Review of the Propy ICO

As a guy within the PropTech industry, with a passion for crypto-currencies , when these two industries collide, I am super keen to find out more. That is what I did for the Propy ICO. Due on 25th July 2017 - http://tokensale.propy.com/

What is Propy?

According to their website they are a "Global Property Store with Decentralized Title Registry".

What does this mean?

A registry turned into a ledger that sits on the ethereum blockchain. The ledger plans to log and store property exchanges between individuals, companies and other entities.

Does this solve any existing problems?

Yes and no.

Creating a blockchain registry for properties, is ideal for speed of exchanges, allowing the ability to layer in other technology and if trusted, can become the defacto proof of ownership. Ideal if you want to buy anywhere in the world instantly.

The issue comes down to proof of ownership. As in most countries, transfer of title deeds is a government controlled process - https://en.wikipedia.org/wiki/Land_registration

The Slack Interview: The legality of title exchange on the blockchain

As a possible investor, or a very interested party, I decided to ask the team directly. Seeing that that ICO is only a week away. I am sure that they would be able to clarify the possible issues:

My first question, relates to, how a blockchain register and a government register can co-exist.

For example, I purchase a property via Propy, then it is listed on Propy blockchain that I own the property. But if the vendor does not update the local / national government registries, then legally, I do not own that property.

It comes down to users trusting the blockchain as the legal tie to a particular asset. The issue is that there is already a system in place that handles this and it is backed by actual legislation. I may be mistaken, but Propy is not backed by legal law, even if they adopt the regulations and standards.

The only way I see this working is:
Option 1: A country adopting Propy as the defacto way of registration of properties.
Option 2: Propy layered on top of existing registers.

Option 1

Currently a number of countries are looking to use the blockchain as a registry, but unfortunately, it does not appear to be Propy.

UK - Currently the Land Registry here, is looking to make property title exchanges faster, with possible use of a part centralised and decentralised system called Digital Street. Blockchain is one of the underlying technologies that will be trialed. But as I understand it will be proprietary technology.

Republic of Georgia and the firm Bitfury Group launched a project to register land titles via a private blockchain, but allows users to verify those title deeds using bitcoin’s blockchain, which is public.

Sweden plans to have a system in place by 2019, which operates on a private blockchain. But this system is more of a verification system, than full blown exchange of an asset. With each stage of the process recorded on the chain, but original documentation is still with the banks or Sweden's land registry authority - Lantmäteriet.

Russia still in very early days, the Russian initiative, plans to automate real-estate transactions. In particular for property management agents and transactions that relate to new build construction with shared equity schemes. The Russian project is being developed on an Ethereum Blockchain, but it is unknown if it will use the public chain or create fork of ethereum.

Africa where this type of technology matters most. With loose or no proof of ownership system, a blockchain registry would work well here. At the moment Bitland seemed to have captured this market, and unlike other industries, you cannot really have multiple registries within one location.

Option 2

The only way I see Propy working, is that they find a way to interact with each of these blockchains, basically layering on top or interacting via an API. So that any exchange is recorded on Propy but at the same time registered on the official government chain.

They need to make this as cheap as possible and allow other organisations to tie into the infrastructure, basically becoming the defacto method of interacting with property assets. Like an API, so developers only have one method of asset exchange, with Propy handling the many integrations to registry's across the globe.

The Slack Interview: The value of the token

Still bearing the aforementioned issues with the registry, what are the benefits to an investor.

What is really annoying to me these days, is the term Utility Token - in reality it is nothing more than a voucher. And I am afraid the same thing appears to be with Propy.

So in this case, the community manager basically stated there are no rewards for investors. I would be fine with this, they are honest and I do not have to invest.

Yet according to their website and the whitepaper released today -

There seems to be rewards, which is contrary to what I was advised. When putting this question across, I get tumbleweed as the response:

So what is the use of the Propy token?

It seems to be, as per their responses and white paper, that the token is used when changing anything on the associated blockchain. I.e Asset Transfer

Which should give it some value, as long as they solve the duel register issue. They do not say if this will be an exclusive method, or that other entities will be forced to purchased these tokens to transact on the platform.

Within the white paper: http://tokensale.propy.com/WhitepaperSummary.pdf it also mentions giving voting rights to token holders. It does not clarify what this is and again raises some questions. Like are they a DAO? and what can you really vote on? i.e improvements to site. Will they not just get this from user feedback?

35% of the tokens are going to be given for free, as an incentive for realtors and governments to trial the system. I have no opinion on this, but would like to hear feedback from the community, if you think this is a good use of investors resources?

Propy business model

Taken directly from the white paper:

Propy has a very simple and scalable business model. When a property is purchased, Propy takes a small percentage (starting from 0.2% and averaging 1%) of the final purchase price. Propy charges brokers per transaction. The payment is initially
processed in fiat and cryptocurrencies will be phased in for the jurisdictions where possible.

I like that they have fees, though they do not seem to share them with Investors and they seem quite high to break into the property advertising market.

The percentage fee, does not make it a cheaper system to use than regular systems, but does the inverse and increases costs of the purchase of the property.

For example, a UK estate agent, uses Propy to sell a property, and is charged 1% on completion. This at the moment is the existing charge to a Property Owner. So for a Estate agent to make the same income, they will end up charging the end user 2% or double the amount.

My personal conclusion

The business model, seems like two separate offerings. An Advertising platform and a Property Registry. The advertisement platform is released via the App Store, but in this industry, they literally have 100s of competitors, some already worth £billions and have cornered the existing market i.e Rightmove, Zoopla, Zillow, Realtor.com.au

These platforms do not charge a percentage fee, and are usually subscription based or pay in advance to advertise. With their fees ranging on average £20 ($32) per property, not £1000 ($1300) like Propy envisage.

The worst part

Propy is asking for $100 million investment to fund this model, without any strong incentive for investors.

If I was in their place, I would at least offer a dividend or percentage of profits. Basically it seems to me, that Propy are making up a need for a token, that effectively is just a Voucher.

And what compounds this further, is that the system of registry that they are proposing is not really thought though. Meaning that the voucher you get, may never become useful unless you want to advertise on a more expensive system like Propy.

The only thing I like about Propy, is that they are using Civic as some sort of verification on the platform. And they list large names and lots of experienced individuals, though this ICO, does not reflect this apart from fancy logos and profile pics.

Please note, this is my personal opinion and should not be taken as any investment advise. If you know more about Propy, please feel free to share, as I live and breath this industry and I would be very interested in all opinions.