Using a smart contract, with no ID, email or customer information required. From Moneyweb.
Richard de Sousa founded crypto exchange AltCoin Trader in 2015 and has been a pioneer in bringing crypto to the broader South African market.
He lives, eats and breathes crypto. He decided to start exiting the traditional financial system several years ago – going off the grid, if you will, though says he still has several trusts and bank accounts.
He started buying bitcoin when it was $6 (around R91); today it is close to $20 000 (R303 805).
When bitcoin reached R10 000, he figured it was a good time to convert some of his gains to property.
He purchased a R4.3 million property for 420 bitcoin, which at today’s valuations is close to R128 million. He sold more than 90% of his bitcoin – something he regrets to this day.
“We all made mistakes when it came to crypto. When bitcoin hit R10 000 I thought I had done well out of it and I wasn’t sure where it would go next, so I decided to pour some of my profits into property. In retrospect it was a mistake, but I’m okay with it.”
A story to shake the banks
De Sousa has another story to tell that should have the banks very worried indeed.
He recently spotted another property for sale on the West Rand with an asking price of R650 000.
He jumped onto the Oasis.app website, which offers crypto-based financial services, including loans.
He decided to borrow the money for this house using his Ethereum crypto coins as collateral.
He then applied for a loan from Oasis, without having to go through the Know Your Customer (KYC) routine, nor did he have to provide an ID or an email address.
Here’s where it gets interesting: there are no monthly repayments.
In fact, you can choose to defer any payments for 20 years, or 40 years, if you so wish. When De Sousa took out the loan, the interest was 0%. Today it is 2%.
This is a mortgage lending model that could smash the banks’ hold on this market over the next few years.
He goes over the loan process in this Youtube video:
De Sousa’s loan was based on a smart contract, which is a type of contract linked to the blockchain, where certain conditions must be fulfilled before the collateral is called in. In this case, he had to provide roughly R1 million Ethereum as collateral to cover a loan valued at R650 000 to buy the property.
Should the Ethereum price drop below R650 000, the “smart contract” would automatically liquidate his Ethereum, deduct a 13% liquidation fee (or penalty) plus the loan amount, and refund him the balance.
It took De Sousa less than 10 minutes to apply for the loan and place his collateral in the form of Ethereum coins into a vault at Oasis. He retained custody of the coins for the duration of the loan. Only the smart contract had the right to call on his collateral, and only under the conditions outlined earlier.
He wrote to the home seller’s attorneys and told them he would make full payment in cash into their trust account within seven days. “I gave myself seven days to do this, but in reality I only needed a couple of days.”
The loan for R650 000 was made in a crypto currency called Dai, which is backed 1:1 by the US dollar. He moved the Dai to the AltCoin Trader platform, sold it for rands (and made an extra 4-5% on this leg of the transaction because US dollar-linked cryptos typically sell for a higher price in SA due to local exchange controls, making it more expensive to acquire hard currencies).
With the Dai now converted into rands, Da Sousa transferred R650 000 to the house seller’s attorneys, and the deal was concluded.
The seller had no idea of the novel funding structure that took place in the background.
At this point, De Sousa was under no obligation to make monthly instalments on the loan.
He could ignore this for the next 20 years, or longer – the only risk he faced was that Ethereum’s price would drop below 66% of his collateral requirement, at which point his crypto would be liquidated under the terms of the smart contract.
One way to avoid your collateral being compromised in this way is to top it up with more Ethereum should there be a severe price drop.
De Sousa was under no obligations to make any monthly repayments on the loan, so he left it for several months. Seven months later, the Ethereum price had gone up three times, so he was now sitting with R3 million in collateral instead of the original R1 million.
At this point he decided to settle the loan in full. In effect, he paid about one third (or R200 000) of the house’s asking price by simply waiting for his Ethereum to increase in value. The house is now tenanted and earns a monthly income.
“I did all of this completely outside of the banking system, which is fraught with risks,” he says.
“You miss two payments under a mortgage contract and the banks have their lawyers all over you. This way I avoided the banks altogether, and that makes me extremely happy.”
It’s the ability to take out loans like this that should encourage mass adoption of cryptos. Smart contracts are backed by cryptos such as bitcoin and Ethereum. Rands and US dollars (unless in the form of Dai or any other so-called ‘stable coin’ backed by actual fiat currencies) won’t get you far in this world.
You have to exit the matrix and enter the crypto universe. Then all sorts of possibilities appear, says De Sousa.