cuz I would imagine Zillow or, you know, one of these other large, like real estate companies would have a database or maybe they just don't make it accessible.
But it seems, it seems like Yeah, just the, the access piece would be you can't, A big idea.
Trevor: Yeah. You can't it's not accessible. There's like interesting call limits. You know, there there's a bunch of like, reasons why you wouldn't be able to, to access it.
Mike: And so the data is obviously a big part of being able to make intelligent investment decisions.
The other is the actual capability to do so. So when someone is long, in your case, your example, long Miami, short New York, that means that there's a, an ownership of, say by analogy of stock, if I'm, if I'm owning a stock and I'm shorting a stock, I have an agreement to sell a stock in the future if I'm shorting it.
And if I owning it, I simply just own it. In the case of real estate is the mechanism for ownership transfer via a intermediary company. So like an LLC would be on the title as an owner of a piece of property, and then the ownership of that LLC is then divided up and traded in the secondary market is, And tell me if that's wrong.
I'm curious how ownership works.
Trevor: That is. So there are models like that. We're not doing that. We're effectively a derivative. So we're not owning, We don't own any of the properties. We don't have LLCs that slice and dice the equity. We provide effectively the spot price for a city or neighborhood and allow you to get exposure much like you would like any other commodity if you were polish on orange juice or lumber.
Mm-hmm. . Obviously in those situations there at like, at the end of the contract, you'd have to take delivery. 95% of, of commodities traded never take deliveries. So it's more of a speculation, hedging or, or general investment thesis that drives the underlying investment. And so that's the tack that we took.
We don't own the land, we don't own anything. We provide the so or Parcl the protocol. provides the software rails in which you can basically make take positions on or against real estate price movements.
Mike: Got it. So it would be similar to maybe a, a betting mechanism where a derivative market is, is not in any way tied to the actual asset itself.
That, but it's allowing people to make bets between each other and it's orchestrating the, the, I use the word bet, but maybe that's not the best word, but a like a, an agreement that one will go up in an agreement that if the price goes down, then the other person wins.
Trevor: Exactly. That's actually, that's very well said.
I mean, betting You bet, Yeah. Is a, is a, probably a strong word, but it's, it's basically like, Yeah, it's a, an investment, right? You, you you put the money behind something and expect it to go your way based on your thesis that, you know, that is your investment. And the thought is you know, you're doing the underlying, you know, maybe it's just a quick trade or maybe it is a long term play where you're actually bullish or bearish on underlying fundamental trends within any city that you're, you're.
Mike: Right, Right. So the difference there was kind of interesting. It's like if I, if I think Miami is going to grow in prosperity and thus the real estate market will increase in price, I could go and buy property there and that would be a, a direct ownership stake. Yeah. But I could also bet somebody else, Like I, I use the word bet, just kind of cuz it's simple.
I could bet my friend Joe and say, Hey, I'll bet you 20 bucks that the, the average square foot of Miami is gonna rise, you know, over the next year. And, and he's like, Oh, I'll take that bet. So, but because it's, because it's betting, because it's a secondary or derivative market, you're not actually, like Miami could go up in price, but I could still lose if I'm long Miami because of.
The structure of the deal, right? Like when I, you know, if you bet on a sports team, if I take the New York Jets over the Giants, there's never a flat. I mean rarely, but like there's a spread, right? It's like, well, yeah, I agree Miami's gonna go up, but like, by how much is the question? So is that, Yeah. Is that the mechanism that people are using to make these investments or bets or s
Trevor: they're yeah, you're actually intuitively pretty close.
So we have so we had a version one that's much more like the version you mentioned earlier, where you have like basically you would create or Parcl the protocol would create synthetic square feet, which would require them to be cap capital, like what's the word? Collateralized. So basically, Mike, if you have a square foot of Miami for $500, in order to make that an asset, you'd have to deposit $500 into the Miami Smart contract, right?
Then all of a sudden you have a synthetic square foot of Miami. You would put that into a pool, like a trading pool, like a Uniswap style pool, and then you can trade, and it'd be like, if everyone wants to get along Miami, the price would go up. Right? Now, the issue with that model is it doesn't hold to the underlying peg.
Meaning if, you know, the, the price per square foot that, you know, the market says is, is really like a hundred or 110 and everyone's bidding it up at 160, it, it untethered from reality. That actually also happens in these, that is a function also of there are certain real estate platform housing platforms that have started to emerge that.
Have LLCs that slice and dice shares of, of equity, and then you could trade them on the secondary market. You have the same problem there, which is, if you and I bought a share at $1 a hundred, it's, let's say we sliced it for $1 a hundred dollars at $1, sliced it up, we go and trade it here, and, and someone bids it up like to $6 or, or $6 a share.
