Income JAR

Income JAR is a Decentralized Finance project giving users the ability to create an income stream from their assets. At its core, the user will deposit crypto assets like ETH or DAI into the contract, and will create a monthly or annual income stream, yielding a certain rate of return.

The basis and theory for the application is an annuity in the traditional finance world. An annuity allows investors to pay a premium, and receive an income stream, or defer the promise of an income stream. In traditional finance, the annuity is actually an insurance-based product, which comes with certain tax benefits (which we obviously can’t replicate at this time).

However, the idea is powerful. As a retail investor, I don’t want to always manage my investments, trying to get the best return compared to my risk profile, life profile, age, etc. It might be best for me to receive an income stream that is equivalent to a decent rate of return, and offload much of the investment risk, time, effort, etc. to another company.

We wanted to create a similar ability in the Decentralized ecosystem.

In our initial version of Income JAR, we will give the user the following choices:

Deposit amount Length of income stream - 1, 3, or 5 years Payment frequency - monthly, quarterly, or annual.

We will also pre-determine the rate of return for each length of the income stream

1 year - 6-7% 3 year - 8-9% 5 year - 12-13%

Once the user makes those choices, he will be presented with the amount of the regular income payments. If he agrees to the amount, he can then connect an Ethereum wallet and approve the transaction.

From the user side, the deposit amount will leave the wallet, and JAR tokens will be placed in the wallet. There is 1 JAR token for each DAI that is to be paid, and each JAR token is only good for a specific month.

For example, if Ron wants to deposit 1000 DAI and receive monthly income for a year, he will receive 89 DAI per month. After agreeing to the transaction, the 1000 DAI will leave the wallet, and the 1,068 JAR tokens will go into the wallet.

Each JAR token will be denoted with a month and year. In this example, the first JAR tokens might be July 2020. So on the first of July, 2020, those 89 JAR tokens will leave the wallet, and 89 DAI will be there.

At any point, Ron will have the ability to come to our website and connect his wallet. We will show him his income steam based on the JAR tokens he has in his wallet, and even a Net Present Value based on a discount rate he chooses.

Technicals

As of now, we will accept ETH or DAI as the deposit currencies. We will use Chainlink as the oracle to determine the value of the ETH for purposes of creating the amount of income.

The JAR tokens will be minted immediately, and they are ERC-20 tokens.

Since they are just ERC-20 tokens, they can be moved, traded, sold. We intend to give users the ability to send them to other wallets. We may offer to buy them back, but at a lower rate than we sold them originally.

Target Market

Our time in traditional financial services has taught us how valuable an income stream can be over just holding assets with a hope of increase in value. We use annuities for such a purpose in traditional finance, and they help our retirees have some guaranteed income based on a certain value of their assets plus a growth rate. The investors don’t have to worry much about the investment portfolio, volatility, management, etc.

With this product, we expect to build something similar in the Decentralized Finance world.

First, we know many DeFi users are not in the US or other developed countries that have insurance products like annuities.

We also know that many DeFi users are not able to manage their assets all the time. They want to take advantage of the potential to earn greater returns than in traditional banks or even insurance or investment products, but don’t have the time, expertise, or ability to discover those returns for themselves.

If we are to see more DeFi users that are not crypto native, but are more early majority, we need to help them easily take advantage of the efficiencies and opportunities, without having to learn all the nuance.

While we know the DeFi and crypto enthusiasts might not find the utility in Income JAR, we feel that the early majority will like the ease of use, and increased usability of Income tokens. As a parallel, we look to companies like Outlet Finance and Dharma as projects that allow users to see the growth afforded them from DeFi protocols, without having to fully manage the protocols themselves.

Use Cases

The easiest and most obvious use case for Income JAR is to just have an income stream, with a good rate of return. Again, we see this in traditional financial planning as a way to take some risk off the table and know that a client will receive income.

However, since these are ERC tokens, they are able to be sent to other wallets, traded, or sold. This opens so many opportunities for use cases.

Remittances We can see users buying the income tokens, and sending them to family in their home country. The family would not have the ability to spend all the money at one time, which is safer. Of course, they are earning a rate of return over this time.

Allowance Parents can purchase the income streams, and send them to their kids’ wallets as an allowance. This can work particularly well in the case where the kids are in college. Again, the children cannot spend all the money at one time.

Recurring payments The tokens can be purchased to match recurring payments like credit card, mortgage, auto loan, tuition, rent, etc. The return being generated on the deposit is usually higher than the interest charged for the payment terms.

Project Escrow Paying over time for a development or construction project, I can place the tokens in escrow and know I have the cash flow, at a decent rate of return, to pay contractors.

How Does it Work

When a user makes a deposit of ETH it is first converted to DAI using Uniswap.

