In DeFi Sparks ep.12, host Nick Drakon welcomes 0xLandWalker of LandX to discuss the need for onchain access to farmland, how LandX plans to fill this need, how crop yield tokenomics work, and more.
Read our notes below to learn more.
Introduction to LandX
Protocol started as a platform building an open-sea marketplace for farmland NFTs.
Could not find a product market fit and pivoted into LandX.
Allows investors to invest in actual farmland.
Yield from land is brought onchain to investors.
Investing in LandX and Food Commodities
7.8b ppl on earth, forecast to be 10b by 2060
83% of global calorie supply comes from plant-based food grown on 23% of agricultural land.
Other land not suitable to grow crop.
Agricultural land makes up 50% of habitable land.
Amount of farmland is not increasing and losing land to expansions to industries, housing, soil erosions.
Bill Gates is the single largest farmland owner in the U.S.
Farmland is an asset class that has been forgotten by investors and is inaccessible.
Landx creates a system where that asset class will be available to a broad range of investors.
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Technological Effects in Food Supply Chains
Can be no change without liquidity which is what LandX is attempting to improve.
Capital allocation in farmland is decreasing
Yields have been increasing due to tech like GMO and fertilizers.
Fertilizer usage increases cost and also kills biomass eventually causing desertification.
How LandX is Solving Farmer’s Capital Issue
Farmers go by the amount of hectares they farm.
60% of food comes from farmers under 60 hectares of land.
Small farmers face high interest rates from bank loans along with financing machineries.
Don’t have proper bookkeeping due to size and have difficulty obtaining business loans.
Most take personal loans instead with higher interest rates.
LandX is able to do a 48 hour liquidity delivery.
More flexible with better terms.
Non-conditional and no penalties in exiting.
Benefits of LandX Deal
3 actors which are farmers, sales agents and investors.
Farmers get access to quick flexible liquidity through these agents.
Agents work with protocol to onboard farmers and ensure legitimacy of documents and create good relationships with LandX.
Farmer should have a clean land title and 5 years of production on the land to assess productivity using NDVI index (Satellite imagery using infrared radiation).
5 years crop share has to be within a certain % of the region (no deviation from standard data).
Determining Financing to Farmers
Farmer commits a fixed amount of future harvest to the protocol.
Pledges land as collateral if unable to fulfill commitment (lien).
NFT token minted to farmer that includes the contract details assisted by the agent .
NFT token is the agreement and can be deposited in LandX by the farmer for number of X tokens (1 xtoken = obligation to pay 1 KG of the crop).
xtoken tradable on free market which is where investors come in.
Investors buys the xtoken and stake to receive yield, which comes from farmers paying their obligation.
Parameter called maximum allowable crop share determines allocation of risk and incentives within the ecosystem.
If set at 50%, it means the farmer has to give 50% of his harvest every year.
Frequency of Yields for Investors
Staked xtokens produces yields to investor’s address in the form of ctoken every block (commodity token).
Ctoken = 1 kg of commodity determined by an oracle pulling prices from CME (Chicago Mercantile Exchange) and others.
Value determined by global market.
Does not need to wait for the farmer to harvest or sell as the xtoken minted by farmers are deducted and sold in advance.
Farmer’s responsibility to not fall below 13 months which will trigger his lien.
Investors are like landlords who are just collecting yields on crop obligations instead of the land.
Liquidity on Launch
Seed investors have committed capital for platform and significant amount of farmland.
Currently 50000 hectares of farmlands that can be onboarded.
Launching with about 2000 hectares of farmlands that can be tokenized equal to 4m US dollars of x tokens across 4 commodities.
Has a xBasket product which is an index of all 4 commodities.
5 liquidity pools about 400k to 1.2m liquidity depth.
Actively building out validators network around the world to increase geographical exposure.
Has an OTC desk for bigger investors.
Will be launching xUSD stable, a mechanism to provide investors larger allocation through stablecoin and provides farmers capital upfront.
Launch Date
Closing a private round in the next few weeks.
Launching governance token in a small public round for omega, alpha farmers and whitelist members.
Creation of xTOKEN pool after launch for trading to begin hopefully after Christmas.
Geographical Diversification
If you’re buying xWheat, you’re buying into all farmlands that are growing wheat.
Farmland may rotate to other crops due to seasons but the farmer are paying in the value of wheat.
Difference Between X and C Token
X token represents the price for 1 KG of the commodity every year.
Significant premium between x and c due to time difference.
E.g. cWHEAT is 35 cents but xWHEAT will be 6-15 dollars due to it representing 1 year of yields.
APR consists of commodity yield plus average appreciation of the underlying commodity.
LandX Revenue Mechanics and Fees
LandX token holders receive 60% of platform revenue.
35% goes to the operating entity running the platform.
5% goes to LandX choice which is a fund that looks at disseminating tech aimed at creating more sustainable farming practices around the world and ESG compliance.
10% platform fee when investors cash in cTOKENS and 3% prepaid by farmer when receiving xtokens.
LandX Impact on Global Farmer’s Equality
LandX current financing impact on global farming market is inefficient but hopes to grow this model with success.
Current farmland price is disconnected with its productivity which makes no sense due to people’s impression of the farmer’s country.
There is a market for commodities but none for valuing land productivity.
Being able to value land productivity regardless of countries will help to bring equality to farmers.
Possible points of failure
Need to be careful about countries as strong rule-of-law is required to enforce actions against farmers acting in bad faith.
Crop-share insurance is needed, currently 2 global insurance systems in the pipeline.
Only able to get parametric insurance (e.g heat, flood, etc) so 10% of the harvest will be insured.
Wants to extend this insurance or ability to buy the insurance to the rest of the harvest.
Regulatory uncertainty around yield bearing assets and tokens. LandX is attempting to be as transparent as possible with protocol assets.