And then the equity work is worth 600 in the, in the, in the secondary market. Right. But the LLC decides to sell it at 200, then all of a sudden, like $40 of equity gets evaporated. Right? Cause it's untethered to the actual underlying. So what we've done is we've created much more of a what we kind of or the protocol refers to it as a perpetual prediction market.
So that price that we feed it, or the, the, the protocol takes from. Parcl labs through an api is the market is the price that a user would enter in at. Okay. We think the balance will be about 50 50. Right. And if 50 50, your payout is what you would expect, right? There are, to your point on the spread, if the odds get out of wack, if a side gets skewed too far and then people exit quicker, that's when your payouts would maybe be distorted.
And there's also funding rates that the, the that the protocol is instituted, which basically means if the market is super long or short, you're incentivized to take the other side base. Basically, you're getting like, you know, to the sports book analogy, you're getting plus odds. You know, you're getting paid to take the other side and like you would, depending on, on your view, just generally like, it, it would even add over time.
Mm-hmm. If that makes sense. So you're, you're kind of incentivized to take the other side if it gets too far outta skew. Mm-hmm. , we think our, the, the protocol does think at scale you know, you'd have maybe a lot, many shorts like with leverage. Like if you have equity in a house you obviously have a lot of dollars in that or equity in a building, a lot of dollars.
But we have mathematical leverage on the, or the protocol has mathematical leverage on the system, so you're not actually tapping into the, into your, into a bank or anything. But basically you could put less dollars in and then lever it up to protect your, your equity position on your house or building, right?
So that creates a, a decent short base. And then, Folks who want to get long would probably get long with more dollars almost simulating like a house or a building. So we do see a, you do see kind of a natural balance of, of longs and shorts, and then if there's a natural balance of long and shorts, you get paid exactly what the, the price fee says you get paid.
Does that make sense? Versus the odds that you mentioned earlier.
Mike: Is the example that you, Well, on the last piece that you just mentioned there, if I'm owning a house, if I'm putting less dollars in, do you mean that I would be borrowing money from the market to pay a loan on the house and therefore instead of owning a hundred percent of a house and having a loan for 90% of the house value that's paid, fixed over 30 years, it would be, I'm owning a hundred percent of the house, but I have multiple lo, Or would it be, I'm owning less of the, Would it be that the ownership is divided up across different owners?
Trevor: No. Right. No, I mean, I would say like you would on the protocol, if, if, if you were trying to simulate like home ownership, you would put in your down payment and lever four to five x Cause that's basically what a, that's what a house is. You know, so you could, you could potentially have like a, a, at least from a return perspective what a house would look like in Brooklyn.
If you lever five x or you know, or you have a portfolio you don't wanna throw down in Miami, whatever it costs to, to own you would actually you'd have 500 square feet and la you know, 500 square feet. Phoenix 500, 2 50. In Miami, you have a portfolio, right, Right, right. That is diversified. And then that's your house and then you rent somewhere.
Mike: Okay. Yeah, Yeah, totally. So I have two, two follow-ons. One, let me ask the one that's most closely related to this. So does it, do you, what is a healthy maybe ratio, if it's the right way to think of it, between the actual money in the real estate market, say value of the real estate market versus the value of the derivative?
So if you took a small city, like you know it would be like a small, like a suburb outside of Dallas, right? Like maybe it's a 20,000 people, something quite small, but it's an established city and you were to make an average. If you're gonna make a derivative bet on that city, say for instance the value of that city, say, Every house, there's 20,000 homes, let's assume times like 500 per home.
So it's the whole total real estate in that city is worth 10. That'd be $10 billion. And if the, if the derivative market were to get to 10 billion, 20, 30, 40, 50, a hundred billion dollars, there's some, How do you sort of understand or think about the maybe risk or impacts that, a high ratio of derivatives capital to, to, to market capital?
Like what are the implications of that?
Trevor: Yeah, I'm smiling because if that was actually you know, that's a, that's a very good problem to have. So , we do have, it's a good problem to have cause there's so many people trading that it's like, Oh, it dwarfs the actual market. What I'd say on that front is basically like, you know, derivatives already dwarf the notional.
Generally speaking in, in traditional markets, You know, like the actual not value of, So I think it would follow much like just traditional financial markets.
Mike: So does that mean higher volume's, more derivative?
Trevor: most likely not. The reason why is it depends. It depends on like, so the protocol clears that available resources, so mm-hmm.
barring some kind of systemic shock, like you'd expect certain people to, you'd expect certain people to be traders. People hang, people are like, there's a lot of different actors in the system. Some people just provide liquidity to the pools. And so we think there's like a natural flow of, of, of participants to maintain some sort of stability.
If there's like a, again, there's no risk of like we're, the system is always fully collateralized. There's, it, there's, again, it clears that available resources. So that's a, a big feature. Granted, if, if there were like AMA exit, like your, your execution price may be unfavorable, but again, there's no there's no counterparty.
