Enabling Perpetual Income

Olivetree has been developed to address the most significant retail product gap in crypto and to serve demand for the largest, most sought-after product category in personal finance – long-term fixed income.

Crypto and DeFi strive to broaden financial access, inclusion and to bank the unbanked by providing open access to decentralized, permissionless financial products. Yet, for most of the population, many of the most popular and in-demand products, such as those offering reliable fixed income, remain unsatisfying. The products that currently exist exhibit risk and return profiles that do not fulfill the desires of passive capital that would otherwise fuel broad adoption.

Olivetree exists to bridge this gap and enable the next wave of retail-crypto adoption by solving the unmet and growing demand for a low-friction dollar-denominated investment product with a perpetual, fixed-rate return.

Introduction

Olivetree is a decentralized protocol built on Ethereum that delivers wealth solutions designed for the everyday stablecoin user. Without reliance on existing banking products, centralized exchanges or custodians, Olivetree provides a globally accessible and permissionless dollar-denominated fixed-rate savings product for stablecoins - The DeFi Annuity.

More importantly, The DeFi Annuity provides the ability to concurrently accomplish each of the following objectives, even though they may seem mutually exclusive:

1. Deliver a perpetual, fixed-rate income opportunity

2. Improve average returns realized by stablecoin users by 50-60% (or more)

3. Reduce penalties and fees impacting TradFi annuity holders by 90-100%

4. Capture more aggregate annuity market share than incumbents from global USD savers

Simply tokenizing the current generation of TraFi products does not accomplish these objectives.

The DeFi Annuity is transparently custodied, over-collateralized with real-time proofs, free to compose throughout DeFi (meaning it enables more rapid experimentation and growth as developers can build on a base set of contracts, integrations, and liquidity) and is available to stablecoin users worldwide. This combination creates the first product of its kind, one that functions as a perpetual fixed-rate savings instrument.

This article will focus on the current landscape for stablecoin yield, why Olivetree can outperform and deliver customer-centric products, and how this allows The DeFi Annuity and Olivetree to capture profits.

The Painful Problems

Users have limited options for meaningful risk differentiation

While there exists a broad selection of stablecoin yield venues today, they are effectively homologues that lack meaningful risk differentiation, creating a lack of selection. They offer volatile, variable yields that are unpredictable in their result and present a high risk of capital loss. They are not suitable to compound for the long-term.

These products (like Aave Core v3’s non-volatile paired pools) are designed around the crypto-native demand for leverage, and they have done this well. These platforms generate returns for investors by productizing the on-chain demand for leverage into a dynamic (variable) lender-rate that anyone can earn. Overall, the structural nature of these systems is:

Demand for leverage is volatile, ergo, yields derived from leverage are volatile.

Expectations =/= Reality

The appeal of like products is: when price action is in an uptrend, the demand for leverage raises rates, drawing the attention of stablecoin holders that are eager to earn an attractive risk-adjusted yield, and capital inflows follow. These returns are highly reflexive due to the narrow and marginal nature of the underlying demand drivers. Over an extended investment horizon and across cycles, users might be surprised to see that their realized returns in these strategies are below expectations, and almost always lower than the number they saw when first depositing funds.

In short, users experience two major problems:

1/ Yield products all look the same

Isomorphic cash flow profiles and generally undifferentiated risk-return relationships mean if a user is not interested in this offering, they have few choices, often electing to sit in naked positions earning little to no yield.

2/ Expectations vs. Reality

The yield a user sees when they deposit, usually in the double-digits, is not what they realize ex-post over time. It’s often 50 - 80% less.

Most importantly, this helps answer why non-volatile stablecoin DeFi venues today only contain ~5% of the total stablecoin market cap. Although this represents ~$12 billion, this is a modest segment of total stablecoins that is trending to continue growing with the market, but is not capturing any further share of the market.

Stablecoins users are in desperate need of alternatives, specifically: more stablecoin savings products that offer differentiated risk-return profiles.

We fundamentally believe everyone in the world could and should have access to a savings product that provides a perpetual fixed-income stream they can rely on.

Unpredictable risk-return profiles are not suitable for long-term allocations

In our discussions with hundreds of retail investors, a preference is clear. Predominantly, retail investors' preference is not to self-manage their investments and risk exposure in real-time, or commit the same degree of attention and precision as traders or professional institutions. The overwhelming product preference is for less volatility and increased comfort through longer time horizons and an ability to watch their money compound.

Ergo, the ideal wealth solution for most retail investors is not the same product preferred by traders or professional investors.

DeFi has become fundamentally abstract. Olivetree is taking a different path to bridge the needs of the next 100 million stablecoin users.

