The Killer App

Introduction

In this blog, I will explore a hypothetical fintech app designed to empower users while simplifying complex, cutting-edge financial technologies. I will discuss its technical implementation, potential benefits, and challenges. The app would align incentives between its creators and users, ensuring profitability while providing value. At first glance, it would function like a peer-to-peer payment app such as Venmo or Cash App. However, its operation falls into a regulatory grey area, depending on how authorities choose to govern such businesses.

Below, I outline my thoughts on the app’s design and key considerations.

Sitting balances that work for the user

Most payment apps leave user balances idle, missing an opportunity to generate returns. Instead, these funds could act as a high-yield savings tool, earning passive income for users. This can be achieved without requiring the app’s developers or users to navigate the complexities of traditional finance.
My proposed approach involves depositing user funds into decentralized finance (DeFi) protocols while abstracting away blockchain intricacies. The app would provide a seamless, user-friendly interface, allowing users to benefit from DeFi yields without needing technical or financial expertise. This method simplifies the process while minimizing market risk exposure.

Implementation:

Many blockchain enthusiasts embrace the principle of "not your keys, not your coins", making centralized fund management a controversial topic. However, expecting mainstream users to manage asymmetric encryption keys is a major barrier to adoption.

While educational resources can help users store keys securely, customer support challenges remain. Lost or mismanaged keys can lead to irreversible fund losses. Additionally, navigating the current DeFi user experience—approving token spending, managing gas fees, and executing transactions—remains complex for the average user.

A centralized intermediary would not only simplify onboarding but also enhance real-world security. In traditional digital wallets, coerced transactions are irreversible, leaving victims with no recourse. By introducing an intermediary, the company could assist users and collaborate with law enforcement in cases of fraud or coercion.

I propose that the app’s developers integrate Circle Mint or a similar service. The company would create a business account with Circle, which offers APIs and widgets that can be seamlessly integrated into the app.

Users would transfer money from their bank accounts to Circle, which would then mint USDC—a stablecoin pegged to $1.00. Circle would send the USDC to the app’s digital wallet, where pooled funds would be allocated to a decentralized finance (DeFi) strategy. User balances and transaction records would be securely stored in a database.

A key challenge arises when pooling all user funds into a single or limited number of accounts—accurately tracking individual deposits and distributing profits proportionally. To address this, the company would implement a Net Asset Value (NAV) model, similar to those used in mutual funds, ETFs, and staking pools.

NAV ensures proportional ownership of the asset pool by tracking total fund value and assigning shares to depositors. The system would follow a Variable NAV (VNAV) approach, where share prices fluctuate as the total fund value grows. This model is also comparable to the Liquidity Pool (LP) Token Model, where users receive LP shares based on the pool’s value, with share prices increasing as earnings accumulate.

To determine share allocation, share pricing, and real-time user balances, the following formulas would be applied:

A Note on Custody:

To prevent errors, such as funds being sent to unintended DeFi protocols, the company should implement strict security measures.

Rather than relying solely on an Externally Owned Account (EOA), the company should utilize a smart contract wallet to enforce transaction restrictions. With a few lines of code, the wallet’s functionality can be limited to only two essential operations:

1. Depositing funds into the designated yield-generating strategy.
2. Transferring funds to Circle for fiat conversion.

These restrictions ensure that funds remain secure and are only used for intended business operations. Additionally, the smart wallet should require multisignature authorization, meaning multiple EOAs must approve any outgoing transaction. The primary security risk lies in the company’s ability to safeguard its wallets. To mitigate this, all wallets should be secured with hardware devices like Trezor, preventing private keys from being stored locally on any computer. This precaution reduces the risk of key exposure due to malware or spyware.

For added protection, EOAs should be distributed across multiple geographic locations, ensuring that no single breach can compromise the system’s integrity.

Sending funds Peer to Peer:

The app should offer a simple and intuitive way for users to send and receive funds. Ideally, users should be able to transfer funds using usernames, emails, social media handles, or phone numbers for seamless transactions.

To ensure transparency, the company should maintain an internal ledger that records all transactions. This ledger would facilitate accurate tracking and enhance auditability for third-party reviews.

When a user initiates a transfer to another user, the transaction would be processed entirely within the app's internal ledger system. No actual blockchain transactions would need to occur for peer-to-peer transfers between users of the app. This approach significantly reduces transaction costs and eliminates blockchain congestion issues that plague many crypto payment solutions.