There's, it's a very secure, safe system. So the volatility would come on the back, like as you try to exit your price would, would be a little your price would be less favorable than you'd like. Obviously that's an extreme scenario, but nonetheless, you're still protected. Mm-hmm. . And so I think volatility, you know, once you get to that scale, then.
Yeah, I think there's other measures that we can put in place that we'll evaluate at that time.
Mike: Yeah. Yeah. It's not something you're thinking about. Well, I'm, I'm curious about it from a like the patterns of what currently exists in the market, maybe the commodities market or the equities market, and just the, the implications.
So say, you know, hypothetically if there was a market that I just described and the valuation of that market was 10 billion, and you had a billion, and you're considering, you know, should I put it in the secondary derivatives market or should I put like, you know, half of it and try to distort the market?
So there can be kind of funny games that people can play, right? Where you can distort the actual value of the underlying asset that's being traded. You could, you know, short, you could buy homes and then sell 'em for short. But it doesn't seem,
Trevor: oh, in, in real, In the physical right. Cause our, the spot price is always the spot price.
Like that is, that does not move. Mm-hmm. That moves every day. Okay. Okay. From the api,
Mike: Can I, can maybe I I have an idea way to get at it better. So, the ous market, in theory does not affect the underlying value. So like, Parcl people betting or purchasing trades and derivatives on Parcl in theory shouldn't circle back and have an effect on the valuation of like, the square footage of Miami.
But the, I think the thing that I'm intuitively feeling is that it could, right, If the, if the market were big enough in the secondary, it could circle back, but probably not likely to, unless, like you said, there's a catastrophic event in the market. Yeah,
Trevor: I, I ideally the, you know, markets become efficient over time. I think early days, you know They're inefficient, generally speaking. Mm-hmm. You know, there's more alpha to be had and we see, we've seen it on Wall Street, how, you know, hedge funds used to be wildly profitable. Now they're not. Cause people figure it out. Right. The same thing in, in, in markets at at large.
They, at, at the beginning there's more volatility, there's less participants. Over time, they become more efficient. Or so they say. And then you know, they'll, the, the market knows it discounts the future. Right. So, like right now the NASDAQ's down a lot. It was up a lot yesterday, but it's down a lot.
Generally this year, it's probably discounting some form of a pullback in, in economic conditions, six months ahead of time. You know, similarly in this case, if the market's efficient. And people think Miami is going down, the skew on the protocol will probably be heavily short and they would recognize gains as it goes down.
If they're wrong and they get squeezed, they're gonna obviously, or they, you know, if they're short and it goes up, they'll get short squeezed and have to cover or close their positions. But that's how I would imagine that Right. Plays out.
Mike: Okay. Got it. So, if somebody owns a property, so they own a, a 750, say a million for round numbers, a million dollar property, and they are, it's a high percentage of their net worth, does it make sense?
Do you think we're gonna move to a world where using the protocols and the secondary markets, the derivatives markets in real estate, it'll just be commonplace or the smart move? Diversify their ownership across multiple, across the same city or I guess multiple cities, right? So they're thinking about, let me, let me decrease the volatility of my own city by maybe taking two thirds of the value of my property and then purchasing it in 10 or 20 other cities across the country or the world.
Is that, and then that, that way it's almost acting like a a buffer, an insurance market where we're all kind of riding this dampens the effect of maybe your local area, your, your city. And do you think it be doing that now? Like in terms
Trevor: of, I think, yeah. Look, I Oh, do like right now in the market?
Like if, if you were to go buy a house tomorrow, would you do it?
Trevor: I would yeah. So I'll answer these piece by piece. So yes, I think generally speaking, having a hedging mechanism against your equity to protect yourself. Is a sound, I think I believe it. It sound, obviously, it depends on, you know, what you, you, this is not financial advice, of course, but like, depends on your cash position.
It also depends on your equity position in the house. If it went up, if it went up a lot and you wanna lock in some gains, of course, if, if, if you wanted to do that, if you wanted to let it ride, then you know, that's also, you know, up to you. But not currently. We don't have a, a mechanism to do that. And so we do believe that it makes sense.
And then we've also seen, there's also just bigger trends at play, right? With respect to home ownership. It, it's funny because it, it's like there's no free lunch. So basically low interest rates drove ra drove housing prices extremely high. In 2021, real estate was the best performing investment on a volatility adjusted basis.
So meaning, you know, you always want good returns with low risks or, or low volatility, and real estate was the number one in 2021. And so, you know, it became unaffordable for a lot of people to actually participate in real estate. The starter homes, you know, probably 50% higher to, to a hundred percent higher institutional buyers, Ibu, you know, they're pushing the entry level price higher.
Meanwhile it's not like wages went up in that effect. So, you know, we do. And on top of that is more of like a secular trend of younger people wanting mobility, wanting flexibility, work from home or from anywhere, be a digital nomad. And so, you know, home ownership had become kind of less appealing or less attractive.