Stablecoin-Enabled Yield Products

Dollar-denominated savings products are the cornerstone of the global investment industry and the most sought-after personal finance products. While 335 million US citizens have unfettered access to their $100 trillion financial market, individuals in the rest of the world face significant barriers, limiting their options to invest in dollar-denominated products.

1.4 billion people worldwide actively use US dollars for remittances and savings. Additionally, we estimate that around 80% of the global population (6.3 billion people) would prefer to hold USD over their local currencies.

This immense demand for USD drives the $200 billion stablecoin market, despite its current 'return-free risk' profile. Looking ahead, we expect the stablecoin market to grow exponentially, reaching $2 trillion in the next decade. As the market expands, we anticipate a broader range of users, including those from the 'mainstreet' demographic, who will bring diverse perspectives, preferences, and priorities.

We see stablecoin savings products that offer permissionless, predictable returns as the largest market opportunity in crypto today.

This is the market opportunity for stablecoins and the market opportunity for Olivetree.

As of today neither USDT nor USDC, who combined control 89% of the stablecoin market, pass along any of their earned yield to the holders of their stablecoins. Said in the inverse, tens of millions of users holding ~190Bn in stablecoins are receiving so much value from those products, that they are willing to forego the ~4 to 5% in interest they could otherwise be earning.

Why?

For many of these users and residents of non-dollar jurisdictions, their alternatives are limited. Stablecoins are their lowest-friction access point to dollars.

The second reason is, trust. Trust takes time to build. But, as protocols like Ethena are proving, trust can be built, and capital flows follow.

Variable Yields

This obvious gap has opened the door for players like Ethena and Mountain to introduce yield-bearing stablecoin products for users demanding that their savings earn some type of yield. Mountain’s approach is to take one small step up the curve and flow-through most of the interest earned from their US gov. paper holdings backing USDM, to USDM holders. While Ethena’s staked USDe (sUSDe) earns a higher, more volatile yield derived from the funding and basis spread earned from delta hedging derivatives positions, one of the oldest and most liquid trades in crypto.

These products, in combination with DeFi lending venues mentioned earlier (such as Aave), represent the majority of in-demand yield products on-chain today.

Olivetree’s DeFi Annuity, an absolute return product, sits somewhere in between in terms of risk and return, but introduces a significant and transformative benefit to users — the delivery of a predictable, perpetual, fixed-rate yield.

Retail Wants Fixed-Rate Yields

The correct way to measure the aggregate market demand for retail fixed income is not by taking a myopic view of the onchain current market size (< 500m), sales and growth metrics today, but by analyzing second-order impacts as a litmus test to determine how well these products have performed for investors and whether this has led to capital flows in- or out- of the asset class.

At the end of the day, what customers experience are realized returns. The everyday retail investor (specifically, non-trader) focuses more on what an investment is allowing them to achieve, versus the act of managing their investments with an extremely high degree of precision.

With that said, substitution occurs in investing and the most attractive traits an investment can have for retail investors is some combination of predictability, certainty and confidence:

1. Predictability that their investments can deliver returns, when they need them

2. Certainty that those returns are coming, so their money is working hard for them, and

3. Confidence that they will not lose their hard-earned savings in the pursuit of these returns, and they can continue to allocate capital for the long-term.

Consequently, retail investors have faced investing difficulties, as there are limited product selections available. Most lack specific traits that are most important to them, and as a result,  investments that would be best suited to their needs, such as fixed income, are under allocated.

We believe we’re in the very early stage, in the infancy, of the market opportunity for stablecoin fixed-income products - hundreds of billions within the next 10 years.

We are addressing these problems to develop a better fixed-rate savings product for retail investors.

The on-chain Fixed-Income Trilemma

The on-chain fixed-income trilemma refers to an underappreciated combination of traits that all fixed income products on-chain have not met to this point, hampering the commercial success of these products:

1. Scalability

2. Reinvestment Risk

3. Flexibility

On-chain fixed income products have long standing issues with scalability as their growth is inextricably tied to the on-chain growth in what we call the “Double-Coincidence of Wants for a Long-Term Credit Market”. In efforts to scale these products, protocols eventually pursued designs that created increasingly higher expected yields with no threshold for counterbalancing risk. We believe this defeats the core value proposition for a fixed-rate stablecoin savings product, re-investability. When fixed-rate products carry the same reinvestment risk as variable products or equity, they do not provide uncorrelated risk profiles or sufficient seniority protection alongside a worse liquidity profile than variable, equity or token positions.

The select few platforms offering fixed income have by and large succeeded with the more obvious challenge being the flexibility offered to users to move in or out of positions at will. An aspect of fixed-rate products that can be inherently fragile and unstable is that some designs require capital to be locked for the entire term to maturity.

