The Hive Backed Dollar (HBD) is one of the most interesting projects in cryptocurrency. It is also paving the way for establishing a new standard for investing.
What do I mean by this?
Recent events, once again, highlight the perils that exist. This is obviously not relegated to the world of digital assets. It is something that is present throughout the entire financial system. Actually, this exists in commerce also.
Nothing is without risk. However, HBD is setting the standard in that we are looking at something which all others should be viewed.
At the core of this is the concept of counterparty risk.
By @doze
Curve
By now, most in cryptocurrency are aware of the hack that occurred with Curve. There was an exploit that allowed for $62 million to be pulled out.
If this wasn't bad enough, we also have news that the founder, Michael Egorov, has collateralized loans to a degree that leads some to speculate the platform is at risk. At a minimum, he is selling a bunch of the token to raise liquidity.
Finally, it is reported that the emergency DAO is ceasing rewards for the hacked pools.
The challenge is that Curve is one of the longer standing DeFi platforms. This is another black eye on the industry.
HBD Savings And Counterparty Risk
When someone puts HBD in the savings account, it pays 20% APR. This is something that many view as a selling point.
If we look at this from a return perspective, it is viable. Staking ETH is paying roughly 4%. That was able to make news across cryptocurrency as a way to get yield on an asset that is normally held for speculation.
We also got news that Apple's high-yield savings account passed $10 billion in customer deposits. It pays 4.15%.
As we can see the return from placing HBD in savings dwarfs what these other two are paying. This is something that extends across most investment.
Nevertheless, that is not the main selling point.
To uncover that, we must focus upon the counterparty risk.
Harkening back to Curve, we can see how the risk exists. To start, there is the ability to hack the funds. This does not exist with HBD in savings. Then we have actions of the founder which potentially could put the platform in jeopardy.
With HBD, counterparty risk is virtually eliminated. This is why it should be the metric for other investments.
Blockchain Investing
The risk-reward curve tells us that, usually, for one to take on more risk, a higher return is required. This is to incentivize investors to assume more than they would have to elsewhere.
It is typically a focus upon the asset itself. However, as we keep learning, the biggest risk factor is the counterparty. Cryptocurrency is reaffirming this lesson yet it is not exclusive to this realm.
Counterparty risk is basically the risk taken on by placing one's funds with an entity and the likelihood of it being returned. In other words, it is looking at the solvency of the entity.
The benchmark in the investing world is the 10Y US Treasury bond. This is what all other asset classes are measured against.
With HBD, we have as little counterparty risk as possible. There is no application or company involved. This means we eliminated a financial intermediary in the equation.
Instead, the other side of the transaction is the blockchain. This means that, as long as it is running, the funds are accessible. Here is another lesson from crypto over the last 18 months that people learned: companies will often not let people access their money.
We also have a stablecoin that is backed by the other base layer coin. This means that, due to the haircut rule, conversion to $1 is always available, as long as the HBD-to-HIVE ratio (in USD) is below 30%.
Risk Assessment
Some might consider the premise of this entire article foolish yet this is based upon a risk assessment from the fundamental level. It also highlights the original tenet of Bitcoin: to remove the counterparty risk presented by the financial system.
Bitcoin fits into this category because the counterparty is the blockchain. The problem is the lack of yield. If one wants to invest Bitcoin in anything, it introduces a financial intermediary. The idea of staking BTC on FTX is an example. Even a liquidity pool can present some degree of risk as hacks are fairly common.
The HBD savings removes all these risks from the equation. When designed the idea of Hive Bonds, this was the basis. HBD is one of the few assets, especially in the stablecoin world, that has the blockchain as the counterparty.
So while everyone looks are return, few consider the risks. It is only after something blows up and the funds are not delivered that people start to consider this. Of course, history shows that most go back to the same behavior, simply switching counterparties without any consideration given to the risk they are taking on.
If the benchmark for investments is the risk profile, then HBD in savings sets the standard. The risk profile is unmatched by anything in cryptocurrency. Actually, we are hard pressed to find anything in the traditional financial system which doesn't present the same issues.
logo by @st8z
Posted Using LeoFinance Alpha