Fractional ownership: from conflicts to DAOs?

Do property co-owners have to argue?

One of the most common reactions I hear from people (who don’t yet know how Flyway works) about co-ownership of a house is usually “well, good luck with figuring out your relationships with co-owners and agreeing how to manage the property”.

This is very natural. To this day, fractional ownership failed because of all the interactions that had to take place between co-owners of an asset in order to agree on its use - whether it’s the use of time, cost, and other decisions about the asset. Each co-owner could have a different point of view about each topic and then it was becoming an unsolvable puzzle.

Rules of co-ownership

But Flyway’s model is here to solve this problem in the most fundamental way possible. What Flyway does is create a set of “rules” based on which the property is managed. The rules are based on a combination of common sense and a general idea of fairness and equal treatment. These rules have to do with issues like:

• Who gets access to the property and when? For how many days each?

• How do we maintain the property and how do we split the costs?

• How do we repair damages and who pays?

• How do we decide whether we make upgrades at the property?

These and many other questions are handled through this set of rules which essentially are carved in stone, which means they’re non-negotiable. Each new owner of a share in a property has to sign the Operating Agreement which lays out these rules (along with a set of other documents) before they become full owners of a share (or more).

No managers

This set of rules removes the need for “human judgment”. Each company-owner of a property doesn’t need a manager to make judgment calls about issues and conflicts between co-owners. Actually, these conflicts won’t appear in the first place because co-owners don’t get in touch with each other to discuss issues and resolve conflicts.

They don’t even come in physical contact because each owner checks into the house a day (or more) after the previous owner has checked out. In the meantime, the Flyway property service enters the house and restores it in its “Day 1” condition - the way it was the first day the first owner entered the house. Every possible problem has its solution in the Operating Agreement and is automatically resolved.

If an owner wants to make a change in the house (let’s say, an upgrade), she makes a proposal to the other owners through the Flyway app. If the proposal gets 100% of the 8 votes, Flyway is happy to help facilitate the upgrade with recommended contractors and pass the costs to the owners.

DAOs

The approach we take at Flyway reminds me of the “promised land” of DAOs. For those who don’t know, DAO stands for Decentralised Autonomous Organization and is a new form of organization that uses blockchain technology and smart contracts. It is governed by rules encoded as a computer program that is transparent, controlled by the organization members, and not influenced by a central authority (a manager or CEO).

DAOs have the same goal as any other organization — the creation of value — but rely on a decentralized framework in which stakeholders have true ownership of the entity and operate it based on rules which are written as code in “smart contracts” - self-enforceable decisions that execute based on rules and conditions.

See the parallel here? At Flyway we’re trying to instill the same philosophy by way of (almost) self-enforceable rules which don’t need a manager to decide what is right or wrong. Many in the tech industry predict that DAOs, NFTs, and smart contracts are the future of asset ownership and management, real estate included. Transactions will be faster and more secure, the whole system will operate much more efficiently leading to a new creation of wealth.

PS: While DAOs and smart contracts still have some way to go before they get more mature and become mainstream, I would be interested to get insights from anyone who can help with ideas or links in getting in this future fast. Get in touch!