Show notes
Our guests this week are Trevor Bacon and Kellan Grenier, co-founders of Parcl. Parcl is a blockchain-native platform that allows users to trade real estate on Solana, democratizing access to the world's largest asset class. Parcl offers a unique architecture that enables users to make perpetual predictions on the median price per square foot of real estate in different markets across the US. Parcl also allows users to take long or short positions and provides a novel architecture that is purpose-built for low volatility assets without a liquid spot market. Show Notes:01:00 - Background / Origin Story04:33 - Why Solana? 06:20 - Who is Parcl built for?08:29 - How does Parcl work?10:59 - How can Parcl help more traditional real estate users?13:28 - Permission-less and composable14:50 - Spinning up a new market17:38 - Real estate royale.19:13 - What's next for Parcel?20:56 - A builder they admire in the Solana ecosystemFull Transcript:Brian Friel (00:00):Hey everyone, and welcome to The Zeitgeist, the show where we highlight the founders, developers, and designers who are pushing the web three space forward. I'm Brian Friel, developer relations at Phantom. I'm super excited to introduce our guest, Trevor Bacon and Kellan Grenier, the co-founders of Parcl. Parcl is a synthetic asset protocol built on Solana, that allows users to invest in a digital square foot of real estate in neighborhoods worldwide. Trevor and Kellan, welcome to the show.Trevor Bacon (00:33):Thanks for having us. Appreciate it.Kellan Grenier (00:35):Great to be here, Brian.Brian Friel (00:36):Super excited to talk to you guys today. I just checked out Parcl app, and seeing all the feeds across the US, New York, Brooklyn, all these really awesome areas where you can trade. I think it makes perfect sense with what Solana was built for, has totally [inaudible 00:00:51] NASDAQ at blockchain speed. Before we dive into everything about Parcl, I'd love to learn a little bit about you guys. Who are you guys, and what made you start Parcl?Trevor Bacon (01:00):Thanks, again, for having us, Brian. I'll start. I'll pass it to Kellan. So prior to starting Parcl, Kellan and I worked together at a hedge fund focused on technology equities, internet software payments, semiconductors. And during COVID, there was a lot of real estate volatility, and there was, really, no way to trade real estate like we were trading stocks. And so we started to look into ways in which we could do that. There were options, like fractionalized real estate, or tokenized real estate, but they're limited by scale, because you need capital to buy properties that are fractionalized, and you need time to close those deals.(01:36):So we took a different approach, which is a top-down approach. We have created indexes that track the price per square foot, based on public real estate information and real estate transactions, basically, listings and sales. Those go into a database, and outcomes... A price per square foot, or a market price for neighborhoods and cities across the country today, in the US. Over time, we are going to be expanding into international geographies. And so that price goes out to the blockchain, and traders can, long or short, see these, based on their view of various locations.Kellan Grenier (02:11):I'll quickly give my background, Trevor covered most of it, but... Traditional finance background, most recently, at a hedge fund, before that, at a Japanese bank, and then at a market research firm before that, always covering tech hardware. That's how I got indoctrinated into blockchain, was modeling, how many, GPUs... The networks we're going to consume. And then, around COVID, with all the real estate volatility, and volatility across all assets, and no way to express a trade, that's what led to Parcl. It seems so obvious. Missing from the structure of markets was a liquidity venue for residential real estate.Brian Friel (02:46):Yeah, I think, myself and many others can resonate with that, especially with the amount of capital involved to get involved with real estate as a young person. It's very prohibitive. Trevor, maybe starting with you guys, you mentioned that you were at a hedge fund before this. Had either of you guys interacted with crypto before this? And was crypto one of the first things that came to mind? Kellan, you just said, this was obvious in hindsight, but was crypto the first tool that you reached for, or did you actually attempt... To be able to trade this with other methods?Trevor Bacon (03:15):Yeah. As Kellan mentioned, he had been indoctrinating the crypto for about five years, I as well. When you're on Wall Street, and there's trends, the banks, typically, showcase the companies that are prevalent in those trends. So I got early access to the management teams of consensus, and Ripple, amongst others. That's how it worked, but that's... When I got introduced to blockchain, that was the 2017 timeframe. So we refer to ourselves as using blockchain rails. The primary collateral on the Parcl protocol is USDC. And so it's, basically, dollars versus real estate prices.