NOVA ROMA

Decentralized Mortgages/MBS

Decentralized Mortgage Marketplace and Mortgage Backed Securities Market

Housing Crisis by the Numbers

One of the problems our society faces today is the lack of competition in financing the housing market. People who bought their homes during the ZIRP era are trapped in homes they've outgrown. When they purchased homes between 2019-2022, they were able to secure mortgage rates in some instances below 3%. Others, who are now just looking for their first home in 2025, are facing the prospect of not only the highest housing costs in US history (cite), but mortgage rates that are now hitting 7.5%.

Some quick math:

Home PriceDown PaymentInterest RateMonthly Payment
$400,000$80,0003%$1,349.13
$400,000$80,0007.5%$2,237.49

Let's assume typical US underwriting standards:

  • 28% front-end (housing costs / gross monthly income)
  • 28% front-end FE=MPITIGMI\text{FE} = \dfrac{M_{\text{PITI}}}{\text{GMI}}
  • 36% back-end (total monthly debts / gross monthly income)
  • 43% Qualified Mortgage (QM) ratio cap.
InputDescription
28% front-endFE=MPITIGMI\text{FE} = \dfrac{M_{\text{PITI}}}{\text{GMI}}
36% back-endBE=MPITI+DotherGMI\text{BE} = \dfrac{M_{\text{PITI}} + D_{\text{other}}}{\text{GMI}}
43% QMGMIneeded,FE=MPITIFElimit\text{GMI}_{\text{needed,FE}} = \dfrac{M_{\text{PITI}}}{\text{FE}_{\text{limit}}}
43% QMGMIneeded,BE=MPITI+DotherBElimit\text{GMI}_{\text{needed,BE}} = \dfrac{M_{\text{PITI}} + D_{\text{other}}}{\text{BE}_{\text{limit}}}
43% QMGIFE=12 GMI\text{GI}_{\text{FE}} = 12\,\text{GMI}
43% QMGIBE=12 GMI\text{GI}_{\text{BE}} = 12\,\text{GMI}
ScenarioLoan & RateMonthly P & I28 % front-end limit36 % back-end (no other debt)43 % QM ceiling
3% loan$400,000 @ 3%$1,349.13$72,745.0$105,013.0
7.5% loan$400,000 @ 7.5%$2,237.49$110,817.0$134,625.0

Our Solution: OriginateX + PassThru Protocol

Executive Summary

We propose a decentralized mortgage marketplace leveraging Uniswap V4 hooks to create programmable, liquid markets for mortgage-backed securities (MBS). This system addresses the current housing crisis by enabling global capital to flow into U.S. mortgages at competitive rates while providing homeowners with better financing options and investors with yield-generating assets.

Technical Architecture

Core Components:

  1. Mortgage NFT Layer (ERC-721)

    • Each funded mortgage becomes a unique NFT representing ownership of the loan and future cash flows
    • Metadata includes legal documents, payment schedules, and property details
    • Enables fractional ownership and transparent tracking

  2. Securitization Layer (ERC-20 MBS Tokens)

    • Mortgage Pool contracts accept similar-risk NFTs (geography, loan-to-value, credit scores)
    • Pool mints fungible MBS tokens proportional to deposited NFT value
    • Creates liquid, tradeable instruments from illiquid individual mortgages

  3. Uniswap V4 Hook-Based AMM

    • Custom MBS Hook contract attached to MBS-Token/USDC pools
    • beforeSwapReturnDelta() bypasses standard AMM logic for DCF-based pricing
    • Dynamic fee adjustment based on pool risk metrics
    • Monthly payment distribution via donate() function to in-range liquidity providers

Smart Contract Architecture:

// Core contracts
MortgageNFT (ERC-721)           // Individual loan representation
MortgagePool                    // NFT → MBS token securitization
MBSHook                        // V4 hook with custom pricing logic
 
// Router contracts
MortgageFundingRouter          // Lender funding interface
PaymentRouter                  // Borrower payment interface
MBSVault (ERC-4626)           // Auto-compounding wrapper

Innovative Hook Implementation

Custom Pricing Logic:

  • Oracle-fed data on payment performance, defaults, and market rates
  • Discounted cash flow calculations embedded in swap logic
  • Risk-adjusted pricing that reflects real-world mortgage performance

Dynamic Risk Management:

  • Automatic fee increases when delinquency rates rise
  • Time-weighted adjustments to prevent manipulation
  • Liquidity incentives during stress periods

Cash Flow Distribution:

  • Direct pass-through of monthly payments to liquidity providers
  • Automated compounding through ERC-4626 vault wrapper
  • Pro-rata distribution based on liquidity position size

Regulatory Compliance Framework

Phase 1: Permissioned Launch

  • Reg D private placement for accredited investors only
  • KYC/AML-gated access via NFT allowlists
  • Licensed mortgage originator partnership
  • Delaware SPV structure for legal deed custody

Phase 2: Regulatory Expansion

  • Pursue Reg A+ for broader investor access
  • Implement required consumer protection measures
  • Obtain necessary state licensing for mortgage servicing
  • Establish indenture trustee relationships

Phase 3: Full Compliance

  • Register as transfer agent or partner with broker-dealer
  • Implement RESPA/TILA compliance for consumer loans
  • Develop fair lending monitoring systems
  • Create regulatory reporting infrastructure

Global Capital Attraction Strategy

Target Investor Segments:

  1. Japanese/European Banks (Est. $50B+ capacity)

    • Hedge-adjusted yields superior to domestic options
    • Specialized JPY/EUR-hedged tranches via hook automation
    • Regulatory capital advantages for mortgage holdings

  2. Sovereign Wealth Funds (Est. $100B+ capacity)

    • Duration-matching for long-term liabilities
    • ESG/impact-aligned mortgage products
    • Bulk origination capabilities for large deployments

  3. Pension Funds (Est. $75B+ capacity)

    • Liability-matching for actuarial requirements
    • Mission-aligned affordable housing exposure
    • Stable, predictable cash flows

  4. Life Insurance Companies (Est. $200B+ capacity)

    • Regulatory capital efficiency for mortgage holdings
    • 20-30 year duration matching for annuity products
    • Higher risk-adjusted returns vs. corporate bonds

Implementation Roadmap

Phase 1: Proof of Concept (Months 1-6)

  • Timeline: Q1-Q2 2025
  • Budget: $2-3M
  • Deliverables:
    • Testnet deployment with synthetic mortgage data
    • Security audit of hook implementation
    • Regulatory legal structure establishment
    • Licensed originator partnership agreement
    • Single demonstration mortgage transaction

Phase 2: MVP Launch (Months 7-18)

  • Timeline: Q3 2025 - Q2 2026
  • Budget: $8-12M
  • Deliverables:
    • Mainnet deployment with 50 mortgages
    • Accredited investor-only access
    • $10-25M in mortgage origination volume
    • Real cash flow distribution to token holders
    • Regulatory compliance systems
    • Risk management and monitoring tools

Phase 3: Scale and Tranching (Months 19-30)

  • Timeline: Q3 2026 - Q2 2027
  • Budget: $20-30M
  • Deliverables:
    • Multiple risk tranches (senior/subordinate)
    • ERC-4626 auto-compounding vaults
    • $100-500M mortgage origination volume
    • Institutional investor onboarding
    • Advanced risk analytics and pricing

Phase 4: Mass Market (Months 31-42)

  • Timeline: Q3 2027 - Q2 2028
  • Budget: $50-75M
  • Deliverables:
    • Reg A+ qualification for retail investors
    • L2 deployment for cost efficiency
    • $1B+ total value locked
    • International expansion
    • Full regulatory compliance suite

Risk Mitigation Strategies

Technical Risks:

  • Multi-audit security review process
  • Gradual rollout with circuit breakers
  • Oracle redundancy and manipulation protection
  • Emergency pause mechanisms

Regulatory Risks:

  • Proactive legal counsel engagement
  • Phased compliance approach
  • Industry association participation
  • Regular regulatory sandboxing

Market Risks:

  • Liquidity bootstrapping via anchor investors
  • Interest rate hedging mechanisms
  • Diversified geographic exposure
  • Counter-cyclical capital buffers

Operational Risks:

  • Professional mortgage servicing partnerships
  • Automated compliance monitoring
  • Redundant oracle feeds
  • Disaster recovery protocols

Economic Model and Sustainability

Revenue Streams:

  1. Origination fees (1-2% of loan amount)
  2. Servicing fees (0.25-0.5% annually)
  3. Swap fees from MBS trading (0.3-1.0%)
  4. Performance fees from vault management (0.5-1.0%)

Cost Structure:

  • Regulatory compliance: $2-3M annually
  • Technology development: $5-8M annually
  • Operations and servicing: $3-5M annually
  • Insurance and risk management: $1-2M annually

Break-even Analysis:

  • Minimum viable scale: $500M in mortgage originations
  • Expected break-even: Month 24-30
  • Projected 5-year revenue: $150-250M

