HBD: Learning From USD's Strength

in #hive-1679222 years ago

What makes the USD so strong?

Many will take exception to this since it is, after all, fiat currency. It is backed by nothing and in the end is worthless, or so goes the mantra.

Isn't it amazing that is the same rhetoric that the likes of Warren Buffett use against cryptocurrency?

The reality is the USD is only getting stronger. No, this is not based upon the fact that it is going on up exchanges against other fiat currencies. Actually, if you think about it, over the last 6 months, the USD got a lot stronger against most cryptocurrencies.

Instead, we are going to focus upon what is truly making the USD powerful and what we can learn from it when applying it to the Hive Backed Dollar (HBD).

Spoiler alert: this has nothing to do with the faith and credit of the US Government.

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The Biggest Network Effect In The World

If you think Facebook is a tough entity to take down, that is small compared to the US Dollar. When it comes to network effects, nothing can tough the USD.

It is what makes it so resilient. We also see it expanding each year.

To put it in cryptocurrency terminology, it has massive utility. This appears to be something overlook in the industry, especially when it comes to stablecoins.

Over the past year, we saw a lot of discussion about different projects trying to back their stablecoins with other assets. The challenge with this is that is transferring the value to something else. While that could be a way to hedge risk, it ultimately makes the stablecoin dependent upon something else.

Where in those discussions did we see project teams focusing upon the idea of building utility? Instead, there is noise about backing with USD, Bitcoin, and other assets. Again, that can help the confidence in the token but will do little for long term resiliency.

If we want to construct a stablecoin that has a major impact, we are going to have to move beyond the existing mindset that is out there. USDC is really just an extension of the USD. This is fine since it is tapping into the most powerful monetary network there is.

Unit Of Account

The strength of the USD does not come from who is using it or even how many are out there. In fact, most of the forms of money of the USD is really just a unit of account. They have nothing to do with the USD other than a counting mechanism.

Going back to the network effect, the numbers for the USD get staggering.

  • almost half the estimated $300 trillion in global debt is denominated in USD
  • the derivative market is estimated to be around $1 quadrillion - the majority in USD
  • cross border bank liabilities - $32 trillion; $15 T in USD
  • FX Forward and Swaps - 89% of the $98 trillion in USD
  • Repo market - $3.5T-$4T daily (almost exclusively USD)
  • $170 trillion in FX reserves (60% USD)

As we can see, the numbers are staggering. Naturally, not all of this is USD in the form of currency. Most of it is derivatives, which is where the banking and financial system took over money. They create and utilize what they want.

This is also a lesson when looking at blockchain and cryptocurrency. We are not changing the game as much as altering who is in control of it all.

Infrastructure Vital

One of the problems with the view the USD is being replaced is the fact that nothing else has the infrastructure. To operate on a global scale requires the construction of systems to engage in a way with as little friction as possible.

When we look at the complexity of the networks tied to the USD, in all its different forms, we can see how it is the largest in the world. The second most common currency, the EURO, isn't even in the same league. That is something that is regional at best.

Along with this, we need to get liquidity, depth, and sophistication. How much is required?

To gain some insight into this, at the end of 2019, Morgan Stanley has on its books $500 billion in assets with repledge agreements. This was being used as collateral on transactions throughout the global financial system on a daily basis. This is one bank, and not even the largest of the institutional entities. Can you imagine what Goldman and JPM have?

The point is the cryptocurrency world gets upset with Tesla unloads $1.5 billion in Bitcoin. This is a rounding error in the USD game. We are talking into the hundreds of trillions of dollars.

Building Out HBD

A central premise for HBD is that it is backed by $1 worth of $HIVE. Now, like much of the money just mentioned, there is no actual USD in the equation. It is nothing more than a unit of account.

In short, HBD is backed by $HIVE.

Now we come to the question of value: where does it reside?

This is the problem with the idea of backing only. We can see, under this scenario, the only way HBD has any value is if it comes from $HIVE. Thus, we have to make that coin as resilient as possible.

Naturally, this is a good idea. However, it is only one part of the equation.

The other is to focus upon building the value of HBD. For those accustomed to watching every move in the market, this is not price. We are not concerned about that since it is designed to hold the peg.

In this instance, value comes from utility. HBD's success hinges upon the ability to expand, transform, build, and multiply it. Of course, to achieve this, we need the infrastructure in place.

For example, we know the Chinese are in a situation where a lot of loans were taken out in USD. This is creating an issue since the now require USD to make the payments. Holders of the debt are not going to accept Yuan. This is one of the reasons why they are having to unload the US Treasuries, which are really USD in another form.

