CitaDAO's buyout process is a key factor that enables a 2 Way Bridge and ensures that a Real Estate Token (RET) holder is able to buyout all other RET holders to redeem the Title Deed of the underlying Real Estate.
To initiate the buyout protocol, a RET holder must possess a minimum of 30% of the total RET and deposit that into the buyout contract. He will then have to determine a buyout price by proposing a price per token. The initiator has to commit Stablecoins at the full price of all outstanding tokens into the buyout contract.
For example, an office building is fractionalized into 1000 RET. A RET holder who wants to initiate a buyout must possess at least 300 RET (30% of the total number of RET). The initiator offers to buyout the property at a US$20M valuation, meaning that they propose a buyout price of US$20,000 per token. They would need to lock up their 300 RET and US$14M in Stablecoins (700 Outstanding RET * US$20,000) in the buyout contract. This US$14M is used to buy the RET from the other RET holders.If the buyout is successful, the Stablecoins would subsequently become available for the other RET holders to claim.
After the buyout is initiated, other RET holders can initiate a counterclaim. If no counterclaim is initiated, the buyout will be successful.
Counterclaims allow the initiator's tokens to be bought at the same price (the buyout price per token which the initiator set). RET holders can contribute to a common counterclaim pool with Stablecoins – if the pool exceeds the value of the initiator's RET at the set price per token, the buyout fails. RET holders who contributed to the counterclaim pool can buy the initiator's RET at the set price.
This discourages lowball offers and creates a floor price. For example, if a proposed buyout offer values each RET at $0.25 but the current value of the RET is $0.50, other RET holders can use a counterclaim to buyout the initiator’s RET at a discount.
Should the buyout succeed, the initiator receives the property NFT and other RET holders can exchange their RET for Stablecoins in the buyout contract.
If the buyout is not successful, the initiator loses their RET to the rest of the RET holders who contributed Stablecoins to the counterclaim pool at the buyout price. The initiator can reclaim the Stablecoins that they committed to the buyout contract as well as the Stablecoins received from selling their RET to the other RET holders.
- A RET Holder initiates a buyout with a value of $10 million and a price per token at $0.50.
- The RET Holder puts in 3 million RET, valued at $1.5 million at the buyout price.
- A counterclaim pool is set up, and other RET Holders raise $1.5 million.
- The buyout fails and the RET Holder sells their RET at $0.50 per token to other RET Holders in the counterclaim pool.
- The buyout fails.
- A RET Holder initiates a buyout with a value of $20 million and a price per token at $1.
- The RET Holder puts in 6 million RET, valued at $6 million at the buyout price.
- A counterclaim pool is not set up, or
- A counterclaim pool is set up but does not raise $6 million.
- The buyout succeeds.
- Holders of RET can exchange their RET at $1 per token via the smart contract.
DISCLAIMER: The example above is purely for illustrative purposes. CitaDAO.io is not offering investment advice, endorsement of the approach, or promising any outcome.