Success Metrics

Year 1 KPIs:

  • $25M in mortgage volume originated
  • 95%+ on-time payment rate
  • 100+ accredited investors onboarded
  • Zero regulatory compliance violations

Year 3 KPIs:

  • $1B+ in mortgage volume originated
  • 20+ institutional investors participating
  • 90%+ loan performance vs. traditional mortgages
  • Profitability achieved

Year 5 KPIs:

  • $5B+ in mortgage volume originated
  • Global expansion to 3+ countries
  • Market-leading position in DeFi mortgages
  • IPO or strategic acquisition readiness

Competitive Advantages

  1. Programmable Risk Management: Hook-based dynamic pricing and fee adjustment
  2. Global Capital Access: Attractive yields for international investors
  3. Instant Liquidity: 24/7 tradeable MBS tokens vs. traditional illiquid markets
  4. Transparency: On-chain payment tracking and performance analytics
  5. Cost Efficiency: Reduced intermediary costs through automation
  6. Innovation Platform: Extensible architecture for new mortgage products

Critical Success Factors

  1. Regulatory Clarity: Proactive compliance and sandbox participation
  2. Technical Security: Multi-audit approach and gradual rollout
  3. Capital Partnerships: Early anchor investor commitments
  4. Operational Excellence: Professional servicing and risk management
  5. Market Timing: Launch during favorable interest rate environment

This comprehensive solution addresses the fundamental inefficiencies in mortgage markets while leveraging cutting-edge DeFi infrastructure to create a more accessible, efficient, and liquid mortgage ecosystem. The phased approach ensures regulatory compliance while the innovative technical architecture provides sustainable competitive advantages.

Alternative Implementation Path: Network State Special Economic Zone

Regulatory Sandbox Alternative

While the phased regulatory compliance approach outlined above represents the traditional path to market, an alternative implementation strategy involves establishing a Network State Special Economic Zone (SEZ) to create a controlled environment for testing and deploying the decentralized mortgage system without existing regulatory constraints.

Network State Framework:

  • Establish a digital-first sovereign territory with specific economic zones
  • Create bespoke regulatory framework designed for DeFi mortgage innovation
  • Implement consumer protections tailored to blockchain-native systems
  • Develop international treaties for cross-border mortgage recognition

Special Economic Zone Benefits:

  1. Regulatory Clarity: Purpose-built legal framework for decentralized mortgages
  2. Rapid Deployment: Avoid 18-24 month licensing processes
  3. Innovation Freedom: Test novel approaches without legacy regulatory constraints
  4. Global Capital: Attract international investors seeking regulatory certainty
  5. Proof of Concept: Demonstrate system viability before broader adoption

Implementation Strategy:

Phase 1: Network State Establishment (Months 1-12)

  • Partner with existing SEZ jurisdictions (Estonia e-Residency, Dubai DIFC, Singapore FinTech Regulatory Sandbox) or engage with new US administrations crypto Czar to see what we can do about a SEZ in the US. Similar to (Praxis' Atlas proposal for California)[https://www.praxisnation.com/news/praxis-proposes-atlas-california]
  • Draft custom regulatory framework for decentralized mortgages
  • Establish legal infrastructure for property ownership and foreclosure
  • Create international recognition agreements

SEZ Treasury as Anchor Originator:

The Network State SEZ treasury can serve as the primary mortgage originator (the entity that provides initial funding for mortgages) during the bootstrap phase, providing several strategic advantages:

Capital Deployment Strategy:

  • SEZ treasury allocates $50-100M as initial mortgage origination capital
  • Functions as the first "whale lender" in the decentralized system
  • Provides immediate liquidity and proof-of-concept demonstrations
  • Earns yield on treasury assets while supporting ecosystem growth

Bootstrap Benefits:

  1. Immediate Liquidity: No need to wait for external lenders to join
  2. Proof of Concept: Demonstrate real mortgage origination and payment flows
  3. Risk Control: Treasury can set initial underwriting standards
  4. Network Effects: Successful mortgages attract additional institutional lenders
  5. Revenue Generation: Treasury earns origination and servicing fees

Operational Model:

  • Treasury holds diversified portfolio of mortgage NFTs across risk profiles
  • Gradually sells portions to incoming institutional investors
  • Maintains strategic reserve for market stabilization
  • Reinvests proceeds into additional mortgage origination

Transition to Market-Driven System: As the marketplace matures, the SEZ treasury transitions from primary originator to:

  • Market maker providing liquidity during stress periods
  • Strategic reserve holder for counter-cyclical deployment
  • Validator of new mortgage products and risk models
  • Emergency backstop for systemic events

This approach allows the Network State to self-capitalize the mortgage marketplace while building credible proof-of-concept that attracts global institutional capital.