(03:51):For us, blockchain introduces an efficient exchange layer, and a settlement layer, that is scalable, and you can create a product like ours, with relatively, substantially, less resources than you would a traditional centralized exchange. And so at the same time we were starting this, DeFi was becoming much more prevalent, on the heels of DeFi Summer, which led us to start to explore the various ways in which you can pull capital in a distributed fashion. For us, it made sense. I think that's the main point of technology, is to drive efficiency. And blockchain really does that, for our use case, in particular.Brian Friel (04:29):On that note, was there anything in particular about Solana... Bright start on Solana?Trevor Bacon (04:33):Yeah. The technology thesis on Solana, which, I think, still holds true today is, it's fast, it's cheap, it's scalable. And we viewed that as something that would persist into the future. And so that fit well in this model, especially for real estate, given... It has lower volatility, and therefore, a lower return profile. So at the time, there weren't many viable EVM scaling solutions in the market. So this was in summer of 2021, arbitrary and optimism weren't quite there yet. And so that's why we decided to go on Solana.Brian Friel (05:08):That's awesome.Kellan Grenier (05:09):One thing I want to add there is, real estate is lower volatility, and therefore, has a lower return profile, but we've ran and done all sorts of analysis. It's sharp ratio, which is a measure of risk adjusted returns, is through the roof, in any given year, especially over the past two decades, it's just blowing everything else away. And it's really interesting, because residential real estate is the only asset that the majority of the population... Nearly everyone has access to a 5X leverage, through a mortgage. That's the gate to participate in the market, but you need the down payment, still. That's a pretty big gate. So introduce Parcl, basically, create the exact same return profile, tracking these underlying price feeds, the prices in these markets that are transactions in real world homes, and offer that to the masses. It's a pretty powerful product.Brian Friel (05:53):Yeah, let's dig into that a little more. That's a really great point you raised, Kellan. You have this background on Wall Street, you know what pro traders are looking for, you talk about sharp ratios of how sophisticated investors are looking access to this. But really, at the end of the day, I would argue that it's the little guy, it's young people, probably a lot of people who are interested in crypto too, who just want access to these markets, don't have the capital. You guys have clearly built a lot, but is there a particular type of user that you guys are looking to serve at Parcl?Kellan Grenier (06:20):Yes and no. There's a curve in terms of who would be interested in using this product. And obviously, it's fairly blockchain native today, especially in how it's delivered. You have a Phantom wallet, you have assets on Solana's blockchain, you connect to the dApp, and you interact with a smart contract. So small pool of people, but growing, hopefully, growing a lot over the next couple of years. But over time, this is a product that can onboard millions, and hundreds of millions, and maybe, eventually, billions of people into this ecosystem, because it's such a compelling offering. Everyone has a relationship with real estate, everyone's off sides, either they're too long, if they own their home, or they're too underexposed, if they rent. I think that opens up the aperture to who the core user is, right? Today, it's blockchain-native folks that have an interest in trading anything, but many of them in trading real estate, specifically.(07:07):Over time, it's going to be, very, much more like a tailored offering for people that are seeking this exact exposure, that, maybe, this is the first time they've ever interacted with a blockchain. And I think that that is what has everyone so excited, whether it's folks on Solana's team... You mentioned that you just started digging in, and as... You pretty excited, Brian. So it's truly like a killer app, consumer app for blockchain. And then eventually, institutions will use it, right? Because there's no venue for liquidity, in any scale, in residential real estate, it's just... There's definitely no short-side or sell-side liquidity. All the liquidity is long, and it takes forever, and high barriers to entry. So if you play that all out, there's a very large group of users in capital that is interacting with this product.Brian Friel (07:50):That's great. Yeah, let's go through that user journey there. You mentioned... Someone shows up for the first time, they have a Phantom wallet, maybe they're a longtime crypto user, and they're excited to participate in their first form of real estate, or maybe, this is, really, just a means to an end, they get a Phantom wallet just to purely go through this. What are some of the particular intricacies of the Parcl model? So you mentioned, this is a lot different from REITs, or fractional ownership. When a user connects a wallet, and they hit "Buy," and say they