Bustad Q&A

Author: Alf Gunnar Andersen, CEO in Horde

There is a saying amongst entrepreneurs and innovators, “A good idea is never enough”. No matter how exceptional the innovation is, you need to show stakeholders how your idea solves their problems and how you will make this solution tangible. Therefore, I really appreciate the opportunity to answer questions or respond to feedback we receive. Hopefully, it helps to clear up any misconceptions and can even flag unforeseen weaknesses that need to be addressed.

In his popular blog, Marius Hauken from Stacc posed several excellent questions about our latest venture, Bustad — the cryptocurrency backed by the Norwegian property market. Marius had read the white paper (available at Bustad.io) and had some follow-up questions which I have answered in this article below. Hopefully this further clarifies the project goals and clears up any misconceptions.

We are very much aware that this is an ambitious project. But as innovators and disrupters, that is what we do.

How Bustad works (click to enlarge)

A crucial question leading right into the age-old question for all two-sided platforms; “what came first, the chicken or the egg?”. Without people to mint Bustad tokens, there is no funding to buy homes. If Bustad does not own any homes, why would you buy/hold Bustad Coins?

Before answering the original question, I will first address another one “What happens if Bustad is not able to get additional funding to reach critical mass?”

Kickstarting the minting of Bustad Coin, and thus the funding, is the first significant hurdle for Bustad. To surpass this hurdle, we need support from investors who believe in the concept and see Bustad as a better option than other stablecoins. It should be as Bustad is backed by a tangible asset that has protection from inflation.

The risk for an investor is relatively low. If Bustad fails to reach the minimum funding threshold within a defined time frame, contingency measures will refund the investor’s stake. Early minters also get Eigar-tokens, providing voting rights that enable the owner to play an active role in the future development of Bustad.

Back to the original question, “How will Bustad continually fund property purchases.” Once Bustad reaches critical mass, it is expected that a percentage of people would want to repurchase their ownership. There are several reasons for this, which will be answered in a later question. People repurchasing Bustad’s stake in their property at a higher price will provide cash flow for new purchases.

That is not to say there won’t be a need for more investors minting Bustad. As Bustad is a two-sided platform, minters on one side and homeowners on the other, there are mechanisms (partly controlled by the Eigar tokens) that can choose to favor one side or the other. If there is a shortage of minters, Bustad can lower the minting price to attract more minters and increase the discount on the homes they invest in. If there are too many minters and not enough homeowners, the minting price can be raised and the discount for the homeowner reduced. Some of these mechanisms can be automatic, while others will be up to the Eigar tokens to decide. Nonetheless, reaching a critical mass is crucial for the ecosystem to work.

Bustad Coin is backed by co-owned properties. Eigar token provides voting rights at Bustad.

Bustad aims to be a currency hedged against inflation. Crypto/blockchain provides the ideal structure for building and scaling a platform accessible to global investors with built-in safeguards, security, and transparency. Once homes are purchased, they will be available on the blockchain for everyone to audit the value of Bustad Coins. Using cryptocurrency provides trust, ease of adoption, and low running costs for Bustad.

If an investor is looking for high returns in real estate, they should invest in a fund and not in Bustad. Real estate funds (and stocks) are highly leveraged and priced on estimated revenue (P/E), not the actual property value. Funds bring higher potential returns but also significantly higher risks. Bustad has no leverage and is priced on the market value of the portfolio of properties. Being a currency, it is also far easier to enter and exit than a fund that might have years until exit. The goal of Bustad would be to reflect the property market’s growth, while there are some mechanisms for reducing the downside. These are:

  • Properties are purchased at a discounted* market price.
  • The purchase price is the lowest threshold for the buyback price (downside protection)
  • There are fees in specific scenarios, like if the homeowner sells their share of the home without buying back from Bustad, which accrues to the value of Bustad.

* Discount means Bustad will value the house at market value but ask for a slightly larger share of ownership. For example, if you use Bustad to reduce NOK 500k from your debt, Bustad might ask for NOK 550k ownership in your home. This is your starting point for repurchasing the share.

Another important question. Even though Bustad offers a great deal for homeowners, it is crucial to create a balance so that a certain percentage of homeowners buy back from Bustad. Here are some examples of when that might occur.

  • The homeowner has done significant upgrades on their house and believes they will sell the house for a higher price than Bustad estimates as its value.
  • Homeowners have improved their finances and see their house as a safe place to put their savings (thus buying back)
  • Some homeowners might buy a tokenized house and do not want to co-own with Bustad.
  • There will also be fees if the homeowners need Bustad to do any administration (signing documents etc).
  • If needed, it is even possible for the Eigar token to choose to reduce the buyback price for homes owned over a certain amount of years, thus making it even more attractive to buy back the share.

The great thing about Bustad is that homeowners do not need to know anything about crypto or blockchains. Homeowners will only deal with Bustad Eiendom, a Norwegian legal company. Blockchain/crypto is an enabling technology behind the scenes, which is crucial to achieving mass adoption of the technology. As with the internet, we don’t need to think about or understand TCP/IP technology. It merely works to solve your needs.

Horde has a service level agreement with Bustad, providing them with technology. Horde also distributes the service to homeowners, leveraging our brand and close to 200k users. For this, Horde charges Bustad a fee for each tokenized property.

Yes, Bustad will be an operating company with its own employees. These will be responsible for case management and daily operations and have the final decision-making authority.

The running cost is relatively low once the initial transaction (buying the property) is completed. Given that Bustad reaches a certain size, the running cost will be more than covered by fees from homeowners.

The initial purchase brings the highest transaction cost. There are government fees (document fees, registration fees etc.) and other third-party costs. These are baked into the price offered by Bustad to the homeowner. Simply put, the cost is unlikely to be less than 5% of the transaction value. Bustad pays these fees, but in reality, the cost is covered by the homeowner, who parts with a slightly larger percentage of their property.

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