And then now you waited for, you know, home prices to come down. But interest rates are a lot higher. So it's like your actual effective mortgage cost is probably the same or higher. You know, it's not like you could take advantage of buying a dip because interest rates are a lot higher. Your actual payment is a lot higher and the economy's slowing down.
So, you know, this is a way in which you could still get that exposure. Real estate is amongst or the best investment in history without having to, to really give out all your capital, which again, most people who buy a house, at least initially, it's like the vast majority of their savings. So you don't have much flexibility once you, you do that, like you buy your house and then you gotta stay, stay tight for a while.
This allows the protocol allows for people to get exposure. In either direction without, you know, at their leisure, you know, they, they don't have to to make like the biggest life decision ever if they just want to get exposure to, to Miami or they have an idea or like an investment thesis.
Mike: Okay. So then the mechanism for diversifying out of ownership of your home. So if you bought the home, if you gotta say a standard example of a 30 year fixed mortgage, you're borrowing 90% or 80% of the, the money to buy the home, to pay the seller from a bank. So you owe the bank 2.5 to now 5, 6, 7, whatever the interest rate is.
If you were to pay back the bank, cause you're now in debt to the bank, the money to do, and then you wanted to diversify into other cities, other real estate investments say on, on Parcl's protocol is the how, how does the mechanism for that work? Like how, where would I get the money to pay an extra. 30%, 40%, 50% back to the bank.
Would that come
Trevor: from? So we don't, So currently we don't have, or, or the protocol doesn't have like a helo. Like we don't have helo products. We don't, we don't. Okay. So
Mike: it would be, So I go and I do
Trevor: your own capital? Yeah. Or exactly. Or you could refi yourself. And if you have a large equity, like your equity grew.
I don't know. Mm-hmm. You know, a hundred percent of, of your, basically like your, you know, your whole price went up by, I guess that would be like 20% to your equity group about that much since you're like four x levered. You know, you'd have a chunk to play with. Obviously your mortgage costs would go up a little bit, but you would also lock in your, in your gains on the, on the short side or if you have the excess cap cash, you would just use that.
Mike: But either way, So if I think about it in terms of debt, so if I had 80% of the debt of this home, so say 800 K, what, what seemingly would make sense to diversify the volatility, Diversify the investment and volatility would be spread that 80% of debt, that 800 k of debt over like a hundred homes or in some way using the derivatives market.
Is, is that, Could you do that? So you. Borrow money to pay back the bank, but then you'd still be in debt, but now you'd have cash. So then you basically go and purchase derivative derivatives in real estate on other markets. Is, is that the right way? Like mechanically, if someone's thinking about this, So I have, I now, I paid back the bank 80%, 800 k now.
So you paid
Trevor: the whole bank. You have the whole, So you own your house out, right?
Mike: Sure. Or at least say 80% of it. Instead of owning 20%, I now own, or instead of being in debt for 80% of it, now I'm in debt for, you know, half of it, but 20 of it. This now creates the ability to not be so tied to the, to the ups and downs of your house.
Now I wanna spread that across multiple cities. Cause that to me seems like you could have, That's the really compelling part
Trevor: for people. Yeah. You could have, look, you can have just like Just like a hedge fund. You know, you could you could, like, there's a million long short hedge funds that try and slice off alpha meaning long, short.
And so you could have your own little real estate hedge fund that if you believe that you, you can pick real estate markets and be a real estate mogul. You know, you have some long positions, some down positions to hedge, like the macro risk. You capture the alpha of a trend happening in certain areas.
And you know, better economic cycle secular trends like work from home. You could, you could run your own little real estate management , capital management you know, so yeah, that, that's one way to do it. That would be like more conservative than just going along all of the, you know, every, you know, for the rest of the, the money.
But you know, there's a lot of strategies that are available. Just given it, it follows many of the primitives that markets typically follow. Mm-hmm. ,
Mike: it seems like the way you're describing it is that the vast majority of people are not going to change from what they're currently doing. Cause to start my own, like real estate hedge fund, like, you know, if you're working a full-time job and you just are like, Hey, I don't want 90% of my net worth tied in this house the way it currently is, you'd have to have some product that's like, Hey, come to us and we'll diversify HeLOCK.
Like, but that seems like it's like not, not right. We're not there yet. People are still
Trevor: No, for sure. Yeah. No, I think you gotta, we gotta onboard people. I wouldn't, I wouldn't expect you to start, I'm just, I was the colloquial you, but like, you know, you could have other blockchain protocols build. A hedge fund that you can just deposit money into and say, Hey, I trust this person.
I'm gonna give them some, some money. And, and they'll manage a portfolio. You can have just vaults that, like you can have strategies that are premade for you. Like I wanna be long, the East Coast and short the West Coast. Like these things are all possible in, in blockchain very simply, actually through smart contracts.
