An interview with REX co-founder, Stephen King, on bringing the blockchain to real estate and recovering from a bungled ICO.
Tell us about Rex and what inspired it.
Russell and I met in November 2015 and were both heavily engaged in the Ethereum communities. I was trying to work on something in the commercial real estate sector, and he was working in the residential. We thought that Ethereum would be a great tool to reduce real estate transaction costs. However, it will probably take at least a couple of years for the infrastructure to mature. We came across another protocol called IPFS which we realized would change the way data was distributed. The IPFS protocol says this: There are millions of consumer laptops/computers in the world with unused storage and bandwidth. Let’s pool these resources together. We can pay users for unused storage while decentralizing the data. This will unravel the big data silos like google, Facebook, etc. An example would be if I send you an email using Gmail. Today, that email will go from my machine to Googles server then to your machine. IPFS says, lets have that email go directly from my machine to your machine (or the shortest possible route). By coupling that with Ethereum, we figured we can really bring costs down and open up real estate information on a global scale. By doing that, people can now have access to this information and build whatever they want. So we decided to kick things into gear in January 2016 and decentralize the way real estate information was being transmitted across the world.
We built out a proof of concept, which we presented at a conference in Newport and again at Shanghai. We met an angel investor there who gave us a small cash injection. We were able to take this data engine which we had built and begin to lay this application on top, which we call an MLS as it is analogous to what people know. That was all connected by June 2017 and we released the pre-alpha. We wanted to do that before the token sale so people could see the progress we had made.
What has the ICO experience been like?
Well, we got off to a rough start. We went out on Monday and had our token sale. Unfortunately, we realized about 21 minutes in, after we had raised about $1.33 million, that the money was going into a truncated address. Because we had to improvise on the way we launched the contracts, the address looked a lot like the address we used to store the funds on except for the last few digits. So that meant that those funds went into a dead address. We had put so much emphasis on not getting hacked that we didn’t pay enough attention to this small thing which cost us significantly.
We immediately launched a new address and continued to accrue funds. But the gravity of the situation became clear to us as we were not getting those funds out. We drained what little money we had on our business accounts, which we contributed. Also, because we had been in the Ethereum community for some time, we invested early and those returns were nice. We pulled the balance out of our personal accounts and made up the $1.33 million. We know the technology is going to work and so we see it as investing in ourselves.
Soon after we told the community what had happened, which we rightfully caught a lot of flak for. Over the next couple of days, we continued to get contributions. We also met with a number of major real estate groups, who were reacting much differently than the crypto community. They applauded us for our transparency and the way we handled things. One of our investors told us he had even more faith in us now and has since invested more. That was an odd twist of events but that worked out to our benefit.
We’re now up over $3 million in contributions. We’re recovering from that event and have about three weeks left with the token sale.
What was the benefit for Rex having an ICO?
The main benefit is that your future users are buying the tokens. Those that are going to use the products, assuming you’re selling a utility and not a security, are buying into you much like they would be buying into a Kickstarter campaign. The benefit for us was that we had a group of followers for the last 18 months who are in the real estate industry and deal with the many pains that REX can solve. It gave us the opportunity to allow them in. It also gives you a much wider audience. You can go to a venture fund or angel investor and get the funding in one place, which can be a good thing since there are fewer technical obstacles. However, with a token sale you’re raising from the entire world so you’re getting people from all over the place. We’ve gotten invaluable feedback through this process, including long emails about how things could be treated differently. If we had raised from Google Ventures, we’d have gotten a lot of advisors but those guys are quite busy.
Do the contributors get any rights with their tokens?
We modeled it on the Howey test and architected the token around that. There are no rights and that the tokens are solely a utility on the platform. They are used to access certain features, to help us scale by paying people to list, and can be used to exchange and trade data back and forth or to create profiles.
Tell us more about the product and how you’re solving the current pain points.
My dad is a developer and I had worked in the real estate industry for the last seven years. The biggest pain point for us was access to the data. It was costing us about $10,000 a year and we were only getting regional information. One of our missions is to unite all of the real estate databases around the world and lay a technical fabric on top of the blockchain so they could all communicate with each other. We had talked to major real estate firms, who have operations around the world, and whose databases have a difficult time communicating with each other. Our core mission was to create a decentralized database on how this could be connected. On top of that, we’re building an application that would allow for the individual broker or seller to upload their information. For doing so, they get REX rewards, the tokens. They use these tokens to either create profiles or to send them to an exchange and sell them for a fiat currency. For the firms, what we’re saying is the way that you operate your data today is you give it to a major portal provider so if someone comes to your website to search your listings, they’re looking at your data through your branded webpage. But on the backend it’s pulling that data from the portal provider. You’ve giving it away and that is your most valuable asset in our opinion.
