Why wHIVE and wLEO Are Potentially Huge For The Value Proposition Of HIVE
How to get people to invest in HIVE
Some people are concerned about the relatively high inflation rate of HIVE. Others may not want to sell their BTC or ETH because they fear HIVE losing value against both of them in the long term. Or some people may not want to sell their cryptos because that would be a tax event.
This is where wHIVE and wLEO step in. Both are wrapped HIVE and LEO tokens on the Ethereum blockchain. What does that mean? It means that they are representations of the HIVE and the LEO tokens on Ethereum. How is that possible? It is possible by using an app that uses smart contracts on Ethereum and a centralized or a semi-centralized application logic on the Hive blockchain to allow the value carried by a token on either blockchain to be accessed on one chain at a time. The idea is that when a token on, say, Hive is sent to an account controlled by the app, a matching wHIVE or a wLEO token is created on Ethereum. The original token, HIVE or LEO, remains on HIVE but it is frozen by the app. That way, the value carried by the original tokens (now frozen on Hive) can be transported from Hive to Ethereum. The reverse can be done, too. The user of the app can send ETH to a smart contract address controlled by the app in which it remains frozen as collateral for a loan issued in wHIVE or wLEO, which tokens are created at that moment. The issued wHIVE and wLEO tokens can then be swapped for HIVE and LEO on Hive. The wHIVE and wLEO tokens remain frozen on Ethereum. Thus the owner of the ETH sent to the smart contract address has taken out a loan in HIVE and/or LEO with their ETH as collateral allowing them to put the value of their ETH into good use on the Hive blockchain because by powering the tokens up gives their owner access to control over token inflation.
The one thing to be mindful of is that the ETH might get liquidated should its value go below the value of the borrowed tokens. That is why it is sensible to over-collateralize or take out a loan that is much lower in value than the collateral.
Where to find a market maker (and taker) to fund the lending processes?
But why would anyone lend their HIVE tokens to someone who wants to borrow them with their ETH as collateral if they can gain access to much higher yields by curating, for example? One possibility is to use the DAO to fund a market maker account, that is, an account that would lend the tokens to those who want to borrow them.
Putting your other cryptos to good use on Hive
This arrangement opens up the possibility of both retaining your BTC or ETH and gaining access to profits generated through the use of Hive Power.
What needs to be done is make the process simpler and easier for the user. Also, the fee structure and risks should be made transparent and easy to understand. Most importantly, while Ethereum has smart contracts which work trustlessly, it is necessary to move away from a centralized model on the Hive side. A semi-decentralized model presented by the developer @fbslo that relies on master nodes to perform the transactions validated by independent validator nodes sounds reasonable. Hive supports multi-signature transactions, which makes this sort of thing possible. Here's a guide on how to set up multi-signature accounts by using Beem.
References:
Introducing Wrapped LEO | Exchange Listings and Liquidity Pool Incentives