So you could just deposit money your Long East, you're short the West, and that's your real estate portfolio, your long Miami, your short SF based on relocation into more tax friendly areas. That's your real estate. You know, that's a trade, you know, you don't have to manage it daily. Mm-hmm. . But they are, these are trends that are happening, you know, in real life.
Mike: And you guys are in, is that possible today or is it like rolling out beta in the next two months or years? I, I signed up on the site that I was in, in beta still.
Trevor: Oh, sweet. Yeah, we we're, so we have a, we had a sorry, I misspoke. The, the protocol had a closed alpha in July. The results were very strong.
We, it was available to do a thousand people, like total 500 participated, which is great. We had about $200,000 transacted amongst those 500 people. So decent ticket size. As I mentioned, the protocol noticed that peg problem that you and I discussed earlier the v2. Is now because of that, we fast track the v2.
We have great, an amazing blockchain team that's developing for the protocol that basically is innovating substantially on this. It's a, it's a completely novel, primitive and so we fast tracked it and then that will be available early next month in the same version as the version one Alpha, which was closed.
And then hopefully by the end of the year we open it up for the protocol opens up to the public.
Mike: Gotcha. Is there anybody else doing this? Is there any other place now to trade real estate derivatives, I guess in. Maybe No. Yeah, no, there's not any, anyone else doing any kind of like direct ownership blockchain stuff?
Like can I go online purchase, you know, like 2% of a property that, that does exist now? Yep. In the us
Trevor: Yeah. I don't know. In the us. So the US is you know yeah, so I don't know about the us. I think there are some venues that allow it. It's kind of that same, it's like that same thing that I mentioned earlier.
It's like you're untethered from reality. If you can just have a secondary market with no spot market to abit back to peg, right? Mm-hmm. , like if ideally there would be something where you could buy it and short it to keep the prices, you know, at parity in the, if you're buying a house on chain makes a lot of sense.
I think it makes sense, not with the secondary market. So, But you can do it.
Mike: Yeah. Yeah. And that would be an example of like if I go say there's this may exist, I don't know. I don't think so. I think we're still too early, but say there's a hundred properties in Miami that have ownership up for sale on a, on a private market.
So say 90% or even a hundred percent of the, of the properties are up for, up for sale. And you could go and trade as small as you want of those properties. That would be the most real time price that there is. Like Zillow gives an update, which, you know, seems like one of the best real time price estimates, but the actual real price could be determined cause you have now a real market where people are trading real ownership of that.
So it's like when I, when I buy Apple Stock, I'm really owning that stock. It may be through a broker, but you know, it's so that's kind of interesting. And that would play into what you guys are doing to create a stable primary market, right? That you could then.
Trevor: Yeah. I, I think, I think generally like you need because you need, the, the reason I think this is just a personal opinion, that that market is slow to mm-hmm.
to come on. It's like you need scale mm-hmm. And because a hundred properties, so there's like a lot of distortion that could happen there, right? If a lot of people wanted to come in and buy it. And there's no way to short it. You only have upward pressure and like, there's actually a mismatch of demand and supply.
And actually the spot market is the actual, when you sell the underlying house. So like, that's the real spot. So that's the tricky part. Yeah. I think if you were gonna have like a liquid market, you need a lot of, of, of properties, like a lot. So you can kind of play like you have options to long and short.
and that takes time and capital. Mm-hmm. , which, because you obviously need the capital to buy the houses and then you need time to close the deals. And that's why you see a lot of the, the smaller the, the, the fractional players, we put out a, a, a real estate or yeah. We put out a derivatives piece just kind of explaining this market landscape as we're describing now.
And from what we've seen, I think the average house price, like full house price is like between 150 to 250,000 which is below, well below the four. Like I think the national average or medium is like 400,000. So obviously they're kind of going to places that have a lower house price so they can accumulate mm-hmm.
Enough of a, and create enough of a. And you know, the, you know, the issue there is that it's like, do you want to own a house in those areas? I don't know. Mm-hmm. It depends on your preference. Yeah.
Mike: Real estate also has the additional complexity that the house is not a commodity. It's like, it's not a stock where like one stock is equal to another.
It's like, well, oh, the foundation of the house is compromised and like, you need enough diversity to like, it's idio. Right, Right, right. Whereas the secondary market, the ous market wouldn't have that at all. Cuz you're just betting on a number. You're betting on a square foot per dollars per square foot.
You're betting on the trend.
Trevor: Right. Or, or just like Yeah. You know Yeah. The, the, the at large city. Yeah. Which over time kinda it, it kind of smooths out these idiosyncrasies. A wide range of transactions.
Mike: Yeah. It's an interesting way to think about it. Are there other markets that are parallel by analogy that have a large, reliable data source that people would be interested in?