Phase 2: Pilot Deployment (Months 13-24)

  • Launch full decentralized mortgage system within SEZ
  • Process $100-500M in mortgage volume
  • Demonstrate superior efficiency and transparency
  • Build international investor confidence

Phase 3: Global Expansion (Months 25-36)

  • Use SEZ success as regulatory precedent
  • Negotiate bilateral recognition agreements
  • Establish additional SEZ partnerships
  • Scale to $1B+ mortgage volume

Jurisdictional Considerations:

  • Estonia: Strong digital identity infrastructure and e-Residency program
  • Dubai DIFC: Established financial services framework with blockchain initiatives
  • Singapore: Monetary Authority sandbox with progressive DeFi policies
  • El Salvador/Bitcoin Law: Crypto-friendly regulatory environment
  • Puerto Rico: U.S. territory with Act 60 incentives for fintech innovation

Risk Mitigation:

  • Maintain parallel traditional regulatory compliance track
  • Ensure consumer protection standards meet international norms
  • Establish dispute resolution mechanisms
  • Create seamless transition path to broader jurisdictions

Competitive Advantage: This approach allows us to leapfrog traditional financial infrastructure while building a proven regulatory model that can be exported globally. By demonstrating superior outcomes in a controlled environment, we create a template for regulatory modernization worldwide.

Timeline Acceleration:

  • Traditional regulatory path: 42 months to full deployment
  • Network State SEZ path: 24-30 months to full deployment
  • Cost reduction: 40-60% lower regulatory compliance costs
  • Risk reduction: Controlled environment limits regulatory uncertainty

This network state approach represents a contingent strategy that can be pursued in parallel with traditional regulatory compliance, providing optionality and potential acceleration of our go-to-market timeline while maintaining the integrity and consumer protection standards essential for sustainable growth.

Appendix

Methodology, Formulas, Code

InputDescription
PhomeP_{\text{home}}Home price
DdownD_{\text{down}}Down payment
iannuali_{\text{annual}}Annual interest rate
NyearsN_{\text{years}}Number of years
TTProperty taxes
IhomeI_{\text{home}}Homeowners insurance
PMIPMIPrivate mortgage insurance
HOAHOAHomeowners association fees
DotherD_{\text{other}}sum of all other required monthly debt payments (car, student loans, credit cards, etc.)
MPITIM_{\text{PITI}}Monthly PITI = M+T+Ihome+PMI+HOAM + T + I_{\text{home}} + \text{PMI} + \text{HOA}
FElimitFE_{\text{limit}}typical FE limit = .28
BElimitBE_{\text{limit}}typical BE limit = .36
GMIneeded,FEGMI_{\text{needed,FE}}GMIneeded,FE=MPITIFElimitGMI_{\text{needed,FE}} = \dfrac{M_{\text{PITI}}}{\text{FE}_{\text{limit}}}
GMIneeded,BEGMI_{\text{needed,BE}}GMIneeded,BE=MPITI+DotherBElimitGMI_{\text{needed,BE}} = \dfrac{M_{\text{PITI}} + D_{\text{other}}}{\text{BE}_{\text{limit}}}
GIFEGI_{\text{FE}}GIFE=12 GMIGI_{\text{FE}} = 12\,\text{GMI}
GIBEGI_{\text{BE}}GIBE=12 GMIGI_{\text{BE}} = 12\,\text{GMI}
Mortgage Underwriting Math
import math
import pandas as pd
import ace_tools as tools
 
# -------------------------------
# Input Assumptions (all in USD)
# -------------------------------
 
home_price = 400_000
down_payment = 80_000
loan_amount = home_price - down_payment
 
years = 30
n_payments = years * 12
 
# Annual rates
rates = {
    "3% loan": 0.03,
    "7.5% loan": 0.075,
}
 
# Annual taxes & insurance
tax_annual = 1_889            # [2]
ins_annual = 2_290            # [3]
 
# Convert to monthly
tax_monthly = tax_annual / 12
ins_monthly = ins_annual / 12
 
# Typical "other" debts (car + student loan + credit-card minima) [4][5][6]
monthly_other_debts = 737 + 536 + 180
 
# Underwriting limits
FE_LIMIT = 0.28   # 28 %
BE_LIMIT = 0.36   # 36 %
 
def monthly_payment(P, annual_rate, n):
    r = annual_rate / 12
    return P * (r * (1 + r) ** n) / ((1 + r) ** n - 1)
 
rows = []
 
for label, rate in rates.items():
    m_pi = monthly_payment(loan_amount, rate, n_payments)
    m_piti = m_pi + tax_monthly + ins_monthly  # PMI & HOA assumed 0
 