The DAI is then added to the Investment Pool. Since we always know how many tokens we have outstanding for each month, we automatically move enough DAI into the safety pool to cover the next 2 months’ of payments.

We will be actively managing the funds in the Investment Pool. Based on our short-term, mid-term, and long-term cash flow needs, we will be allocating among different protocols and investment options.

We will be comparing the value of the Investment Pool to our cash flow needs. When the value of the pool is greater than the Net Present Value of cash flows, at 8% discount rate, we will move the delta to the Safety Pool. The funds in the Safety Pool will be invested in various lending protocols to continue to receive some growth, while not being subject to currency risk.

The Investment Pool will be invested in various options, some of which will not be pure DeFi investments, and some will not be on the Ethereum blockchain. For example, we may decide to stake a different cryptocurrency to increase our returns.

Even though our investments are not purely DeFi, they will all be reportable and auditable, since they will all be on some chain. Using Chainlink, we will provide the total value of all of our Pools, as well as the NPV of all cash flows, so users can see that we have enough assets to cover our obligations.

Our compensation will be the interest generated by the funds in the safety pool.

Future Plans

We have several options for the future of Income JAR, as we believe income tokens will become a vital part of the DeFi infrastructure.

Wallet connection We would like to connect to various Ethereum wallets like Argent, Portis, etc. as a DApp in their UI, so users can quickly create JAR Tokens, and see their own income stream.

They would also be able to buy, sell, and trade the tokens.

Market/Exchange We would like to create an exchange for the JAR tokens, in which users can buy and sell as many of the tokens as they would like.

Multi-currency Deposit We will have the ability to accept deposits in multiple currencies. We have not done it in this version as we do not want to take on the liquidity risk of being able to quickly convert to DAI. Shortly, we will have several more options for deposit, as we assess those currencies with high liquidity on Uniswap and Kyber.

White Label We would like to give investment managers the ability to offer Income JAR tokens but utilize their own investment management tools. For example, a group like Zapper, or PieDAO, or a fund using MelonProtocol could use their own wealth management to manage the Investment Fund.

We can give them the ability to make a few quick choices, and be offering their users income tokens rather than just volatile returns.

Fiat Connection Whether through a connection with a smart wallet like Dharma, or some other wallet that already has a Fiat on/off ramp connection, we would like to give users the ability to create income streams from Fiat currency, while we manage the crypto portion in the back end.

Security and Safety The first iteration of Income JAR is on the Ropsten TestNet. Before we go live we plan to have the smart contracts audited and the reports made public on our website.

The wallets we use will have multi-sig capabilities and will require more than one of us to enable transactions.

The Investment, Safety, and Payout pools will all be transparent, showing the values. As mentioned earlier, not all the Investment Pool funds will be in pure DeFi apps or protocols, but will be all on-chain so they can be audited. A report will be constantly available on our website.

We will purchase Smart Contract cover via Nexus Mutual to cover any smart contracts for which the coverage is available. We will also be utilizing hedges like Opyn and Hegic to protect against extreme downside risk in our Investment portfolio. We will also be managing risk via cash flows management. We will be able to weather some volatility in the value of certain staked tokens by virtue of the diversified allocation that can provide regular returns.

In the first iteration, we will limit deposits to $1000 initial values per wallet. In the case that a smart contract is hacked or the system is gamed, we don’t want our users to lose too much.

As of now, we will accept ETH or DAI as the deposit currencies. We will use Chainlink as the oracle to determine the value of the ETH for purposes of creating the amount of income.

The JAR tokens will be minted immediately, and they are ERC-20 tokens.

Since they are just ERC-20 tokens, they can be moved, traded, sold. We intend to give users the ability to send them to other wallets. We may offer to buy them back, but at a lower rate than we sold them originally.

When a user makes a deposit of ETH it is first converted to DAI using Uniswap.

The DAI is then added to the Investment Pool. Since we always know how many tokens we have outstanding for each month, we automatically move enough DAI into the safety pool to cover the next 2 months’ of payments.

We will be actively managing the funds in the Investment Pool. Based on our short-term, mid-term, and long-term cash flow needs, we will be allocating among different protocols and investment options.

We will be comparing the value of the Investment Pool to our cash flow needs. When the value of the pool is greater than the Net Present Value of cash flows, at 8% discount rate, we will move the delta to the Safety Pool. The funds in the Safety Pool will be invested in various lending protocols to continue to receive some growth, while not being subject to currency risk.

The Investment Pool will be invested in various options, some of which will not be pure DeFi investments, and some will not be on the Ethereum blockchain. For example, we may decide to stake a different cryptocurrency to increase our returns.

Even though our investments are not purely DeFi, they will all be reportable and auditable, since they will all be on some chain. Using Chainlink, we will provide the total value of all of our Pools, as well as the NPV of all cash flows, so users can see that we have enough assets to cover our obligations.