Specula, I guess sports come to mind, like you have, that's a reliable quantitative data source that people can speculate on. But ephemeral sports is, you know, it
Trevor: comes and goes. Yeah. Sports would be, Yeah. I think, you know, we're not going after that market right now. But like our, our, the actual, or we're not going, or Parcl is not going after sports betting.
Today the protocol that that's developed does function much like a prediction market, but it's, it's a perpetual price so it doesn't mm-hmm. . Mm-hmm. , the price changes every day. It doesn't close every day. Right. Like a sports book, you know, it's a binary closes once it's closes. But you could have, you, you basically, instead of you, you just have a different agreement in the smart contract, which is like if the Lakers win, if you know winners get all losers, get none, you know, it's binary and it's all, you know, it's all or nothing in those outcomes.
But it fall is the same. It does follow the same properties, which is effect. Player versus player.
Mike: That to me, colloquially, that's why I feel like bet is not the right word for the, like a real estate or commodities derivative market because it's like, I think of bet as like there's a period of time where you either win or you lose.
It's like, we're gonna make a bet that this is gonna happen. Exactly. Yep. So this would be more similar to like a commodities market. What's the price of corn? What's the price of oil? What's the price of real estate? They don't ever end. It's like tomorrow there's gonna be a different price than it was today.
There's no event happening. Do you see any, are there any like blockchain based derivatives markets for other large non ephemeral things like corn oil electricity, I, I don't know what else is common now, but
Trevor: none are none that we've seen are really widespread. There's been some attempts, but I'm sure as the, the industry matures, there will be There will be more interesting architectures and features, you know there, there is, We do believe that.
Or, you know, we as the development company believe that the, the protocol itself is novel. Yeah. In, in bringing synthetic assets, meaning assets, any asset without a spot price on, on chain and tradeable. That's really where the protocol is. Creating a novel infrastructure and, and innovating today, and that really hasn't been done to date.
Mike: And as long as you had a reliable data source, you, there's nothing different about the front end trading interface, right? Like if you had a reliable pipeline for oil, for instance, which seems easier than real estate cause it's not locally dependent like I would imagine that eventually there'll. Either one of two pathways.
Tell me your response to this. There'll be different marketplaces where I can trade specific commodities. Like I go to the real estate market on Parcl to trade real estate, and then I go to the, the energy market to trade energy, and then I go to the food market or, and then they'll be bridge together.
You know, I thinking similar to like web three bridges or there'll just be one market where like I go and I can trade real estate, I can trade energy, I could trade food, I could trade whatever. Do, do you see an inevitability of heading towards one of those two paths where Parcl just stays laser focused forever on real estate?
Or do you just build in a new data pipeline and aggregate other commodities? It is,
Trevor: That's a great question. You're, you're actually intuitively correct. Currently we're solely focused on real estate or the protocol is we think that us and our meaning our developers, we believe that Real estate is the biggest market in the world, and there is no there is no solution like this.
So obviously the opportunity here is, is the greatest. You know, other, other markets are relatively mature. Granted there's opportunity for protocols, decentralized protocols to give access to a broader swap of people to, to trade different things. So for now we're, we're strictly focused on real estate.
Yeah. In the future we'll see how it, how it plays out. But you know, directionally you're correct, like a. Various things could be built on top of Parcls architecture.
Mike: Yeah. Cuz I, I imagine like one of the reasons why you might have that disposition of like, hey, let's not even think about the others, is the real estate derivative market is not really accessible.
Right. Today I can trade oil, I can trade corn, I can trade, you know, pretty much other commodities. So like how innovative is it really to launch a crypto base? I mean, probably, right. There's probably just a ton of people that would prefer blockchain as opposed to centralized clearinghouse, but the, maybe the, the step function of innovation is lower than it would be to create a whole new market.
So, Makes sense.
Trevor: Yeah. That's the initial thesis, you know, like, I think yeah, there's, there's only, So we, we have a phenomenal team across everyone on our team is, is absolutely amazing. The, the, there's. You have to be focused, you know and, and really gain those true customers that true fans and, and build a brand and an identity that's centered around something that you stand for.
And we're really focused on bringing access to an asset class that has yet to be democratized in a real way. And then over time of course there there could be other markets that are of interest. Yeah.
Mike: Do you have any thought? Do you have any have, do you, let me ask you it this way. Do you have a fairly well distilled macro picture of the the economic situation that we're in today?
Some way of explaining Real estate, just the general market conditions. Obviously you have input factors. Being the US government printed a tremendous amount of money in the last few years in response to the pandemic, which undeniably just has to have some inflationary effect. You have a relatively slowing economy in the United States versus, say, China and India.
You have large scale globalization of work happening, sparked by the pandemic, but will continue to increase my, my intuition, growing concerns for climate change, and probably increased regulatory pressure from at least Western probably countries across the world, which will distort prices in different areas.
