Table of Links
Abstract and 1. Introduction
- Stablecoins and Lending Markets
- Fixed-Rate Lending Protocols and Derivatives
- Staking Derivatives
- Staking Fees as Stable Interest
- Stabilization Mechanisms
- Some Caveats
- Diversification, Interest Rates Swaps, and Tranching
- Towards Universal Basic Income
- Closing Remarks
- Acknowledgements and References
10 Closing Remarks
We have reviewed the logic of how the generation of a stable savings interest rate at as high as 20% annual rate is possible. In traditional financial investments, such a high and stable rate is above what even some of the best investors can achieve these days [62]. The key innovation here is to capitalize on the unique features of decentralized networks and lending marketplaces. In particular, ordinary savers can participate in multiple network stakings and fixed-rate saving products.
It is important to recognize that this is not a technical sleight of hand. The economics behind it are straightforward. Through staking, one contributes to a process that allows highly efficient and robust financial services and products to be delivered, along with other applications [63, 64] of the blockchain system. Outside of the context of network staking, the same concept applies for liquidity pools, which allow automated decentralized markets to take place. To capture the growth of the cryptocurrency market, one can also turn these into relatively fixed-rate future incomes via interest rate swapping mechanisms, and thereby use the income to further finance stable income for the savers.
In the traditional financial world, some bankers may lose part of their bonuses during economic downturns. But it rarely cuts into their base salary level, because their services are supposedly still valued. Likewise, even as the cryptomarket sees adjustments, staking fees in decentralized networks are here to stay, for staking contributions to the automation of jobs akin to those done by bankers and corporate lawyers. The very premise of decentralized finance is that everybody can participate fairly in the market mechanisms. Unlike in the traditional financial system, in decentralized finance everyone can be a ‘banker’ – even if only passively, indirectly, on a smaller scale. This is the economic basis of how we can possibly provide the household savers with meaningful basic wealth.
11 Acknowledgements
We thank Sahil Dewan, Giv Parvaneh, and Boris Polania for helpful discussions and comments. HL has previously received consulting fees and research funding from Harmony.
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:::info
Authors:
(1) Hakwan Lau, Center for Brain Science, Riken Institute, Japan ([email protected]);
(2) Stephen Tse, Harmony.ONE ([email protected]).
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:::info
This paper is available on arxiv under CC BY-SA 4.0 DEED license.
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