[dcolkitt]

I bought a house. I paid an escrow company a hefty fee to essentially hold a pile of money in a trusted way while the property was under contract.

Now imagine we transfer ownership of the house to a DAO tied to an NFT. American law allows corporations to be governed by software. So the house is nominally owned by a Wyoming DAO LLC, which gives management rights to whoever holds an NFT on the blockchain.

We’ve legally tied control of the property to an NFT. If you want to sell me the house, we no longer need to transfer control of the property, we just exchange the NFT. Instead of using an escrow company, we can use an off the shelf smart contract which holds the escrow and automatically governs most common cases.

The escrow smart contract can defer any out-of-band disputes to a mutually agreed upon private arbitration entity. We’re not confined to local law, and can choose whatever private legal system we want from anywhere in the world. Simply point the smart contract at the arbitrator’s public address. Imagine being able to use Delaware Chancery Courts instead of a corrupt Louisiana rural parish.

When the property is an NFT, we can now borrow against it by directly accessing a global market of DeFi capital. No more paying the bank and mortgage services 1%+ of spread. Simply construct the mortgage as a smart contract, which controls ownership over the NFT. No more worrying about local judges interfering with foreclosures. Default on the mortgage is now a much simpler and faster eviction process since the homeowner is legally just a tenant of the DAO.

Those individual mortgage smart contracts can now be packaged and pooled, with the risk tranches in such a way to maximize capital efficiency. Again none of the massive frictions that existed n 2008, where foreclosures went slow as molasses because formal title and liens got lost in byzantine county clerks across the country. No fraud where banks and mortgage brokers stuff structured credit pools with crap. Every mortgage pool is instantly auditable but anyone using on-chain data. Foreclosures can be executed in real time and capital rebalanced instantly. That drastically reduces the risk of a cascading series of failures from a hidden pool of risk that we saw in 2008. It also allows for much higher leverage in the financial system, as margin calls can be made much faster and 24/7.

[Imnimo]

>No more worrying about local judges interfering with foreclosures.

What stops the judge from just saying "this smart contract is unenforceable, the NFT doesn't decide who owns the house"?

[dcolkitt]

Said judge would be overturning 50 years of American corporate law, which gives LLCs extremely wide leeway in determining their bylaws.

Could some two bit local judge try it? Sure, but it would ultimately get taken to the Supreme Court. And given the current composition of SCOTUS it’s very unlikely they’d vote to weaken corporate property rights.

If you’re worried about legally recognized LLC DAOs losing their rights to residential property, than you should also be worried about private equity firms who are buying residential SFHs also having their property appropriated. Seems like a pretty big long shot to me. This is America, property rights are pretty sacrosanct.

[Imnimo]

Sure, but if I'm worried about a "corrupt Louisiana rural parish", it doesn't seem like an NFT shields me much. I can get relief by taking my case to a higher court, but that's the same thing I can do with a regular mortgage. That corrupt judge isn't going to be like "oh, you have an NFT, my hands are tied" - if he wants to mistreat you, an entry in a distributed ledger isn't going to stop him.

[dcolkitt]

A judge is a lot more likely to twist the language in a legal contract than he is to outright appropriate property that's not even being legally transferred. The latter would be immediately reversed by an injunction in a higher court, and the lower judge would be remanded, possibly removed from office.

I can't find a single instance in American history of real property being outright appropriated by a court outside eminent domain.

[Imnimo]

But won't there also be a legal contract in the NFT case, defining who is allowed to live in the house, what their obligations are, and under what circumstances they can be evicted?

[dcolkitt]

No. There's only an LLC who's bylaws state that the managing member is whoever the holder of record on the blockchain is. Effective transfer of the property is affected purely in crypto space through transfer of the NFT, possibly within a smart contract.

(Of course the smart contract can be coded with the option to defer to a human arbitrator in the case of dispute, but that doesn't even have to be a duly appointed judge. It's just an address on the blockchain that we point to. Almost certainly we'd pick an arbitrator that respects crypto title.)

The only way for the fiat legal system to pierce this scheme is to either invalidate the LLC in the Wyoming court system or to directly appropriate title to the real property from the LLC in the local county. Both are pretty unlikely.

[HWR_14]

> it would ultimately get taken to the Supreme Court

If the SCOTUS takes your case. Which it doesn't do often.

[HWR_14]

This falls into the central conceit of crypto "I can avoid laws" I think you'll find that laws are harder than you think, and less forgiving of clever loopholes like this.

Frankly, I don't know why less regulation on most people's largest purchase is considered a good thing.

You also don't really understand the cost drivers. The escrow company should have cost maybe 1%. You didn't have to do that at all. You could have offered to skip escrow, given cash directly to the seller and recover from them if the contract goes sideways.

You also don't understand real estate law. >Default on the mortgage is now a much simpler and faster eviction process since the homeowner is legally just a tenant of the DAO.

It is easier to evict a foreclosee than a tenant in most jurisdictions.

> one of the massive frictions that existed n 2008, where foreclosures went slow as molasses because formal title and liens got lost in byzantine county clerks across the country.

2008 moved slowly for two main reasons. 1, politically, no one wanted to move fast. 2, the mortguages were all chopped up, sub contracted, etc, and it was unclear who had rights to forclose on the house because of teh mounds of subsequent obligations.