Are there other large input factors that you take into consideration when trying to make sense of where we are in the world? Besides what I just said?
Trevor: Yeah. We I, so I'm speaking for myself here. Yeah, of course. Yeah. You know, I, I, I think there's so many complex factors and I, I also believe that no one really knows anything
So do you believe that? A lot of reasons to be. Why do I believe that? I mean, the market's down like 40% this year. I don't think anyone , you know, like Fdx just you know, is like a huge, you know, like, I don't think any, anyone, like nothing there's of any reasons to believe that you know some people know, some very, very smart people know, but I, I personally don't focus on the macro.
I think you know, there's things that are true, there's high inflation you know, there's obviously layoff. Maybe inflation could cool the economy. And maybe that leads to lower rates. But really we just focus on what we can control, which is, you know, we're early in our growth, growth story.
We have as a whole, very large, large opportunities to to change the world across data blockchain. Sure. In the biggest markets in the world. And so, you know, I think there is a lot of turbulence, especially this year. You know, a lot of volatility. A lot of head like jerking with, with the macro.
And, you know, I think it's, it's been a rocky year for, for markets, but you know, maybe I, I think next year could be a little better, but, you know, again, i, I, I don't admit to knowing the situation.
Mike: Okay. down a level though. Go down from like high level macroeconomic on the global level and go to maybe like us domestic real estate.
Do you see particular patterns that you think maybe, oh, for real estate, let's say, other than, Well you tell me. Yeah. What stands out to you as things you're like, Oh shit, this is happening and this is a real trend.
Trevor: Oh, yeah. So, I mean there's a few things. Like for real estate, it's, it's more easy because it, it's, it's like you have You kind of have this situation where you have the three percenters versus seven percenters.
So like the three percenters who locked in a 3% mortgage, probably not gonna sell if they don't have to, right? If, if Matt, if the economic situation turns into really bad, like you'll have like four sales obviously people need capital or and they need to sell their house like that, that's when they would would sell.
But otherwise they're not incentivized to because their monthly, on a, like, for like basis, the monthly mortgage position would be a lot higher cuz the 7% in mortgage rates. So on the flip side you have 7% mortgage rates for the newer buyers, which are less attractive, right? So maybe new development is probably under price pressure to compensate for the 7% mortgage rates.
So I mean that's a factor that we're watching pretty closely, I think. With tighter liquidity conditions, you start to see some of these things that we're seeing in the crypto market where you have illiquid assets marked against liquid liabilities. And so it depends on how long these land, Like how, like for example, in real estate, if, if developers borrowed on this land with the assumption that they could sell a house at X price and the bank calls capital or the repayment of the loan, that's when you could see some, some big problems, right?
That's like, you know, what just happened at large scale at at ftx. But that can happen with anything where you're, where you're marking illiquid assets versus liquid liabilities. It's basically just a, a call. Mm-hmm. Where we're seeing this in particular, and I would, we will shout out Jason, who's a co-founder Who's leading the technology and efforts at Parcl Labs is Phoenix.
So Phoenix, we're seeing a disproportionate amount of IBU meaning you know, the, the flippers like Open Door and Redfin, they had a disproportionate amount impact on the Phoenix market on the way up. They have about a billion dollars worth of, of homes there right now. Obviously there is a financial implication of them not being able to flip those homes and they could potentially singlehandedly tank the market there.
So that's one area where we're seeing some, some more volatility because of the, again, people capitalizing on low rates, levering up, buying a lot of houses, et cetera. So that's. That's one of the areas that we're watching really closely. And we've actually yesterday port cited us as a, as a primary data source for, for a piece on this.
Mike: Interesting. So people, so investment bankers moving into Phoenix have increased the prices in Phoenix tbd, if that's gonna be
Trevor: no, not investment bankers. Ibu. So flippers like home, like professional home flippers. Oh, like
Mike: Zillow. I'm thinking about like Zillow, Mr. Money Mustache guys. Is that folks you were talking about?
Trevor: No, no. Like, like, like, like businesses. Like Oh, okay. Open door, for example. And Redfin, like the, the, you know, Zillow was doing it and got out of the business. Mm-hmm. Pretty, pretty. Prudently it
Mike: looks like. Yeah, sure does. Is that a growing percentage of the real estate market, or do you, do you anticipate that to grow over the next couple of decades?
Like the percentage of houses that are owned by companies as opposed to people?
Trevor: I, it, I would bucket them into kind of two groups. One is this ibu market. I would say ibu, it currently looks like, like today as we stand that you know, we're more of a function of low interest rates high to housing demand.
Mm-hmm. And an assumption that you could flip a house, you know, in a relatively short period of time. So, I don't know the exact calculation, but probably within six months. , that changes a lot when interest rates are a lot higher and you can't flip the house. So , the business model kind of got flipped on it's head a little bit.
