The High Return Seigniorage Fund offers cloud deposits
with various interest rates and level of risk
Looking for an alternative to Bank Deposits?
Risk is understood to mean a possible rate reduction of high-yield deposits returns and redirecting profit to lower-yield deposits when the overall seigniorage rate is reduced, and not a capital loss.
Your CENTUS are stored on your multisig accounts (in the cloud) and are under your full control.
Deposit rate is derived from CENTUS seigniorage rate and amounts to 1.15% (as at 17.01.2020) plus additional 10 to 40 percent depending on deposit type.
Demand Deposit: 1.15 + 10% every Tuesday and Friday
Short-term Deposit of 1 month: 1.15 + 15% = 11.07%
Savings Deposit of 3 months: 1.15 + 20% = 38.97%
Balanced Deposit of 6 months: 1.15 + 30% = 104.35%
High-Return Deposit of 12 months: 1.15 + 40% = 426.52%
The base rate on which the increased interest is accrued is fixed until 01.04.2020. After that additional interest will be accrued on actual seigniorage rate.
How it Works
To understand how the cloud seigniorage deposits work and how the deposits are formed using different tranches with various interest rates and level of risk, let us take a look at the following example.
Suppose that 1000 participants decide to create deposits of $ 1,000 each for a total of one million dollars. *
The participants do not transfer this money to the fund on a trust basis.
Instead, each of them creates a multisig wallet with three signatures: one signature is the main master key that initiates transactions and is stored by the participant themselves, and the two others are additional keys that are stored by the fund operators. The second key is an option, should one of the employees loses his key or something happens to him. **
Thus, the participants provided themselves with a 100% guarantee that their assets in deposits will not be lost if the fund decides to use them for some of its purposes and mismanage them.
We recall that the fund is a self-directed investment society that consists of the participants themselves. The participants make joint decision about which deposits of which profitability and with which risk level to invest in and do it not collectively, but in decentralized way, which provides the participants with full control over their funds.
The fund is intended to accumulate participants’ funds and thus reduce their supply on CENTUS market to stabilize the value of the token at the level of 1 US cent and, accordingly, increase the income of the fund’s participants.
As a collective participant, the fund receives increased seigniorage, from which it pays an additional interest to its members.
Why is it Profitable to Invest in a Fund?
Imagine that you created a deposit of one thousand dollars and received your 10 percent per month, but at some point you wanted to take profits and decided to have your money back. Normally, you either lose your interest or even pay a fine as result of early withdrawal penalties.
In the case of cloud deposits, you can leave the fund ahead of schedule at any moment without losing money on fines, and even get seigniorage in the amount of the standard rate normally accrued to participants who are not in the fund. Maybe it will be 5%, or more or less, but in any case, your deposit remains liquid and brings you although not increased, but stable income at the usual seigniorage rate.
The liquidity of the deposit means that it can easily be turned into money, just like a demand deposit, and you will receive income even when you leave the seigniorage fund.
It goes without saying that when creating a deposit, you must analyze the situation and evaluate how likely you will receive your 10 percent.
Indeed, the things on the market may change against your favor: for example, the seigniorage rate may fall or the CENTUS offer on the market become higher than expected.
Not many people can forecast the future market activity, weigh everything more or less accurately and evaluate the market. Moreover, even expert forecasts may be inaccurate.
And finally, investors are also different: for example, someone considers the creation of high-yield deposits as too risky idea, so they are ready to receive a lower interest on condition of lower risks.
For another category of investors, on the contrary, such investments may not seem very attractive, since they want to earn much more and are not interested in receiving 10 percent of interest.
But with such a scheme, you won’t be able to make more money, so the seigniorage fund complicates the scheme and provides its investors with a derivative financial instrument, or derivative: They take a certain base asset and divide it into assets with different risk levels. The result is a derivative asset.
Let’s look at how you can take one asset, for example a set of cloud deposits, and satisfy the needs of all investors.
How can one satisfy the needs of a cautious investor who is willing to invest money at a lower percentage, but with less risk, and the needs of a gambling investor who is willing to take risks for the opportunity to earn more, at the same time?
We recall that the risk is understood to mean a lack of profit as a result of a decrease in the overall seigniorage rate and, consequently, a loss of valuable time for which you could earn a regular seigniorage, and not a loss of invested funds, since deposits are controlled by the participants themselves.
Let’s consider the same 1000 participants who created cloud deposits for a whole amount of million dollars, and the same seigniorage fund, but imagine that now the funds are not evenly distributed between one thousand deposits, but first divided into three tranches.
A tranche is a share of an asset. Let us call our three tranches high-yield, moderate and conservative; these names are often used in the investment industry.
