With the explosive growth of TVL in the DeFi market and numerous ways to create profits, it has become possible to design long-term and stable decentralized annuity products.
An annuity is a financial product that a subscriber regularly deposits a certain amount of money and receives in periodic cash flows, mainly to prepare an individual retirement or build a steady income source.
Annuity subscribers select a method of accumulation (temporarily or in installments) through a bank or insurance company to subscribe and deposit their money during the accumulation phase. The trustee will keep the payment under regulatory compliance. Then, the annuity operator will issue investment instructions to the trustee to generate profits and invest in various investment products such as deposits, funds, stocks, bonds, real estate, and infrastructure according to the instructions. At the payout phase, annuitants receive payment according to the stipulated terms of the contract.
Unfortunately, going through many institutions, annuitants sacrifice various fees involuntarily, ranging from sales commission to management fee, trustee fee, and success fee, which cause severe damage to long-term profitability. Furthermore, the traditional annuity system (also pension) contains various structural vulnerabilities such as the risk of inflation (sometimes hyperinflation), low-interest rates due to low growth, fiscal imbalances, intergenerational unfairness, and opaque management even though it is a fundamental safeguard for financial stability and essential investment tool for generating stable cash flows.
Of course, a citizen who lives in a liberal democratic country with a high income, steady GDP, population growth, and a clean political environment may not have to worry about these problems. Still, very few of the 7.8 billion people on the planet can be free from it or hedge to it.