LVC Tokenisation

LVC Tokenisation Requests For Comments

Follow this link if you would like to contribute to the RFC on Location Value Covenant tokenisation. By all means comment and ask for an opportunity to share your part in the development of this idea.

Our goal is to create a stablecoin, backed by the value of the locations, of a particular administrative domain, typically a sovereign nation. So the opportunity and the stakes are high. 

The intent of the tokenisation at the root is to find a digital asset which is truly stable so that is may be used reliably and confidently by citizens and the authorities they elect, as a currency with all the super normal beneficial features we expect from a digital asset. So we look to the most stable asset of any nation - its locations, in the form of annual rental value, rentals or rent. (but not selling price which is an unstable speculative derivative of that)

We are working to get this idea onto the roadmap of the Treasury Select Committee within the Parliament of the United Kingdom. The remit of the committee is to examine the expenditure, administration and policy of HM Treasury, with all of its agencies and associated bodies, including HM Revenue and Customs, the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority, the Royal Mint, and so on.

The Treasury has expressed a strong interest in tokenization via CBDC's and so on. But its still lacking the confidence it needs to proceed further until it can be convinced about the risk associated with the privacy and stability of such a system. Its our view the Treasury has not been very well advised here, because the original blockchain protocol dealt with this all perfectly adequately. Until the protocol itself was usurped by a special interest group who wanted to promote it as a speculative financial instrument without utility instead. 

The challenge here is that a powerful narrative has developed around these crypto assets which denies the original protocol ever existed and for very good reason - it needs to survive and to keep prices artificially high and unstable. And has an ultra strong and loyal following of speculators, most of whom are not even aware of this, particularly the experts. This isn't to be critical of this narrative support group. It is to point at it in a way that helps law makers make more fruitful decisions.

Please contact Robin Smith if you would like more direct access to RFC contributions.

The Goal of Tokenisation

LVC Tokenisation

TL;DR - making a more liquid market for homeowners, while allowing enough government control of fraud, with greater transaction completion speed, and opening up retail opportunity for mortgage assets. While being fully voluntary, not destroying banking, rescuing economies from large scale defaults and being politically acceptable.

Adding to this we expect it to be a boon for first time buyers, those struggling to get into the property market and even investors involved in price discovery. A knock on feature would be the ability to use the token as a CBDC due to its inherently stable nature. But most especially as a powerful tool for government action during a serious structural financial crisis where home owners, banks and the government itself are historically unable to find a remedy as the crisis plays out so rapidly and uncontrollably.

LVC splits a mortgage(or more accurately the underlying annual rental value of a location) into 3 or more asset ownerships

Simple case is 1) bank, 2) homeowner and 3) taxing authority 

This could be tokenised on chain to open up an innovative feature set. The tokens could have a lifetime if desired through a kind of zero coupon bond issuance, where the tokens are burnt(bought back) on redemption of the bond at the end of its lifetime. Or they could be permanently issued. Or a bit of both. that is a matter for the Treasury and politics to decide.

Creating a new market with additional innovative features, it could be split even further by creating a pool of tokens.

The innovation in Tokenisation is well understood by several significant features. See elsewhere for detail.

Financial authorities already like Tokenisation, seeing it as fundamentally different to retail crypto which has largely failed due to scams and so on. They have broken away from the crypto narrative already so little resistance is expected from law makers. But they still do not have enough confidence to proceed quickly toward adoption, the crypto narrative still being so strong and capturing many expert advisors still. 

The LVC as a financial instrument in itself is particularly performant during financial crises where banking and homeowners have been rendered temporarily insolvent. And the people have lost confidence in government's ability to act decisively, accurately and with certianty.

The pool of tokens could be further divided into investor owners, who finance a portion of the mortgage they want to take the risk on and which needs redeeming through the LVC. 

There is no real limit to this subdivision and the market will bring it all out in the wash. In the form of the scale of tokens typically required per covenant.

And there would be no rules on the extent of token ownership. Maybe this would develop within jurisdictions. So any of the 3 party's could own as much as there was available to buy in that time and place.

Derivatives might emerge around them like any similar asset.