In this segment we discuss liquidity, specifically why 65/35 is important and the acceptable variances. These ratios are guardrails used in the Asset Ledger to protect the value of the wealth with DirtiCoin.
65/35 are key ratios for DirtiCoin
Liquidity – 65% Real Estate Assets
The chosen 65% reserve threshold based on lending practices which have been sufficient for lenders to protect their equity. Additionally, these practices preserve their liquidity in the face of economic downturns.
Most commercial lenders will only lend up to 65% of the value of real estate. In the event of foreclosure this allows them to use the forfeited owner’s equity to pay the costs while recouping the principal of the loan.
For DirtiCoin buyers, this ratio protects the overall value of the investment in DirtiCoin by providing the necessary safety margin to protect against the risk of non-performing real estate deals. It also represents the exchange rate the Company is establishing between DirtiCoin and real estate. If a total liquidation event of DirtiCoin occurred, and it were all done in USD, for every $100 USD of the liquidation, the Company would sell off $65 USD worth of real estate and provide the remaining $35 USD from liquid assets.
35% Liquid Assets
Revenues for real estate deals usually fund ongoing Company operations. However, revenue from real estate deals tends to be uneven. The 35% liquidity reserve allows the company to maintain adequate liquidity levels to fund ongoing operations, even when deal revenues are temporarily inadequate.
Liquidity – Your Needs
The liquid assets also give us the ability to quickly and easily meet your routine needs to use some of your wealth.
Imagine that you have 1 DirtiTown worth of DirtiCoin (see DirtiCoin Denominations), about $1m USD. You need (or want) to buy a collectors car that costs $80,000 USD. It is worth $160,000 USD. To get it for this low price, you must buy it today.
If we (or you) had 100% of your wealth tied up in real estate, we would have to sell something to get you the cash you want. That might take days, weeks, or even months. You would lose the deal.
Instead, you can convert some of your DirtiCoin to cash and give it to the seller. Or, you might offer to pay the seller directly in DirtiCoin. The transaction takes a few seconds, and you didn’t lose the deal.
Our Liquidity Needs
Real estate is often a cash-intensive business. Maintenance, repairs, and improvements typically require prompt cash payments. Often, without those repairs, maintenance, or improvements you cannot rent or sell a property. In others words, sometimes you need to spend money to get money. The harsh reality it that often, with real estate, you have to take money out of your pocket (your savings or reserves) before you can put money into your pocket.
Without a liquid reserve the Company would have no way to pay for these costs. In the end, that would force us to sell other real estate to create a reserve, and that would decrease the value of your DirtiCoin.
Liquidity – Acceptable Variances in the 65/35 Rule
DirtiCoin regularly checks on the health of the Company via a publicly available version of the Company Assets Ledger (the Ledger). The Ledger is a subset of the Company’s balance sheet. The Ledger provides summary information about the real estate assets and liquid assets backing the value of DirtiCoin. A “state” indicator shows if the assets are within tolerances (see Asset Ledger Changes for a full description of the various ledger states).
Releasing DirtiCoin for sale temporarily throws the Ledger out of balance. The Ledger stays out of balance until the newly minted DirtiCoin is bought up and the cash is invested in real estate. DirtiCoin releases are accompanied by a change in the state to “Initializing.” Initialization persists until the balance of assets are within tolerances.
Daily Variances
Keeping ratios exactly at 65/35 is not reasonable. Acquisitions, divestitures, and revaluation of both real estate and liquid assets changes the ratio of real estate to liquid assets. DirtiCoin allows a variance of 15% above and below the target ratio. Therefore, real estate to liquid assets ratios range from 50/50 to 80/20 (real estate to liquid assets).
The Company will routinely update and monitor asset ratios. Out of tolerance ratios require us to decide if we can fix the ratios using current assets, or if we need more (or less) DirtiCoin. If we need to change the amount of DirtiCoin, we will change the ledger state and initiate a vote. This won’t happen often. For instance, if we know that the ledger is moving out of balance and that a transaction is in progress which would bring the ledger back within balance, we may decide to wait until the impacts of the deal are felt. More often, we will consider trends in advance of breaches of tolerances. If we can’t take countermeasures, then we may proactively initiate a state change and request a vote from DirtiCoinDAO (the DAO). This allows us to act while the ledger ratios are still within tolerances.
Conclusions
A target ratio of 65/35 between real estate and liquid assets reduces many risks and enables opportunities. As a DirtiCoin buyer the Asset Ledger lets you always see the value of assets protecting your wealth. Tolerances of 15% above or below targets avoids creating continual crises. As a Company, our primary duty is to protect and grow your wealth as safely as possible. The monthly updates to the Public Asset Ledger make our efforts more transparent than other companies.
