A fixed annuity is a contract between you and an insurance provider. It can act as a safe place for cash to accumulate interest tax deferred. You pay a lump sum of income, and in exchange, the insurance provider guarantees your principal plus a minimum interest rate fixed over a multi-year time horizon. At the end of the annuity agreement’s period, you can withdraw your initial principle plus the accumulated interest.

People buy fixed annuities because they promise a guaranteed return, regardless of the market. They provide a peace of mind because they aren’t ties to market downturns or recessions. They’re also an amazing retirement savings vehicle because they get tax-differed growth, meaning that interest can accumulate without incurring annual taxes, as is the case for a CD. This not only makes them attractive for people nearing retirement age, but also for corporations and wealthy individuals who have excess cash on their balance sheets or want to donate to charities.

Providers back annuity agreements because they want access to USDC (U.S. dollars) using their existing assets (ETH) without having to sell their ETH and buy USDC directly. They believe that their ETH will appreciate over the years, so they don’t want to lose it. However, they need U.S. Dollars to participate in securities markets or conduct business transactions. Due to the efficiencies of smart contracts, they can borrow USDC for lower interest rates than ones offered by common banks. They can also borrow regardless of their race, ethnicity, and identity.

A fixed annuity is a CD-like investment which credits a fixed interest rate over a specified period. However, unlike a CD which must be bought at a bank or an existing industry-standard annuity which must be bought from an insurance company, smart contract annuities can be bought or sold from peers across the globe. This results in a much larger pool of capital to access and zero overhead or administrative costs which nets in greater returns for both parties in an annuity agreement.