want to purchase real estate, essentially, in New York, or in the Brooklyn area, they think that area is going up, what are the terms of that purchase? What does the liquidity look like there? What do they need to know after they've decided to hit "Buy?"Kellan Grenier (08:29):It's a perpetual prediction, Brian. So these pools, every day, the prices update. And the price that you are trading is the median price per square foot in... I'll use New York as an example. What does that composed of? All five boroughs, every transaction, every sale that hits the county records, and then all listings, which represent the asking price, and that... All converges on this median, which is meant to be the market price. Every day, that price updates. There's a new price based on all the transactions that happened yesterday, and over the trailing couple weeks. And now, you have a new price. What you've noticed is that real estate, actually, moves on a daily basis, and perhaps, even hour by hour. An agent closes a home, they tell their other agent, now there's a new market price. So when people go to trade, that's what they're trading. And they're effectively making a perpetual prediction.(09:16):I believe I'm getting long New York at 600 and whatever dollars. And maybe I put in exactly 600, and whatever USDC. So now, I own one square foot of New York. And I can leave that open as long as I want. I could close it tomorrow, I could close it in a week. I'm effectively trading, investing, betting, however you want to define it, that that price will rise. On the other side, there's someone taking the other side of that. There's someone that's short. And what we found is that these markets, over time, generally, balance out. There's people that have different views on real estate. Sometimes, they tilt very long, and others, they tilt short. Everyone's short San Francisco right now, and it's tilted fairly short since this product launch.Brian Friel (09:53):I need to sign up for Parcl now, as I'm recording this from San Francisco. You guys are the ones in New York.Kellan Grenier (09:59):And Boston and Chicago, which have performed really well over the past couple months, are the two most long right now. And then, the rest of the markets are fairly balanced, but that can change overnight. The market reacts pretty quickly to changes in price, and changes in sentiment and news, and whatnot. So it's a really cool product. And in the simplest terms, you are effectively predicting that price will either rise or fall, and placing your wager accordingly.Brian Friel (10:23):That's an awesome picture you paint. And yeah, to that point, I'm going to need to load up my wallet here, and protect myself a little bit, from being in San Francisco. But you mentioned the idea of, prices are updating on a 24-hour basis here. Part of Solana's key advantages are that... It actually allows a product like this to exist, but there's another type of user that you alluded to a little bit prior, someone who's, maybe, already long real estate in the form of a big mortgage, and they're afraid that, maybe, they bid off a little more than they can chew, and they lever it up on a place in SF, before the tech crash, and they want to protect that. How can Parcl help a user like that?Trevor Bacon (10:58):That's a great question. I forgot the one other reason why we chose Solana with the wallet infrastructure. So shout out to Phantom, the plug, but it's actually true. What Parcl offers is native short exposure, if one so chooses. And today, there really aren't many ways in which... The short specific geographies. REITs are a common example of a real estate investment. However, REITs are usually types of assets spread across the country, think of data centers or apartment buildings. There's no geographic specificity. And so what Parcl offers is the ability for people to have specific geographies that they'd like to invest in, long or short. And therefore, you can make much more targeted investments, either for or against.Kellan Grenier (11:43):I would just add, this is so composable, and it's in the eye of the beholder, what this product can do. If you own a home, like we said earlier, and you just said, Brian, you're way overweight real estate, as a percentage of your net assets, most likely, and you have a big mortgage, it's your largest asset, it also is your largest liability. What if you wanted to hedge? How would you do that? You really cannot. There's really no way to do that without touching your loan structure, and that wouldn't be a perfect hedge anyway. So this is a product where you can get that short exposure whenever you feel like... You're offsides more than you want to be, you can come to this product, assuming you're eligible to use it, connect your wallet, place that short bet, lock in your paper gains, or protect yourself on the downside.(12:25):We talk to a lot of people, and they hear that, and they say, "Well, isn't this also like a synthetic insurance?" Say that there's a hurricane bearing down on Miami, no insurer would write you a policy in that situation. You could…
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