Blockchain software for the construction industry?
Homebuilders use smartphones, too.
At Rigor, we salute the pioneers bringing crypto and blockchain technology to solve mainstream, real world challenges and we’re enthusiastically joining them!
Good software should show up and solve problems, and homebuilders have big problems needing solutions if we’re going to increase needed output.
We think two problems in particular are the most urgent: first, if you’re among the nearly half a million SMB homebuilders responsible for 75% of home constructed in the U.S., it’s hard to get loans. Getting “onesie-twosies” are hard enough, but scaling your business is a real challenge.
Second, because most construction loans are paid out by specialty banks in chunks only after work has been done and payment owed, builders are always behind payments to their supply chains unless they find ways to… finance their financing. This means contractors and vendors wait an average of 80 days to be paid for their work, which upends productivity.
This is how the system is designed to work.
Construction lending and payments administration today is a case study in choke points.
SMB homebuilders tell us that they spend upwards of half their time applying for loans and are successful a fraction of the time. Then, they must finance their operations while waiting for loan distributions.
Construction lending and payments administration today is a case study in choke points. Opaque, uncoordinated, unaccountable money flows require banks to resort to a system of sluggish, manual checks that choke progress. How capital flows through construction projects are among the root causes of long-standing inefficiencies, vendor turnover, project delay, a culture of mistrust and low output.
And from a lending perspective, this all screams: risk!
Rigor offers lenders and builders a new, transparent system for lending and payments. It brings lenders and builders together to do business, simplifies payment administration between them, and assures that funds can only flow as they agree — in the right amounts, to the right projects, at the right time, directly to the right parties.
By offering this functionality, Rigor lowers the barriers to lending into the category, opening up construction finance and the returns it offers to the rapidly growing decentralized finance (“DeFi”) ecosystem. Through DeFi, lenders of all stripes are welcome to help meet historic demand for vital infrastructure; they no longer need to be “specialists” in construction lending, nor are they restricted to lend locally. With the universe of lenders expanded, builders are able to access the public’s willingness to finance infrastructure the public needs to live and thrive, expanding their opportunity to meet historic global demand.
And it’s all accessible in homebuilders’ pockets.
Meanwhile, construction professionals today have abundant software options. They promise to make more efficient the inefficient processes that have lorded over construction lending for decades. We bucket them into two (broad!) categories: workflow software and financial software.
Attacking workflow issues, builders may adopt scheduling and workflow solutions, those that digitize paperwork and those that automate complex legal processes (like lien waivers). Other software focuses on financial efficiencies: improving cashflow, financing construction materials, electronic invoicing, electronic payment delivery, and easing access to working capital.
When we surveyed this landscape (here’s a good reference), we couldn’t stop seeing the blank space in the middle—where were solutions that took seriously the coordination problems between work and money? The trust issues between lender and borrower that result in payment dynamics unlike any other loan type?
Instead of offering solutions for problems generated by an outdated lending system, what if we started at the source? Could we introduce trust, coordination and transparency that enabled finance to move at the speed of construction?
The pandemic helped…to accelerate technology adoption among construction professionals. As discussed in a recent McKinsey report, COVID-19 has urged many construction players to use technology to boost productivity. Relatedly, Openspace AI’s recent survey on the rise of technology adoption on construction sites finds that construction technology adoption has risen rapidly over the last couple of years during the COVID-19 pandemic. The expectation is that there will be a net acceleration in the use of technology to transform the industry from highly complex and fragmented to more standardized, consolidated and integrated. The McKinsey research goes on to note that although the vast majority of construction industry payments are made by paper check, offerings that increase technology penetration in the payments space — particularly in the SMB market — will become increasingly critical to enable the full digitization of the construction industry value chain…and will enable broader data visibility to free up working capital for construction professionals. Rigor is tackling this space head-on.
Rigor is building its tools on state-of-the-art blockchain infrastructure and it’s understandable that this can raise questions about adoption and ecosystem maturity. But back to the top: good software should show up and solve problems easily. It shouldn’t torture users with confusing process and unique requirements. Our task is to be empathetic product developers: this includes burying technical complexity behind an elegant UI while offering utility that offers step change value to lenders and builders. Combine this with the broader infrastructural investments being made across the web3 ecosystem and an utter lack of real solutions to a widening housing shortage and we have a perfect time for a use case like Rigor to thrive.
