California and New York residents will have access to Ethereum-powered mortgages by the end of this summer, says fintech startup Fluidity.
“We’ll tokenize the house, which will effectively take the collateral that is the equity of the house,” said Todd Lippiatt, Fluidity’s chief architect. “You’re pledging the house and you get an advanced rate back in terms of dollars.”
Fluidity’s upcoming Ethereum-powered mortgages will be using smart contracts and cryptocurrency for back-end management. The company is currently in the process of exploring partnerships with other platforms focused on Ethereum such as MakerDAO’s dollar-pegged DAI stablecoin loans.
According to Lippiatt, mortgages from the prospective partnerships Fluidity is looking into will only involve a mitigatable level of risk. This will reportedly be because neither the borrower nor property seller will directly come in contact with cryptocurrency.
“We will deal with the inner workings of the decentralized system,” he said. “The borrowers pay back in dollars and we will also be managing the risk profile of the underlying securities.”
Fluidity’s mortgage service will still involve online credit checks and other data required by online loan platforms, making it more like a quasi-traditional mortgage from a borrower’s perspective.
The company will only process the information and create a smart contract containing a tokenized representation of the mortgage and provide theoretically auditable records, hence issuers and subsequent traders will be ones to gain the most from the system.
Lippiatt also noted the possibility of synergy between Fluidity and subsidiary AirSwap, as these loans could be packaged together and resold as securities through exchanges such as the latter.
Lower loan rates, better pricing
He further added that underbanked and low-income borrowers with the ability to repay loans will be prime opportunities for the company’s Ethereum-backed mortgage as it will reportedly offer cheaper rates than banks.
“The whole portfolio will be a composition of a bunch of different loans,” he said. “We’re looking at methodologies by which we can deploy [underwriting] more algorithmically.”
“Our methodology provides better pricing that is determined solely by the intrinsic credit of the transaction, as opposed to external factors like domestic central bank governance policies and political trade winds,” he added.
Fluidity rose in early 2019 from a merger between the ConsenSys decentralized exchange (DEX) and the FINRA-registered broker-dealer Propellr.
Fluidity co-founder Sam Tabar explained that Fluidity subsidiary AirSwap counts ConsenSys founder Joe Lubin as a major stakeholder, Fluidity itself has a separate set of shareholders.