The transfer process would work as follows:

1. The sender initiates a transfer to another user via their identifier (username, email, phone).
2. The app's database records a decrease in the sender's share count
3. The recipient's share count increases proportionally based on the current NAV
4. All transactions are timestamped and cryptographically signed in the internal ledger

This internal accounting system creates a frictionless experience where users can instantly transfer value without waiting for blockchain confirmations. The app would calculate the exact number of shares to transfer using our NAV model:For users not registered with the app, we could implement a claim system where they receive an email, SMS, or social media message with instructions to claim their funds by creating an account. Unclaimed funds would remain in the pool earning yield until claimed, with a time limit after which they would revert to the sender.

To further enhance the user experience, the app could offer features like recurring payments, request money functionality, and splitting bills. All of these would operate using the same share-based accounting system, making complex financial interactions seamless while the underlying yield-generating mechanisms continue working for all users.

Risk Management Strategy

The app must adopt investment strategies that are both battle-tested and capable of generating sustainable, sufficient yield. In this context, "battle-tested" refers to DeFi protocols with a proven track record of security and reliability, minimizing the risk of exploitation or errors.

Lending platforms must be carefully evaluated, as money markets account for most failures in DeFi. A reliable platform should have a proven track record with minimal security or operational issues.

There are many factors to consider when assessing a platform’s viability. While I could explore these in depth, I will highlight a few key aspects for brevity:

Lending platforms should be evaluated with great scrutiny, as most failures in DeFi are in money markets. The platform should have a long track record, with minimal issues. There are many l aspects that should be looked at, where I can go into great detail, but for brevity’s sake I will briefly mention a few:

1. Risk parameters: Lending platforms operate based on key risk metrics such as Loan-to-Value (LTV) ratios, interest rate models, and liquidation thresholds. These parameters are often dynamically adjusted by a risk management council within the protocol to maintain stability and minimize risks.
2. Oracles: These external services fetch real-time asset prices. Any delay, inaccuracy, or failure in data retrieval can lead to significant issues, including improper liquidations or mispriced collateral. Reliable oracles are crucial for maintaining market integrity.
3. Liquidation mechanism: The speed and efficiency of liquidations are critical. Rapid liquidations of delinquent accounts help reduce bad debt, protect lender deposits, and maximize overall yield. A well-designed liquidation system ensures that the platform remains solvent and functional under stress.

It’s important to note that a strategy's yield may decline over time depending on its continued viability and relevance. A strategy may become less effective if depositors migrate to other protocols or if market conditions shift.

To ensure long-term sustainability, strategies should be selected based on confidence in the protocol's long-term performance. One approach is to utilize optimized vaults that incorporate multiple strategies and dynamically shift funds to those generating the highest yield.

The company should establish a long-term strategy management plan, making adjustments sparingly and transparently to maintain user trust and maximize returns.

Fee structure and business model

I propose that the company generate revenue through a performance fee, taking approximately 20% (+/- 5-10%) of user profits. This model aligns with the 20/2 structure used by hedge funds and mutual funds, where firms typically take 20% of profits and a 2% management fee on total assets.

For example, with $10 million in Assets Under Management (AUM) and a 20% yield on user deposits, a 20% performance fee would generate $400,000 in revenue. This approach is particularly attractive due to its low overhead costs and significantly lower market risk compared to hedge funds, which rely on active trading strategies.

By adopting a performance-based model and eliminating management fees, the platform ensures that it only profits when users do. This structure also appeals to cost-conscious users who might otherwise avoid platforms with recurring fees, improving user retention and long-term adoption.

Conclusion

Looking ahead, what makes this concept particularly compelling is its ability to democratize financial opportunities. Where traditional banking has failed users with near-zero interest rates, this model creates a pathway for average people to access institutional-grade returns.

The regulatory landscape will inevitably evolve, requiring adaptability from any company implementing this model. Engaging proactively with regulators and helping shape sensible frameworks would be crucial for long-term viability.

As blockchain technology continues maturing, this hybrid approach – combining familiar interfaces with advanced financial infrastructure – represents the most practical adoption path. It acknowledges current limitations while laying groundwork for a more decentralized future.

The ultimate vision extends beyond just a payment app with yield. It could eventually incorporate budgeting tools, financial education, and even credit services – all powered by the same underlying technology but presented in ways that meet users where they are.

What I'm describing is essentially the financial equivalent of how web browsers made the internet accessible to everyone. The technical complexity exists beneath the surface, but users interact with a simple, intuitive interface that solves real problems in their daily lives.