And so I, and Redfin actually just announced they're stopping that program. So I would expect that that kinda you know, at least in this cycle dies down. At the same time large institutions, like very, very large institutions are buying houses and renting them out. I, I would expect that trend to continue.
I think you know, the biggest money managers in the world are doing that because renting is a pretty profitable business for them. Mm-hmm. , and you have the asset and it covers the mortgage. So you know, that, that's a different type of business model. But that's a, a trend that we've seen proliferate during the last several years.
And that specific trend, which is just institutional buyers. Different than I buyers sounds the same, but different. They'll continue to, to buy up and acquire residential real estate to rent out to people in
Mike: San Francisco, New York, la Portland, Like a lot of cities throughout the country, homelessness is increasing and is often the number one political issue.
Do you how, how much of homelessness is related to housing development versus maybe other, you know, psychological or mental health related things? There certainly seems to be, quantitatively speaking, a decreasing rate of new houses being built. Nimbyism, like not in my backyard, tends to be like the major piece of criticism, but how to, how to get past that staal mate seems like tbd.
How mu if there was one piece of, if there's one change you could make or one change you think that would help society flourish as it pertains to. Real estate and housing and homelessness. What, what do you think it is, like, where do you think we should be focusing our attention to better flourish and better provide housing and have a more, you know, better housing market?
Trevor: Yeah. I, I I don't know the answer to that. Cause I, I, it, I think it's a lot like of policy that I'm not so familiar with. And I don't know if it's related to housing stock versus other kind of other dynamics within the homeless population. I, I, I see like an insane amount of, this is just my own.
I, I don't, I'm not deep into to California politics. I, I know what I, all I know is. San Francisco created amongst the most wealth ever, like in history in the last 20 years. And the situation there, it's just, it seems like we could do better. I don't know how but you know, it's not for lack of, of money it seems like.
I don't know, But it's like you have the most innovation, the most wealth created right there. Like at right there. It, it was only there. Silicon Valley is right there. It does feel like there's an opportunity to improve and grow. Do, I don't, but I don't know how. So I'll, I'll leave. I don't have an opinion
Yeah. Yeah. It's interesting. I mean, definitely in New York too and other cities. Yeah. Yeah. But my, my intuition is that among like a decreas. Ability to build. There's also like the opioid addiction and people just in incapable for different reasons of contributing to society in a productive way.
Yeah. Getting paid for their efforts and then not having money to, to buy housing. Certainly a part of it. I do think there's, there's regulations that are counter effective, like rent control. I've a friend who lives in New York and like have understood kind of the different mechanisms for rent control that happened there and happened in LA where like, Oh, we can't raise rates of rent greater than 2% per year.
Well, if you live in a place for 15 years, you're now, you may be living in a place that's like dramatically different priced. So, It's it's, it's creating a decrease in the actual effective units on the market. And so that compression of effective units creates like kind of a, like a artificial artificially high price that seems distorted.
That's not obvious. It's like, oh, we have all these units, but in reality you have a fraction of them that are actually in the market. I'm, Yeah. Cause
Trevor: you'll never leave the,
Mike: the rent control, right. So
Trevor: I'm generally No, that makes, that's really interesting.
Mike: Yeah, generally I'm pretty skeptical. I think regulation that sounds like it's gonna do good tends to do worse, which may be a part of it.
So, but I was just curious. Let's wrap up this, this been awesome. Hopefully I taking some extra time and and congrats all the progress, man. Do you have any place that you are active personally online, a Twitter or something? We'll have links to the Parcl and the show notes.
Trevor: Yeah, we're, we're all active on Twitter, Trevor j Bacon, twitter Parcl.co Parcl labs.com.
Check us out and. We will be stay tuned for, for near term announcements on our, our products. And yeah, we'll, we'll follow, Hopefully we'll be back on to, to talk more.
Mike: And any person in particular for you that's inspired you or a book that, that you want to throw out there? Any, any source of inspiration?
Trevor: Person. You know, Elon, Elon always gets me going cause he you know, he, he attacks it straight on and, and has a huge vision. And I, I admire that from a book. I love the book that this, that will never work. It's about Netflix. And the reason why I love it, it's because the beginning, it, it, it just like, it never intended to be.
Like they started at a time when streaming wasn't even a thing. It was like a potential thing. And DVDs weren't even a thing really. And they kind of rolled with the punches, stayed open, stayed fluid and captured technology trends, obviously. You know, it's one of those things where you just gotta keep going and the technology will come around, opportunities will open up, and I think they've done a great job.
That book is, it always is very inspiring, just given you know, how the, the technology came their way and they were able to, to capitalize on it. Mm, That's a good one.
Mike: Thanks brother. And talk soon.
Trevor: All right, Mike.