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Savings Pool and Savings Rate

Savings Pool Mechanism

H2O holders can lock their H2O into the Savings Pool smart contract at any time. Once locked, H2O continuously accrues to the users' balance, like an interest, based on the current H2O Savings Rate.
The Savings Pool smart contract has no withdrawal limits, deposit limits, or liquidity constraints. Users aren’t required to deposit a minimum amount to earn the interest, and they can withdraw any or all of their H2O from the Savings Pool contract at any time.
Please note that holding H2O does not automatically earn the interest in H2O. It only does once it is deposited into the Savings Pool smart contract.
The H2O Savings Rate is a variable rate of accrual earned by locking H2O in the Saving Pool smart contract. H2O holders can earn savings automatically and natively while retaining control of their H2O. The rate is actively set by the MELT governance mechanism. The H2O Savings Rate is also a monetary policy tool used by Defrost Finance governance to influence demand for H2O. There are no hard limits to what the H2O Savings Rate can be set to. Though Negative rates on the savings rate might not be effective, since users would simply withdraw their H2O from the Savings Pool contract.
The displayed rate is what a user would earn on their principal in one year using a simple interest calculation. For example, if the H2O Savings Rate is 1% and a user deposits 100 H2O they can expect to have 101 H2O in exactly 1 year.

H2O Savings Rate as a Monetary Policy Tool

The H2O Savings Rate is a global parameter that can be raised or lowered to influence demand for H2O. Raising the H2O Savings Rate incentivizes users to hold more H2O, leading to higher demand for H2O, whereas lowering the H2O Savings Rate has the opposite effect of reducing demand for H2O.
This is reflected in the spot market price of H2O; if H2O is trading below a dollar, then the H2O Savings Rate can be raised to increase demand for H2O which would bring up the price of H2O. Conversely, if H2O is trading above a dollar, then the H2O Savings Rate can be lowered to reduce the demand for holding H2O which may help bring down the price of H2O.

Who Decides the H2O Savings Rate?

Initially, adjustment of the H2O Savings Rate will depend on a periodical process, whereby the Defrost Finance team will first evaluate and discuss public market data and proprietary data provided by market participants, and then make a judgement on whether an adjustment is necessary or not.
The long-term plan includes the implementation of the H2O Savings Rate Governance Module, which includes deciding the H2O Savings Rate by governance voting by the MELT holders. The motivation behind this plan is to enable efficient responses to rapidly changing market conditions, and to avoid the over-use of the Defrost Finance team's dominance over the key economic parameters.
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