Loan Farming
Terra Land provides additional utility to traditional real estate by facilitating Loan Farming through collateralisation of Real Property Tokens (RPT).
What does the Loan Farming process looks like?
Before Real Property Token holders can engage in Loan Farming, they first need majority (>51%) votes in favour of releasing the property’s equity, after which the capital release process begins. In simple terms, the special purpose vehicle finds a financial institution or other fund provider to supply a cash reserve for the loan, using the property as collateral.
The funds are deposited directly into the smart contract in TerraUSD (UST). Token holders are then able to deposit their Real Property Tokens as collateral into said smart contract, in turn receiving a loan in UST equal to the LTV percentage of the RPTs deposited. The loan, which starts at an interest rate of 10%, and goes down to a low 6% depending on the amount of TLANDs staked, can be then used for example in Anchor Protocol or any other financial instrument that maximises yield for the investor.
Additionally, even though the users property-tokens are locked into the smart contract until the loan is repaid in full, the benefits of owning RPTs remains. This is something that truly differentiates us from all other protocols, users do not lose out on the yield the asset provides, while it is used as a collateral. Property yield will continue to be deposited to the RPT holder. Additionally loan farmers will be rewarded on their participation, by receiving up to 50% of that loan in TLANDs. It is important to note that the value of the collateral will be fixed throughout the whole loan duration.
As far as we are aware, this is the only protocol on Terra that is able to guarantee that the underlying security will not change in its worth. This means liquidation due to a change in collateral value is impossible. The loan is not repaid in rates, rather once in a lump sum payment at the end of the period, or whenever the user would like to close their position. Loan farmer’s returns will increase as the loan is allowed to work longer, rewards in TLANDs are also increased, as the loan amount does not have to be repaid periodically.
Once the user has decided what, when, how much, they go through the process of setting the loan parameters on our website, deposit RPTs and TLANDs and in return receive their loan in UST. As within the true nature of DeFi, loan farmers are allowed to do what they would like with their funds, here are some example use cases for their new-found capital:
Purchase another property - Use the loan farm funds to purchase another property. This is a great way to both diversify your property portfolio for an almost riskless safe return, and to increase your exposition on the general property market. You could continue this strategy, and one day purchase your own summer home.
The Lending Protocol - Deposit the loan funds into a lending protocol that provides a reasonably stable yield for the deposit. Such an example would be Anchor Protocol, providing around a 20% incentive for staked deposits.
Derivatives Protocol - For those that want to be very specific with their money and truly expose themselves to specific market trends, protocols such as Prism provide amazing derivative tools that allow them to do just that.
Summarising, in true DeFi spirit, loan farmers are able to utilise their loan in any fashion they see fit, invest it, deposit it, or spend it.
To help you visualise and understand how the whole Loan Farming process looks like we have prepared the infographic and a short explanation of the process.
Purchase Property
Start off by purchasing Real Property Tokens (RPTs) for the real estate you will want to use for the Loan Farm. Check the relevant LTV (percentage of RPT value that will turn into your loan in $UST). You are able to purchase RPT’s through fundraising or in the secondary market.
Governance
The power to vote lies with the property-token holders. It is up to the owners to decide whether to take out a loan against the property or not. 51% is the number to aim for here. RPT’s traded on the secondary market may already have the underlying property asset involved in a loan (ie. Loan Farming is already available).
Start off by using the calculator to get an idea of how much you want to invest, and how much return you can expect. Here you will find how many Real Property Tokens (RPTs) and TLANDs you will require. This will slightly depend on what tier you would like to use, as the $TLAND requirement is different for each. Make sure you have the required Real Property Tokens (RPTs) and TLANDs in your wallet. We suggest having slightly more TLANDs than necessary, as the price of TLAND changes continuously. You will also need some UST to cover transaction costs.
Take out loan
Go to the loan farming tab on our website, make sure you are logged-in and have your wallet connected, and select the relevant property you want to collateralise and get a loan on. Select how many RPTs you would like to lock-in, select your tier, and then ensure you have the amount of TLANDs it will require. Once everything checks out, take out the loan!
Invest
Once the loan is taken out and the relevant smart contract has finished its process, you will find your loan (in $UST) in your wallet. Use these funds to your liking.
For example: Deposit your loan funds into Anchor EARN at around 19% APY (at the time of writing)
Deposited Funds Cooking-Up
While your loan is working, your RPTs and TLANDs in the smart contract are hard at work too! Real Property Tokens are still earning your Net Rent Income. You are also earning staking rewards on the loan amount (up to 50% at tier 3). Watch your loan interest grow at a low rate of 6% from the loan amount (at tier 3). Still, this amount is heavily outweighed by the reward alone!
[Quick maths quiz: 50% reward — 6% interest = ?]
Repay loan
Your patience has been rewarded, you earned on your loan (estimated return), you earned for taking a loan (reward), and you earned for owning property tokens (property yield). Now is the time to repay your loan. Go to the loan farming tab on our platform and go to “repay loan.” Repay the prompted amount in $UST and that’s that! The smart contract, once it has finished processing your request, will unlock your Real Property Tokens and $TLAND tokens and release them to your wallet.
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