DAOs Make Better Landlords and Jerry Chu is Here to Prove It

Jerry Chu argues that human beings are predominantly good.

He witnessed how decentralized autonomous organizations (DAOs) can be more benevolent and generous landlords than individuals, much kinder than large corporations and more humane than corporations and venture capital funds. 

Chu is the founder of Lofty, a Y-combinator startup that tokenizes real estate. In 2021, the State of Wyoming recognized DAOs as limited liability companies and legal entities.  On Lofty, every property is owned by a DAO LLC, and users can buy tokens representing shares in the company. The owners collect rent proportional to their token shares and vote on proposals for managing the properties. 

At one property, a tenant was hit by Covid and couldn’t work and was two weeks late on her rent.

“In many cases, a big landlord or a corporation would have just evicted her,” Chu said to me recently. “But do you know what? The DAO gave her a two-month extension to her bill to recover from Covid and go back to work.”

In a different incident, a tenant lost $300 worth of groceries because the electricity went out and the fridge stopped working. The DAO stepped in and compensated her for the spoiled food. 

“Believe it or not,  we have an option for people to donate their rent income to affordable housing. Some investors don't take any of their income,” he said. 

Lofty has tokenized more than 130 properties so far and processed $31 million in transactional volume on the platform.

Chu is, of course, aware that his business is not primarily a charity. 

“Real estate is one of the best asset classes in the world for the creation and maintenance of wealth over generations, not just in the U.S., but everywhere,” he said. 

He believes his blockchain model is key to opening the doors for creating this generational wealth for millions. 

Pivoting to Blockchain 

Chu is a self-taught coder with a background in data analysis and banking. He is also an avid reader who spends most of his free time with books. This is how he learned about blockchain technology early on. He bought Bitcoin for $100 and Ether at $18. 

“I always knew it would be useful in the future, but I did not quite know what it was,” he said. 

Chu established Lofty in 2018. It was initially an artificial intelligence company that analyzed public information to inform investors where to buy properties that will increase in value. The problem? The product did not sell. 

“Every customer would ask us why we should invest in one neighborhood rather than a different one,” Chu said. 

In many cases, Chu wouldn't know how to answer that question. The neural network analyzed millions of data points to reach its conclusion. For example, it could notice an increase in pictures of French Bulldogs on social media in a specific neighborhood. Given that it is an expensive breed, the software would conclude that more affluent families are moving in which will push up property values. But it is never clear cut, nor can anyone know exactly how the mind of the AI worked- including its creator. 

“We looked at the business model and then said, ‘this is one of the use cases where blockchain could be beneficial in many ways,” he said. 

Creating a Model 

Chu looked at real estate investment and identified what people loved and hated about it. 

Real estate is expensive and many people can't afford it. The paperwork can be a nightmare and can take up to two months or longer to close on a deal. More important it’s an illiquid investment. People can be reluctant to lock their life savings in one asset. 

“With blockchain, we solved all three,” he said. 

Some properties featured on Lofty

Tokens are usually around $50 each, allowing users to invest in one or more properties with very little. They can buy and sell their tokens on Lofty’s platform anytime and withdraw their earnings in crypto or dollars. The platform is built upon the Algorand blockchain, which minimizes transactional fees. 

All information on the properties – including logistical issues, needed fixes, and legal documents – are available on the website. Chu believes this discourages speculation in the token price in liu of the real asset value of the real estate.  

Lofty makes money from listing and transaction fees and does not own any of the properties listed on the market to avoid a conflict of interest. It also puts a cap on how much one holder can buy in one property, so no single investor can hijack a DAO. 

A Tokenized Future 

Other traditional financial instruments also offer diversification into real estate. There are real estate exchange-traded funds and real estate investment trusts. 

Chu argues however that the tokenization model is better for people and communities. He said that REITs may be suitable for passive investors and require a lot of trust in property managers.  

“But there is a psychological aspect to real estate investment,” said Chu. People take pride in owning a property and contributing to its management. 

He argues that the social effect of this model is already apparent. 

“Institutional investors do not like to invest in affordable housing,” said Chu. There are limits on rent increases and the possibility of late rent. Smaller investors, on the other hand, may look at these properties as bonds backed by the government, as it may step in with financial assistance to tenants. 

“This was not our intention or focus, we are just a marketplace, and our focus is on the tokenization and housing,” Chu said. Still, once affordable housing was listed and bought on Lofty, more developers became interested in building affordable housing, he said. 

Tenants may also buy tokens in the property they live in and work towards ownership of the property. 

Chu I believes that if Lofty grows, it will lead to lower rents, increased home ownership, and more affordable houses everywhere. His motives are not merely altruistic, he said, but he is driven by a desire to secure the future of his family. 

“When you have a society with a huge divide between rich and poor people, there's typically more crime there, more corruption,“ he said. He believes Lofty can help in its small way to ensure his children are brought up in a more just society. 

 “I may not be able to be a politician or a president,” he said, “but I am good with technology and code.”