Bridge Loan Use Case

Tokenizing a Bridge Loan

A developer or investor requires a short-term bridge loan to secure or refurbish a property before selling it or transitioning to long-term financing. PIXL Platform enables the tokenization of this bridge loan, offering investors the opportunity to participate in a high-yield, secure investment tied to a tangible real estate asset.

The Bridge Loan Details

Property Example:

  • Location: Manchester, UK
  • Type: 4-Bedroom Apartment (New Build)
  • Property Value: £1,000,000
  • Loan Amount: £500,000
  • Annual Percentage Yield (APY): 24%
  • Term: 12 months
Process of Tokenizing the Bridge Loan
Loan Structuring and Tokenization
  • Loan Setup: The borrower applies for a £500,000 bridge loan through the PIXL Platform, secured against the property with a Loan-to-Value (LTV) ratio of 50% to minimize investor risk.
  • Token Creation: The £500,000 loan is tokenized into 500,000 digital tokens, with each token representing a £1 share of the loan principal and its associated yield. Token metadata includes key details such as the property valuation, loan term, interest rate, and repayment schedule.
  • Smart Contract Deployment: A smart contract governs the loan terms, ensuring automated interest distribution and principal repayment to token holders.
Investor Participation
  • Listing on the Platform: The tokenized loan is listed on the PIXL Platform Primary Marketplace, allowing investors to purchase loan tokens with as little as £100.
  • Investment and Ownership: Investors purchase tokens and receive proportional ownership in the loan, with ownership records immutably stored on the Polygon blockchain for transparency and security.
Yield Distribution and Repayment
  • APY Payouts: The borrower pays monthly interest, which is automatically distributed to token holders via smart contracts. For instance, a 24% APY yields £12,000 monthly, divided proportionally among token holders.
  • Loan Repayment: At the end of the 12-month term, the borrower repays the loan principal, which is distributed to token holders.
Benefits of Tokenizing Bridge Loans
For Investors
  • High-Yield Opportunity: Earn attractive returns (e.g., 24% APY) on short-term investments.
  • Diversification: Invest in a variety of bridge loans tied to different properties and locations.
  • Transparency: Blockchain-based ownership records and automated payments ensure security and trust.
For Borrowers
  • Efficient Capital Raising: Access to a global pool of investors accelerates the funding process.
  • Competitive Rates: Crowdfunding bridge loans often results in lower rates compared to traditional lenders.
  • Flexibility: Raise funds quickly without the lengthy approval processes of banks.
For the Platform
  • Enhanced Liquidity: Bridge loan tokens can be traded on the Secondary Marketplace, providing investors with liquidity.
  • Ecosystem Growth: Tokenized bridge loans attract both retail and institutional investors, expanding the platforms user base.
Real-World Impact: The Manchester Bridge Loan Example

Investor Perspective:

  • An investor buys 1,000 tokens for £1,000, representing 0.2% of the total bridge loan.
  • Monthly Returns: The investor earns £20 per month (24% APY divided monthly) from interest payouts.
  • Principal Repayment: At the end of 12 months, the investor receives their £1,000 principal back, alongside a total of £240 in interest payments.

Borrower Perspective:

  • The borrower receives the £500,000 loan quickly, enabling them to complete the project and sell the property.
  • Upon sale, the borrower repays the loan, fulfilling their obligation while accessing much-needed short-term funding.
Why Tokenizing Bridge Loans Matters
  • Democratizing High-Yield Investments: Tokenizing bridge loans opens a lucrative market previously dominated by institutional lenders to retail investors worldwide.
  • Increasing Liquidity in the Lending Market: Traditionally illiquid, bridge loans become liquid assets through tokenization, allowing investors to trade tokens and access funds before the loan term ends.
  • Enhancing Transparency and Trust: Blockchain-based smart contracts ensure transparency, compliance, and automatic execution of loan terms, minimizing risks for all parties involved.
  • Empowering Borrowers: Borrowers gain quicker, more efficient access to capital, enabling them to act on time-sensitive opportunities such as property purchases or renovations.
Future Potential for Tokenized Bridge Loans
  • Expanded Geographies: Offering tokenized bridge loans across emerging markets with high growth potential.
  • Diversified Asset Classes: Tokenizing loans secured by other high-value assets, such as commercial real estate or land development projects.
  • Integration with DeFi: Allowing bridge loan tokens to be used as collateral in DeFi platforms, further enhancing liquidity and financial flexibility.