If, for some reason, the fund suddenly begins to receive less seigniorage, the holders of the conservative tranche deposits will be the first to receive their interest. This is the least risk tranche.
A moderate tranche offers the next (medium) level of risk. Holders of the moderate tranche deposits risk a little more, but at the same time they receive a little more profit than holders of the conservative tranche deposits.
In the event of decreased seigniorage rate, holders of a high-yield tranche deposits will be the first to lose their interest. If the overall seigniorage rate falls as a result of the high CENTUS supply on the market and people start selling CENTUS or investing it in BILLEX to reduce the supply of tokens and stabilize the cost of CENTUS, all losses are offset against the high-yield tranche profits.
Thanks to this, both the moderate and conservative tranches are more protected.
So, we split our million dollars into three tranches:
Conservative of 400 thousand dollars;
Moderate of 300 thousand dollars;
High-Yield of 300 thousand dollars.
The conservative tranche was formed through the creation of conservative cloud deposits. 400 such deposits were created, the cost of each of them is one thousand dollars.
Due to this, the fund accumulated 400 thousand dollars. Suppose that holders of these deposits receive a six percent profit per month.
6 percent is not so much, but these investors have almost no risk. They only may lose their interest, if the seigniorage rate drops to zero percent and remains at this level for a long time until the accumulated seigniorage reserves of the fund run out.
We proceed from the assumption that the fund will receive 100 thousand dollars a month: This is the seigniorage rate accrued to the fund.
6 percent will be immediately paid to the holders of the conservative tranche deposits.
6 percent of 400 thousand is 24 thousand. Thus, the holders of the conservative tranche will receive a total of 24 thousand dollars.
A moderate tranche is formed in a similar way and consists of 300 deposits, one thousand dollars each.
Suppose a fund pays 7 percent on these deposits, that is, slightly more than on deposits of the conservative tranche.
Seven percent of 300 thousand, that is, 21 thousand dollars a month, will go to holders of moderate tranche deposits.
In reality, the interest rate is determined by the general seigniorage rate, but now, for simplicity and clarity, we will assume that the interest rate for these two tranches is fixed.
Each month, 24 thousand from the total fund profit of 100 thousand dollars are received by the holders of the conservative tranche, 21 thousand goes to the holders of the moderate tranche, and the rest goes to the holders of the high-yield tranche.
In this way, provided that seigniorage payments to the fund amount to 100 thousand dollars per month, holders of the high-yield tranche deposits will receive 55 thousand dollars for the invested 300 thousand – this is 18.3% per month.
You will say: But that is a high profit.
Why, then, not all participants invest in a highly profitable tranche?
To answer this question, let us consider another scenario.
Imagine that the general seigniorage rate fell by 10 percent, and now the fund only receives seigniorage of 90 thousand dollars a month instead of 100 thousand.
Holders of the first two tranches are protected against the risks:
The holders of the conservative tranche deposits will receive their 24 thousand dollars;
The holders of the moderate tranche deposits will receive their 21 thousand dollars.
However, the holders of a high-yield tranche deposits will receive only 45 thousand dollars in this case. Their interest rate decreases, but still remains above average.
Now, imagine that the situation on the market has become even worse: The seigniorage rate has decreased significantly, and the fund began to receive only 50 thousand dollars instead of 90 thousand.
In this situation, the holders of the conservative tranche deposits will still receive 24 thousand dollars.
Holders of the moderate tranche deposits will still receive 21 thousand dollars.
Holders of a high-yield tranche deposits will get only 5 thousand dollars.
5 thousand is only 1.66% of 300 thousand.
They were ready to take risks for greater profit. If CENTUS sales increased and the seigniorage rate rose in the encouraging market, they would still receive more than 18 percent of interest.
But since the market situation worsened and the fund’s income fell by half, the highly profitable tranche took the brunt of it. Returns for its investors fell to almost zero, while the others continued to receive their interest steadily.
If the market (and the seigniorage rate) would continue to fall, then a moderate tranche would also suffer, followed by a conservative one.
If the rate would drop below 6% per month or even temporarily wouldn’t be accrued due to CENTUS price stabilization process, which cause participants to convert their funds to BILLEX, the seigniorage accumulated over the entire time would be redistributed from high-yield tranche deposits to moderate and conservative or even from moderate to conservative ones.
This is how cloud seigniorage deposits work.
The High-Return Seigniorage Fund is an independent partner of Centus project. All services provided by the fund are proprietary developments of the fund and its participants.
*All figures in the examples are only provided for simplicity and clarity.
**In the future, the safety of funds will be managed by a smart contract.