Potential Interest Rate Swap use case in Cardano


Welcome everyone so today I wanted to do
a different type of video I wanted to do a use case video so people are always
talking about use cases for smart contracts, for cryptocurrency in general,
and I get a lot of different ideas and I maybe wanted to make this into a series,
but I wanted to get some audience feedback as well let me know what ideas
you have, but something that was very interesting in the last Cardano Effect
Podcast episode 10 with Philip Wadler he was saying that I pretty much came
out and asked them about a particular use case the interest
rate swap use case for smart contracts within Plutus and he was saying that the
the use cases for smart contracts have yet to be determined so what does that
mean in the early days of the internet I doubt that people understood exactly the
scope of what the internet could provide rather that the internet had to be built
before solutions like Amazon before eBay came on before sites started using them
to transact goods and services but this use case wasn’t familiar with the early
internet creators rather the platform is built and then developers come and then
it’s basically put out there exactly what is possible and it’s the exact same
thing with Plutus. Plutus is going to be that highly functional programming
language that’s going to allow ease of use for developers, including Marlowe as
well so people can start building their smart contracts on top of Cardano.
If you are a Haskell developer, you can build in Plutus. If you do not
have much programming knowledge, and you work for a financial institution then
use Marlowe. Cardano’s going to be offering the solutions that are going to
require or that are going to push developers to start building these
solutions on top of Cardano so I wanted to talk about this interest
rate swap contracts so this is what I was thinking so on the Plutus site if
you go to sample smart contracts I believe there’s a little blurb about
interest rate swaps so interest rate swaps are basically swaps between
financial institutions so they are pretty much gambling on volatility of
interest rates from a given time period so say you have one bank that has I don’t know
a million dollars and another Bank that has a million dollars one is basically
betting on the interest rates going up and they get paid and another one is is
is betting on the interest rates going down and they get paid so this could be
monthly, this could be quarterly, this could be yearly, this could be weekly,
this could be daily if the transaction speed was quick enough, but I
think that with these interest rate swaps running it on the Cardano
blockchain it’s going to allow for funds to settle in a lot quicker period of
time so interest rate speculation is going to be happening on a minute scale
versus like a major scale so they won’t have to wait for interest rates to close
on a monthly basis in order to collect their dividends from the
other bank they’re going to be able to do that in real time and allow for for money to be transacted in a much more seamless way so one of
the things that I thought was particularly interesting is people
always speculate as to why hold this cryptocurrency token to start off with
so say a company starts building a smart contract within Plutus or within Marlowe
and why would that company actually hold ADA as a token why won’t they just use
the smart contracting platform and move on from there
well there are a couple reasons a couple of different ways you can look at that
you know this could be an interoperable contract because Cardano is all about
interoperability so you could be you can be transacting with your local fiat
currency like the US dollar or Japanese Yen and be interoperable between crypto and
fiat see that’s the the problem with a lot of cryptocurrencies you know they
may solve a solution but is that actual institution going to hold it for a long
enough period of time in order to provide that needed liquidity
into the into that native token so for ADA if we have an interest rate swap
contract let’s say that it’s running concurrently with an epoch so that
five-day period that staking period when that closes that interest rate
contract closes when it’s run like that then the bank or the
institution that’s running that interest rate swap
contract if they hold ADA as the native token they could also be collecting
staking rewards within that contract so what if that contract is assigned to a
staking pool within that given time period and this gives them the proper
hedge in order to I don’t know collect that money the losing party could
be collecting money basically on that speculation so what do I mean by that
the losing party could technically if they’re betting on an interest
rates let’s say a couple percentage points or a fraction of a percentage
point and it goes in one favor and not goes in the other favor but if the
contract is being staked at the same time like it’s delegated to a staking
pool then the amount of money that they could earn could hedge against the
volatility of ADA so even if ADA is volatile within a couple percentage
points within that given epoch that could hedge against that, but that also
can provide that institution with added liquidity so they could actually be
earning while participating in the contract for other cryptocurrency
projects out there why would a company hold or why would an institution
hold that cryptocurrency when they are transacting in fiat in the world is
still transacting in fiat and there’s not going to be a change from fiat to
crypto anytime soon so especially we’re touting ourselves as
interoperable so we’re going to be communicating with the legacy system but
if we can offer an incentive to stay within our system that’s the
differentiating factor that’s going to allow the institutions, that’s going to
allow the banks, that’s gonna allow the small mom and pops to be transacting
within this ecosystem with relative ease like they’re
going to let’s say they want to stay within this epoch for five days and they
collect their staking rewards and they continue and it’s a hedge against the
volatility of ADA in general of course is very volatile now so it would need to
decrease in volatility over time but over time in the future this could
hedge against that volatility of crypto and this could also add it bring an
added incentive and they could be collecting rewards while in a contract
and there’s no reason to stay within that fiat system for that particular
contract whether it’s good to switch the assets from fiat to ADA
and then you know interoperate back into the fiat system when they’re ready to do
so, but that that given time period that waiting to collect your staking rewards
is very powerful if you’re a cryptocurrency or your smart contract
platform is not staking it’s at a huge disadvantage and it’s all about the
barrier to entry – because it’s not all about huge multi-billion or
multi-million dollar institutions gambling on interest rate swaps they
could be very small local mom-and-pop banks they could be small mom-and-pop
businesses that are working with hundreds of thousands of dollars or
tens of thousands or even thousands of dollars or even hundreds of dollars it
all depends. There’s various institutions of various different sizes. We’re working with the unbanked here. Think about if there’s
a small little financial institution that maybe has a few thousand dollars
for the people that live within that that ecosystem or a few hundred dollars
for the people that live within that ecosystem and they’re using that money
they’re staking, they’re investing, they’re hedging their earnings or
their savings or their speculation and they’re hedging it in ADA and
they’re hedging it against Shelley and they’re using Shelley as a tool
in order to continue generating continue generating so it’s all about the way you
look at it so I think there’s there are many different incentives to hold ADA as
and as a native cryptocurrency and I don’t know what are your thoughts
let me know if you have any other use cases I have. I’m probably gonna
make this a series because I’m thinking of another one right now as I speak and
please like, comment, and subscribe and until the next video
thank you

7 thoughts on “Potential Interest Rate Swap use case in Cardano”

  1. Looks like a papaya tree. Yummy. Great video and idea for a series. Thx. My Daedalus wallet is a mess. I had to finally delete it and restore after five days of it syncing from the old wallet to the new one. It’s still only 50% done a day later 🙄. What a pain in the neck. Can’t wait to be able to use the Ledger Nano.

  2. Another thoughtful video. The scope of usecases as it pertains to finance and liquidity is broad/deep… I think you're right, this deserves it's own mini series. Got me reorienting how I think about valuations

  3. My thoughts:

    1) Your facial hair is fantastic
    2) You are becoming a better speaker all the time (I am kind of jealous, I am thinking it is all the practice talking into a camera?)
    3) Try wendlers 5-3-1 strength program? You are a fantastic ambassador, now lets turn you into a Warrior King for Cardano!

    I jest, great video bro!

  4. First : I hate you for being in a t-shirt. I have a lot of snow here in Quebec city !! Second: I understand your point but we need a time frame because I don't think your use case can be possible in the next 2 years (maybe in the US). In Canada, banks have to trust crypto, understand proof of work vs proof of stake, understand staking, understand the advantage of staking with interest rate swap and use Cardano. It is a very good use case but hard to achieve (in my mind) quickly !

  5. I'd rather see farmers in africa using cardano blockchain to create futures contract to lock up the price of their produce rather than bankers using it to create complex toxic derivative contract for quick profit.

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