Bitcoin Breaks Into Real Estate: 250% Collateral Ratio, An Experiment in Integrating Crypto Assets into the Banking System

Written by: Boaz Sobrado

Compiled by: Chopper, Foresight News

Twelve years ago, Vishal Garg personally experienced the difficulty of buying a house and has been seeking a solution ever since. "At that time, I realized I had to sell assets, pay capital gains tax, and convert them into cash to pay for the house. Why couldn't I just pledge assets instead of having to liquidate them for cash?" The CEO of Better Home & Finance said in an interview.

Even more tricky is the order of the transaction process. "What if I make an offer but fail to secure the house? But real estate agents will require you to have cash ready, otherwise the seller won't seriously consider your offer. Homebuyers are forced to sell assets and pay taxes first before knowing whether their purchase offer will be accepted."

In March this year, Better partnered with Coinbase to launch a solution. Borrowers pledge Bitcoin or USDC to obtain two loans: one first-lien mortgage loan compliant with Fannie Mae standards; another independent private financing loan used to pay the down payment, secured by crypto assets, and attached with a second lien on the house. The Wall Street Journal reported on the same day that Fannie Mae accepted crypto asset-backed mortgage loans for the first time. In early June, a couple in their early thirties in Ann Arbor, Michigan completed the first loan under this model. Better revealed that before the product officially launched in the summer, the waitlist corresponded to a potential loan volume of about $250 million, of which 41% of applicants did not have enough cash to pay the down payment.

Regarding the funding counterparties for the loan assets, Garg stated: "These assets meet bank investment standards, and multiple banks are already lining up to acquire and take over these loans, including top large banks in the United States." He believes this will become an important channel for digital assets to formally access the banking system.

Real Costs and Collateral Rules

The collateral ratio directly determines the target audience for the product. Pledging Bitcoin requires meeting a 250% collateral requirement; if the down payment loan amount is $100,000, then Bitcoin worth $250,000 is needed as collateral; the collateral ratio requirement for price-stable USDC is 125%. The product does not have a margin call mechanism; a drop in Bitcoin price will not change the mortgage loan terms. Only if the borrower fails to repay for 60 consecutive days will asset liquidation be triggered, consistent with standard compliant mortgage loans.

The design logic of this mechanism is clear, targeting homebuyers who are "asset-rich but cash-poor." Data from real estate research firm Redfin shows that recently 12.7% of young homebuyers have used crypto assets to raise down payments. Data from the National Association of Realtors shows that by the end of 2025, the median age of first-time homebuyers will reach a historic high of 40 years, and the proportion of first-time homebuyers to the total number of homebuyers will hit a historic low of only 21%. (The Mortgage Bankers Association cites federal loan data and disputes this figure). Census data shows that in the second quarter of this year, the homeownership rate for the under-35 group was only 35.2%.

Issuing loans using assets continuously held by borrowers is not a completely new model. Doug Ricketts, Co-founder and CEO of PayJoy, stated in the podcast "On The Margin" that smartphones can play a role similar to real estate collateral. "Our initial innovation was to set the phone as collateral; in a sense, the smartphone is equivalent to real estate in the mortgage business." PayJoy provides lending services to people with weak credit records in Latin America, Africa, and South Asia; once a user is overdue, device functions will be locked, which is the well-known digital collateral model.

Ricketts has a clear bottom line for collateral pricing logic: "For lending to low-income groups, one model is to charge extremely high interest, allow a large number of users to default, and rely on a few borrowers to extract high returns. But this is not PayJoy's path." PayJoy loans only charge a one-time fixed fee, do not generate rolling accumulated interest, which is very rare in the technology consumer credit field.

Seven Senators Call for Halt

On April 30, seven senators wrote to Federal Housing Finance Agency (FHFA) Director William Pulte, naming Better and Coinbase, requesting regulators to "revoke relevant approvals and prohibit government-sponsored enterprises from taking on crypto asset-related risks." The letter was led by Dick Durbin and Elizabeth Warren, and co-signed by Jeff Merkley, Chris Van Hollen, Richard Blumenthal, Bernie Sanders, and Mazie Hirono.