Transactions made simple. Given Rigor’s lending and payment infrastructure lives on the blockchain, the unit of account is USDC stablecoin. USDC is a fully-reserved stablecoin meaning every USDC is 100% backed by cash and short-dated U.S. treasuries so it’s always redeemable. Crucially, USDC avoids currency risk because it maintains its peg to USD through regulated reserves (unlike other algorithmic means of maintaining a peg, and unlike volatile cryptocurrencies like Bitcoin or Ethereum).
This can raise questions on the interoperability of blockchain-friendly currencies (like USDC) and fiat currency that most of our users depend on. Fortunately, options exist that enable interoperability between USDC and USD easily and quickly. This means contractors, subs and vendors can elect to be paid directly to their bank account in their choice of currency.
It’s our goal to ensure that builders, contractors, subs and vendors don’t need to know or care that they are transacting on blockchain. They will just know that they’re getting paid faster.
A growing, accessible Web3 ecosystem. As we build Rigor for this use case, we can’t ignore the innovation that is welcoming new retail users into blockchain-based money systems. Among these:
- Stripe now offers a fiat payments API integration for crypto businesses to process crypto-to-fiat currency payments and flexible on-ramps for exchanges that will enable both fiat deposits and withdrawals for crypto exchanges.
- Visa and Mastercard are supporting crypto payments across their networks. In January, Visa reported that customers made $2.5bn in purchases on the Visa crypto-linked cards in Q12022. Visa’s Head of Crypto emphasizes that stablecoins make it easier to access and move money around the world leading businesses to leverage stablecoins as a new type of treasury infrastructure that can power global payment flows. From Visa’s perspective, “crypto platforms will become more integrated into the existing payments ecosystem as the company embeds Visa credentials into digital wallets, enabling consumers to easily convert crypto into fiat and spend that value at Visa’s 70 million merchants.”
- Visa has completed the acquisition of open-banking platform Tink. The acquisition allows Visa to leverage Tink’s APIs to help customers adopt open banking. Tink currently integrates with more than 3,400 banks and financial institutions.
- Coinbase announced that they will now offer free crypto cash-outs to pesos at more than 37,000 stores for transfers to Mexico and they plan to expand the program to other countries. Coinbase customers can already send their crypto overseas, but now with free cash-out, the offboarding has been made much easier for the $40bn that flows into Mexico every year.
- Both PayPal and Venmo offer crypto trading and payments on their platforms.
- Protocols like Aave and Compound currently provide decentralized borrowing and lending services that don’t require KYC or credit scores, important considerations for the unbanked and underbanked. The system is instead automated through the use of smart contracts.
- In Venezuela (and other South American countries), citizens have adopted crypto due to record-high inflation and sanctions on their country’s government, blocking citizens from international banking. Many Venezuelan citizens will immediately convert their wages to cryptocurrency and then use the blockchain to transfer money and make payments.
- MetaMask has announced that they will now support direct digital asset purchases with debit and credit cards by way of Apple Pay.
We don’t believe this trend abates — money is not getting less digital. It’s getting less and less clear why digital currency holders need to go back into fiat and if and when they do, the systems to get them there are as simple to use as interacting with your native smartphone wallet.
Real World Assets (RWAs) and DeFI. We’re not alone in bringing IRL assets on-chain and believe this is the new frontier of digital asset market expansion. Here are a few examples of DeFi protocols touching or focused on real estate use cases, collateralizing RWAs on chain and enabling their utility across DeFi:
- RealT fractionalizes rental income on tokenized real estate for LPs.
- Centrifuge and MakerDAO are tokenizing RWAs as collateral in exchange for cash loans. In the real estate context, MakerDAO is now recognizing those loans brought on chain by Centrifuge as collateral for DAI. More details here.
- Fabrica puts land into a trust whose language assigns control of the trust to the holder of an NFT.
- Goldfinch is a decentralized credit protocol that allows anyone to be a lender with a focus on providing loans to small businesses in emerging markets.
- Robinland tokenizes real estate assets into DeFi-native collateral allowing Robinland to channel liquidity from defi lenders to developers.
- Credix is connecting borrowers in emerging markets to DeFi loans.
These and other pioneering projects embolden our efforts to create composable debt out of construction loan and mortgage assets.
Lastly, we note that the construction industry is vital to our everyday lives and we need more homes. The construction use case will continue to generate interest and recognition as an industry in dire need of increased investment and one that is able to rally a sticky community behind!
