Balcony DAO co-founder: There are clear rules, people in Crypto just don’t like them
by Arthur · October 4, 2022
A common refrain in the blockchain industry is that regulators do not provide clear guidelines or useful regulatory frameworks for digital assets. John Belitsky, one of the founders of real estate DAO Balcony DAO, disagrees.
“There are regulations in place to do this,” Belitsky said Decrypt at Chainlink SmartCon. “Private placement offerings exist, Regulation D and CF offerings exist. You follow the protocols that are already laid out for you, and you can release those tokens in a compliant way.”
A DAO, or Decentralized Autonomous Organization, is an organizational structure in which control is dispersed rather than hierarchical. DAOs use smart contracts on a blockchain, with participants using governance tokens to vote on proposed actions.
Founded in October 2021, Balcony DAO is a Web3 real estate-focused outfit that aims to bring real estate investment on-chain.
“We are not a DAO in the traditional sense,” notes Belitsky. “A traditional decentralized autonomous organization cannot exist with regulated securities.”
Belitsky pointed to the anonymous nature of DAOs, where members are not required to reveal their identities in order to have a say in the organization. It is a non-starter under existing law.
“I hate to burst everyone’s bubble, but real estate is a centralized asset class,” says Belitsky. “It lives in one place. It will never be decentralized.”
According to the Securities and Exchange Commission, any offer or sale of a security must be registered with the SEC. Rule D provides several exemptions from the registration requirements, so that certain companies can offer and sell their securities without having to register the offer with the agency.
Regulation CF covers crowdfunding and requires all transactions to take place online through an SEC-registered intermediary. The CF also requires disclosure of information in filings with the SEC, investors and the intermediary facilitating the offering. A company is allowed to raise a maximum aggregate amount of $5 million through crowdfunding offerings annually.
Despite the centralized component, Belitsky says the DAO model can still be applied to real estate.
“There are two places for DAOs to exist in real estate,” he explains. “The first is at the asset level, and the second is the community.”
For example, says Belitsky, if a group buys a building, that building is now a special purpose vehicle (SPV) – effectively becoming a DAO. Special vehicles are used to buy and rent properties in real estate and property investment.
Belitsky explains that these SPV-DAOs can then vote on decisions such as how often the returns are distributed or whether the DAO will reposition the asset as a hotel.
Belitsky objected to the direct comparison of what Balcony DAO is doing to a co-op, saying that a co-op is a corporation, and investors can hold shares, but they don’t hold onto the property itself.
“Maybe the SEC hates crypto, but they don’t hate private placements,” he said. “They gave it to us.”
Belitsky says the idea of not having to deal with Know Your Customer and Anti-Money Laundering policies may be a crypto-anarchist dream, but it will never happen in real estate.
Belitsky attributes the continued claim that there are no clear rules to laziness and not wanting to spend the money or take the time to follow the rules.
“They don’t want to jump through hoops, and they don’t want to wait,” he said.
