How Hive Can Avoid The Fate Of The Banks
There is obviously a lot of concern surrounding the banks and what is going on with solvency issues. We obviously have to look at the situation to ensure we do not duplicate it. Thus, having an understanding of how things are unfolding, why, and most importantly, how to avoid making the same mistakes is crucial.
The premise of this article came as a request. After watching things for a few days and pondering the situation, a framework is starting to develop. For that reason, this is going to be at least in two parts.
We can also tie this into what occurred with the likes of Celsius and FTX (although the latter is rather obvious). All of this is key to establishing a system that is resilient and does not encounter the same issues we are seeing.
Therefore, lets look at the basic elements to show how it can be best structured.
Hive Backed Dollar (HBD)
This conversation starts by separating the Hive Backed Dollar (HBD) out. We need to focus upon the fact we have two separate situations we are dealing with.
The banking system is tied to money, is responsible for the expansion of the money supply, and offers financial services. However, when we look at it against a currency such as the US dollar, we see two discussions.
What we are witnessing with the banking system is no threat to the USD, at least yet. Also, since we are seeing signs of this happening in other areas, the currency hit will be offset by others experiencing the same thing.
For our purposes with Hive, it all starts with the HBD. Since this is the base layer stablecoin, it is important to construct around this.
Let us make the goal clear: the purpose with HBD is to make it as resilient as possible. This means a clear understanding of currency valuation, how to establish it, and what it all means.
The backing with $HIVE$0.330 is a fine starting point. It allows for instant settlement (within the rules of conversion as stated by the blockchain). We also are dealing with something that is familiar to most people associated with the currency.
One of the advantages with Hive is we have the ability to create the uses cases for HBD. We do not see this within the cryptocurrency industry. It is, however, something that exists at higher levels of banking. As we see, this is both a positive and negative.
The best defense for HBD is a thriving economy. One of the vital factors is to construct a sophisticated financial system around the coin. That, unfortunately, is not enough. Many, especially within cryptocurrency, turned to financial engineering to try to solve the problems associated with different tokens.
For HBD, it is rather simple. In addition to any financial components, we need different aspects. That means not only derivatives, commerce, real world lending, and trade of economic goods.
A way to look at this is through the lens of decentralization. Our goal is to "decentralize" the use cases by spreading them out. While HBD can be a fixed income instrument through savings or a time vault, we can also use it to buy lunch. For every swap that is possible, there is another game accepting it as payment for an entry fee or an in-game asset.
The Hive Financial Network
One of the parallels that we can make is between the banks and the Hive Financial Network. This will be the topic of the next article.
However, it is worthwhile to mention it here as it pertains to HBD.
The idea can be summed up as HBD without being HBD.
One of the things we discussed over the last couple years is derivatives. This has a bad rap for a variety of reason but the bottom line is few truly understand how these are used. Whereas most focus upon the leveraging they totally ignore the hedging transactions.
For now, the only thing we will concern ourselves with is the idea of a wrapped token. This is where Hive can excel.
HBD is the base layer coin. This is what must be protected at all times. The ecosystem is in powerful position since we are forced into a wrapped version for most financial services. This is a protective measure.
Other than basic staking and fixed income options, nothing will be built on the base layer. We cannot establish a lending platform. One is not going to be engaging in interest rate swaps on the Hive. All of this has to be constructed on a sidechain (or layer 2).
That means that a wrapped version of HBD has to be created. Thus, we can have HBD at the center of the Hive Financial Network yet it isn't really HBD. In the end, if structured properly, this adds a layer of resiliency to HBD since, any attacks, are waged against the wrapped tokens.
In short, this means an attack might negatively impact HBD for a bit yet it will not deal a fatal blow. Any fatality will be at the second layer.
To close out this article, the first part of the foundation comes from the value of HBD. By this, we are not referring to the backing agent. We need to thoroughly understand that currency value comes from the economic productivity (activity) tied to it. This can be both commercial and financial.
The backing of HBD with $HIVE$0.330 is a powerful starting point and a good support mechanism to have in place. That said, the goal is to build the value of HBD on its own. This is absent in the cryptocurrency industry.
Another ironic twist is a company like Circle is behind USDC yet they are only focusing upon the currency itself. The responsibility for utility is being left to others.
With Hive, we take it into our own hands. Developers tied to this blockchain have the ability to create a project and integrate HBD into it. If they are part of the ecosystem, they benefit all aspects of what they are doing by taking this step.
Therefore, the process starts with what we can call "HBD Everywhere". All projects on Hive need to look for ways to incorporate the base layer coin into its operations.
This will set the stage for the subject of our next article: financial services and banking.
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