On REX, we’ll give you the piece of hardware that’s the size of an iPhone. It will be preloaded with REX, IPFS and Ethereum node. All that means is that you’re going to have all your information on there and will be able to download any market in the world. If you want China, India, the Philippines, you can download it. You maintain control over your data and you can pull in whatever information you want on this system. You can’t do that on the current system.
Where we’d like to get to, once the technical infrastructure develops, is the transaction component, such as escrow services, tokenizing actual assets and leases. It’s the longer term goal but not our core focus right now. Our current focus is just uniting and assembling the database.
What is the incentive structure for contributing data?
For every listing a user uploads, they get 15 REX. They can use the REX to access certain features, or they can sell it on an exchange. We’re trying to scale by saying that nobody really owns this information, it is a global data pool. Whether you are a real estate broker or whether you’re simply someone in New York that knows the real estate market well, you can create certain applications on REX and monetize them. For example, let’s say you know the downtown New York office market really well and you’re coming across 10–15 deals that are going to close and go under contract. For our default feed, there is only so much crap that we can weed out. Real estate will always be a local business to some extent. But you know that office market really well so you start going through the open database and throw out the bad listings. You start to promote your feed. Since you’re doing a good job, word gets around and people start to subscribe to your feed. You now have a following of 10,000 users, to whom you can promote listings or advertise. And you’re compensated in REX. We don’t take a piece of that. We’re building out this decentralized ecosystem so the data is better for everybody. Those that contribute value are actually paid for the work that they put in.
How does the user verification system work?
It’ll be very hard to build a good reputation on REX, but when you do so, you’re not going to want to throw it away in order to game the listing contract. You’ll make more money doing good than bad. If you post a listing, it goes into a two-week arbitration process. During that time, anybody has access to these listings. Anybody in the world can flag the listing, at which point in goes into a second arbitration process where, at first, we’ll have to verify manually whether that listing exists or not. We’re looking into eventually pooling the wisdom of the crowd through prediction markets so we don’t have to do this manually. In order for someone to flag your listing, they’ll have to pay to do it and put a deposit down. If it is a real listing, the person that flagged it loses that money and you get your listing reward. If you flip the table, and you were trying to get the listing reward by uploading a piece of spam, and the guy that flagged you was legit, then it would be verified that you uploaded a spam listing. Your reputation goes down significantly, you lose the listing reward and the deposit you put down to upload the listing, and the guy that flagged you gets the reward.
What legal hurdles are you running into scaling the product?
One of the legal hurdles that we initially have is ensuring that the data actually belongs to the people that upload it. We have this system called ‘proof of approval’ where we will use a combination of technologies including machine learning to prevent people from dumping data from Zillow or other online resources into REX. The system will scrape it out right away because we respect their ownership of the information. So that has been one hurdle.
In terms of scaling, what has been difficult but where we are finding a solution is with the arbitration process. How do we scale that and tell which properties are legit and which aren’t? Initially we’re going to use human capital to do that (both internal and through bounty programs) but with a combination of techniques/technologies introduced through prediction markets we can decentralize these processes.
On the transaction side, every property that gets uploaded into REX gets its own unique hash. We figure that one day that will be a good genesis hash to be that property’s title. We’re getting the data so we might as well document it as an unverified genesis digital title. Eventually we believe municipalities will use the blockchain to document title. There you run into a lot of obstacles having to go to municipalities and every country is different. We’re staying away from that right now and we’re just focusing on a few specific cities in China, Australia and the United States.
Given the complexity of the title transfer process, how do you plan to integrate REX into that world?
We’re trying to build out an ecosystem for more applications. We’re talking to different companies and applications that could integrate with REX and sit on top of it. Any money that they generate we don’t touch. We’d direct our users, for example, to the bank that deals with crypto lending, or the title company that can facilitate the transaction.
How does REX serve the earlier stages in the transaction, such as negotiations, disclosures, inspections etc.
For those we’re just going to offer boilerplate architecture similar to how someone would checkout on Amazon. Everybody would be able to see the smart contract in real time and who has to do what. If there are changes you’d relaunch the new contract on the chain. We’re not sure how involved we’re going to get with that. We’re going to offer the architecture, the guidance and then work with individual attorneys, brokers and regulators with how to introduce this new technology in a way that would work for everybody.
We’re not experts in everything nor do we want to be. We just want to ignite the spark to open the door for innovation in real estate globally so that the transaction process is cheaper and more efficient for everybody.
Have you found receptivity to differ across the three markets?
We’re talking to one of the biggest brokerages in China. They actually reached out to us. They’re keen on the blockchain technology and see a lot of value in what we’re putting together. We’ve had similar feedback from Australia too. The United States was difficult at first, more so because people didn’t understand the technology. In the last 3–4 months, with Ethereum being in the spotlight, it has changed tremendously.