The core reason raised by the senators is precisely the 250% collateral clause that Better claims represents risk control robustness. The letter states: "This mechanism requires homebuyers to put up crypto assets worth up to 2.5 times the down payment amount to qualify for a loan. This itself admits that crypto assets are high-risk assets; besides this, homebuyers need to pay interest on two loans simultaneously." The senator team estimated that combined financing costs could be up to 1.5 percentage points higher than standard Fannie Mae mortgage rates, and warned: "High burdens may prompt borrowers to directly give up repaying loans, and ultimate losses may be borne by American taxpayers." They requested regulators to respond by May 30, but the Federal Housing Finance Agency has not yet publicly responded.

Alys Cohen from the National Consumer Law Center and Corey Frayer from Americans for Financial Reform jointly published a commentary article in June, with a more radical view: the federal government "may repeat the mistakes that triggered the 2008 home foreclosure crisis." The two concluded that this is not financial innovation for consumers, but a trigger for disaster.

Market conditions also cast a shadow over this business. Bitcoin touched a high of about $123,000 last October, fell back to around $62,800 in February this year, and continued to oscillate in the $60,000 range throughout July, with the price remaining only half of the peak.

Garg's Long-term Layout

Bitcoin is just the beginning. "Currently we support Bitcoin and USDC, and plan to access various mainstream tokenized assets subsequently, including equity tokens of companies such as SpaceX, Tesla, Coinbase, Better, Apple, and Amazon." Garg stated that the project will not support meme coins, only selecting targets with liquidity and high institutional attention; Ethereum and Solana will be the next batch of listed varieties.

He has a further conception: parents can pledge retirement account assets to help their children buy houses, a direction that resonates with the crypto asset pension track. In the future, homebuyers only need to take photos of the property and let the software complete the entire process. "AI intelligent agents submit home purchase applications on the Better platform and automatically calculate the bid upper limit. In the long run, ordinary people can hold property shares and flexibly exchange different houses. At present, this is difficult to implement; the only obstacle is complicated transaction friction."

Underlying this conception is a judgment on the asset allocation trends of young people. "Today's young people lack assets that can hedge against inflation and share the benefits of rising house prices."

Controversies Behind Token Pledging

The tokenized equity business faces a key question without a unified answer yet: what legal rights does holding a token actually confer. Currently, the "everything tokenized" track is generally troubled by this. Chan Ahn, Founder and CEO of Tessera, revealed in the podcast "On The Margin" that the company launched SpaceX tokenized products in February. He frankly stated the business model characteristics, "The platform deliberately does not set up a KYC process, not an oversight." The original intention of the project is to lower the entry threshold — the private market has long relied on complicated procedures, high minimum investment thresholds, and geographic restrictions to keep 99.9% of ordinary investors out.

Chris Turner, Co-founder of Kula, made a distinction in the same podcast: the vast majority of tokenized assets only represent the right to enjoy asset returns at the contract level, not equal to directly holding the underlying assets; another mode achieves token-as-asset, where holding the token is equivalent to owning the underlying target. There is an essential difference between the two. For mortgage loan auditors, when conducting collateral valuation, they must distinguish which type of equity they hold.

At the same time, Better is reconstructing its own financing channels. In February this year, the company partnered with Framework Ventures, planning to deploy up to $500 million in funds based on the stablecoin ecosystem Sky; Framework Ventures simultaneously invested $45 million for equity, holding about 10%. Better expects that this adjustment can reduce capital costs by more than 100 basis points. The company stated that after tokenized financing is implemented, there is an opportunity to press customer loan rates below 5%, while the industry average rate is higher than 6%.

The company urgently needs to reduce capital costs. In the first quarter, Better's loan volume was $1.64 billion, a year-on-year increase of 89%, with revenue of $47.5 million, but still lost about $70 million. The company has cumulatively lent over $110 billion since 2016; in December 2021, it laid off 900 people at once via an online meeting, and for years Garg has continued to face external questioning regarding this matter.

Heavy pressure has not weakened his determination to bet on this track. "The worst result is that no one cares about the product after launch, but the reality is not so." Talking about industry prospects, he stated: "No need to just fantasize about the future; what is more important is to create the future with your own hands."