    # Front-end income
    gmi_fe = m_piti / FE_LIMIT
    gi_fe = gmi_fe * 12
 
    # Back-end income (includes other debts)
    gmi_be = (m_piti + monthly_other_debts) / BE_LIMIT
    gi_be = gmi_be * 12
 
    rows.append({
        "Scenario": label,
        "Monthly P&I": round(m_pi, 2),
        "Monthly PITI": round(m_piti, 2),
        "GI (Front-end 28%)": round(gi_fe, 0),
        "GI (Back-end 36%)": round(gi_be, 0),
    })
 
df = pd.DataFrame(rows)
tools.display_dataframe_to_user("Mortgage Income Requirements", df)
#     Scenario  Monthly P&I  Monthly PITI  GI (Front‑end 28%)  GI (Back‑end 36%)
# 0    3% loan      1349.13       1697.38             72745.0           105013.0
# 1  7.5% loan      2237.49       2585.74            110817.0           134625.0

Sources

[] Uniswap Labs. Uniswap v4 Documentation. 2024. Accessed June 7, 2025. https://docs.uniswap.org/contracts/v4/overview.

[] Adams, Hayden, Moody Salem, Noah Zinsmeister, Sara Reynolds, Austin Adams, Will Pote, Mark Toda, Alice Henshaw, Emily Williams, and Dan Robinson. Uniswap v4 Core. Uniswap Labs, 2024. Accessed June 7, 2025. https://app.uniswap.org/whitepaper-v4.pdf.

[] Fabozzi, Frank J., Steven V. Mann, and Francesco A. Fabozzi. The Handbook of Fixed Income Securities. 9th ed. New York: McGraw-Hill Education, 2021.

[] U.S. Census Bureau. Median Household Income in the United States (MEHOINUSA646N). FRED, Federal Reserve Bank of St. Louis. Last updated September 11, 2024. Accessed June 5, 2025. https://fred.stlouisfed.org/series/MEHOINUSA646N.

[] Frank J. Fabozzi and Francesco Fabozzi, Fixed Income Mathematics: Analytical and Statistical Techniques, 5th ed. (New York: McGraw-Hill Education, 2022), chap. 19—widely adopted in graduate finance programs (e.g., CFA curriculum) as the canonical derivation of the fixed-rate mortgage amortization formula. books.google.com

[] William B. Brueggeman and Jeffrey D. Fisher, Real Estate Finance and Investments, 17th ed. (New York: McGraw Hill, 2022), chap. 9—standard university text that details the PITI breakdown and common underwriting conventions used by U.S. lenders. books.google.com

[] Fannie Mae, "Glossary of Key Terms," accessed June 5, 2025, https://yourhome.fanniemae.com/calculators-tools/glossary-key-terms—the government-sponsored enterprise's own glossary, defining the 28/36 rule that most banks still cite in manual underwriting. yourhome.fanniemae.com

[] Fannie Mae, "B3-6-02, Debt-to-Income Ratios," Selling Guide, updated April 2, 2025, accessed June 5, 2025, https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios—definitive lender guidance on maximum DTI thresholds for conforming loans. selling-guide.fanniemae.com

[] Consumer Financial Protection Bureau, "Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition," final rule, December 10, 2020, accessed June 5, 2025, https://www.consumerfinance.gov/rules-policy/final-rules/qualified-mortgage-definition-under-truth-lending-act-regulation-z-general-qm-loan-definition/—federal regulation that originally set (and later revised) the 43 percent DTI cap for Qualified Mortgages, giving it legal weight across the U.S. mortgage market. consumerfinance.gov

[] "Mortgage Calculator," Wikipedia, last modified January 2025, accessed June 5, 2025, https://en.wikipedia.org/wiki/Mortgage_calculator—public-domain explanation that reproduces the annuity-payment formula; useful for quick lookup, but best corroborated with the Fabozzi text. en.wikipedia.org

[] "Mortgage Calculator," Investopedia, last updated 2021, accessed June 5, 2025, https://www.investopedia.com/mortgage-calculator-5084794—plain-English walkthrough that presents the same formula and discusses how lenders apply PITI plus the 28/36 rule; handy for non-technical readers.

Sources, Definitions

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