Attempts to create fixed-rate return products have also failed to scale due to an over-reliance on decentralization and the challenges of creating a marketplace platform for peer-to-peer lending. The on-chain decentralized direct lending market is not sufficiently mature to offer the liquidity or market depth to grow this product alone. Lending products have also suffered from concentrations of counterparty risk, leading to waves of losses, due to the overall nascent stage of the market despite designs that included margins of safety for defaults.

At the heart of it all lies this question: How can we provide a re-investable, scalable and flexible product which is both fixed-return in nature and delivers a highly confident, perpetual, compoundable return to users?

The Solution: The DeFi Annuity

Enabling compounding with a fixed-rate, perpetual, low-friction source of yield for stablecoin users

We are believers in the investment aphorism “Diversification is the only free lunch in investing”

Mechanics of The DeFi Annuity

A hybrid-finance (HyFi) system that: Cuts out the middlemen, cuts out the fees and cuts out systemic return extraction

The DeFi Annuity is created via a deterministic hybrid-finance system that links compositions of fixed-rate yields against the dollar-denominated collateral of hyper-diversified positions across both offchain private markets and decentralized venues.

Olivetree delivers a key to address the Fixed Income Trilemma with The DeFi Annuity:

1. Flexibility is provided through the HyFi system that maintains transparent, 24/7 auditable reserves and proof of collateral, further supported by a native LP position. These combine to provide holders of The DeFi Annuity the option for both immediate liquidity and the flexibility of full withdrawals at their preference.

2. Re-investability is accomplished by the deterministic routing of capital between on-chain venues and off-chain private markets (that are beginning to see tokenization). Providing capital into voids of excess demand, pervasive across the $1.5 trillion private debt market, allows for virtually unconstrained growth. Contractual returns are programmatically delivered to holders of The DeFi Annuity, with integrated auto-compounding.

3. Scalability is achieved by optimizing capital allocations across transparent fixed income positions, concatenated from offchain private markets and decentralized venues. Capital supplied to these venues today, in particular off-chain private markets, is inefficiently allocated and in high demand, allowing Olivetree to serve a yield-convergence function across this $1.5 trillion market. Primary issuance of The DeFi Annuity is perfectly matched with contractually yield-bearing collateral.

Asymptotically, this becomes equivalent to lending a fraction of a dollar to a multitudinous number of creditworthy institutions and SMEs across the dollar-universe, that effectively increases without bound. This is how we think about hyper-diversification.

Snowball

The beauty of investments that predictably compound is that the capital involved inherently has a bias to extrapolate and become long-term. When Alice sees her expected returns being delivered, she invests more and tells her friend Brian, who does the same then tells his friend Dave. This fuels a powerful reinforcing product loop.

What Comes Downstream From The DeFi Annuity?

What does having a fixed-income base layer unlock?

While the focus of Olivetree is simple fixed-rate stablecoin savings products, we expect The DeFi Annuity and our fixed-rate perpetual infrastructure to serve as a compelling base layer for other products to compose with, and build products upon which were not possible before.

The DeFi Annuity provides the following traits as a base asset on which to develop:

1. Fixed-Yield Stablecoins: The DeFi Annuity as a scalable, re-investable dollar savings product, with hyper-diversification and the flexibility of deep liquidity is uniquely positioned to act as collateral for stable instruments seeking to offer high-yield fixed income as a product feature.

2. Yield Floor Above the Risk Free Rate: With a fixed-rate yield above the risk free rate, we will enable DeFi yield strategies to offer an attractive minimum yield within their vaults, while their proprietary alpha strategies provide upside beyond that.

3. Repurchase Agreement Financing: A dollar-denominated asset with a stable value and embedded yield is uniquely positioned to serve the role of collateral in existing markets throughout DeFi, allowing for attractive yield-aggregation strategies and higher post-leverage returns on the underlying product. Transparency and auditability meaningfully reduce the risk of contagion cascades.

4. Automated Portfolio Managers: Much like traditional financial advisors exist today, automated portfolio managers powered by AI will be uniquely positioned to actively and precisely manage user capital, tailored to specific risk-return preferences, and able to instantly react to market gyrations. We provide an attractive fixed income option for these managers, as we serve as a key pillar in the construction of a prudent portfolio. Beyond DeFi composability, this is about AI agent composability as well.

The Team

What’s Next?

• The Olivetree Product team will be releasing a GitBook with technical documentation to help expand on the concepts, structures and mechanism designs.

• Through Q2 and Q3, Olivetree contributors are developing and testing the hybrid finance system running The DeFi Annuity with investors and whitelisted capital partners. You can apply to join the upcoming testnet phase (updates will be provided on X).

• A capped public launch of The DeFi Annuity will follow. This sequential launch is intended to scale the product in a controlled manner as we test the HyFi mechanism, complete security audits and expand partnerships.

Follow our X to stay informed on opportunities for early access, involvement and our launch.

Income-For-Life is here.

IFL