Could those loans have been done in HBD? Of course not. There is nothing in place for something like that. We lack the infrastructure to even undertake such a development.

There is also the lack of resiliency. When there are trillions in derivatives, all tied to the currency, it is hard to do without it. In other words, that is not easily replaced.

HBD exists as HBD and little else. We see the creation of pHBD which is a step in the right direction but that has little utility at this point. Over time that needs to change.

In Conclusion

Many feel that for HBD to be successful, we need payments made in it. Certainly that is a part of the equation, but it is actually a small piece.

Ultimately, we need HBD to evolve into different forms. This can come via bonding as discussed with Hive bonds. We also need to see investment made using this currency. A large portion of global investing occurs in USD.

The final piece is lending tied to collateralization.

Put all this together and we will have a resilient coin that is not dependent upon the backing asset. Under this scenario, HBD would have value on its own. $HIVE is just gravy at that point.

We do not need to recreate the wheel. The roadmap for making HBD a success is before us. We simply need to follow what works.


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Do you think Sanctions have backfired? And it can create some sort of the ripple effect against the USD? I have been seeing those patterns. What's your opinion?


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Making hbd success is up to us and we can see that it only matter of time for hbd to be the next big thing because hive is still young and still developing

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It is up to us but is going to require a lot of building out of infrastructure. That is fine, we can do it. There just needs to be people committed to it.

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100%

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HBD can work out but it depends on the use cases we can add to it. I think bonds would work out quite well and I don't see any reason to not have them. However, it needs to be coded in so I guess adding it as a changeable parameter like with HBD interest might be a decent idea to test with.

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Knowing that 3/4 of the entire Dollar printed isn't in the United States but rather saved in other countries as reserve currency is one great utility.

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I guess we'll see soon an article from you explaining what happened with the HBD price?
It was $3??? Currently $1.60!

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when it comes to cryptocurrency paired in the dollar, it has behaved well.

There are a number of arbitrage bots running around along with the HBD stabilizer. All of that helps to keep it rather stable, especially on the internal exchange.

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We are not changing the game as much as altering who is in control of it all.

But whoever has control of the game can alter any rules they dislike?



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But whoever has control of the game can alter any rules they dislike?

That is true and the rules are being changed with triple-entry accounting being introduced. This changes the game completely while replicating what is out there.

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Good infrastructure will definitely make hive currency resilient. I see a great future for Hive, though.

How soon and what infrastructure needs to be set in place? @taskmaster4450

Double upvote on comment for creativity.

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Doubly appreciated :)

Great Post!

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HBD has a strong position in the crypto world. This looks like some kind of good news for us all.

Well I wouldnt say at this point HBD has a strong position anywhere. It is showing some resolve thanks to the HBD stabilizer and keeping the peg on the internal exchange. That is about it at this point.

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The more we talk about HBD and the possibilities the more I see its potentials, HBD stands a chance to be the stablecoin of choice most will sort after it just needs strengthening and building utilities around.

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It is going to take a lot of work. We cannot pretend otherwise. This is not an overnight process or playing with some tokenomics.

We need real infrastructure built along with the applications tying into them. Then we can start the process of adding real value to HBD.

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I guess it depends on how you define strength. The fact that we currently have higher than normal inflation indicates that the dollar is getting weaker faster...by my definition. Now other currencies may be getting weaker even faster but that shouldn't be mistaken for increasing strength on the part of the dollar. To me it is all about purchasing power. Dollars sitting in the bank get weaker every day.

Dollars sitting in the bank get weaker every day.

And how has oil done over the last months compared to crypto? What happened to the purchasing power of Bitcoin over the last 8 months?

So it isnt only dollars that this is happening too.

The fact that we currently have higher than normal inflation indicates that the dollar is getting weaker faster..

What is the inflation rate on $HIVE? 7.25%
What is the inflation rate on Bitcoin? 1.5%

Inflation is the expansion in the money supply. It may or may not result in price increases. What you describe is not inflation since the USD is not inflating. In fact, the creation of USD is flat since then end of the Great Financial Crisis.

So you have price increases due to a radical adjustment in the supply/demand equation yet people parrot the foolishness of money printing.

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When speaking of inflation I was referring to the measure of the rise of prices, not literally the expansion of the money supply. My point was, for whatever reasons, the purchasing power of the dollar is always decreasing and has been doing so at a faster rate recently than it has for a long time. In that sense the dollar is getting weaker, not stronger.

Having said that, an expansion of the money supply will cause prices to rise, all else being equal. All else is never equal though. Also, just because the money supply increases doesn't mean it's effect would be felt the next day. It depends on how that money makes its way into the economy. Sitting in banks doing nothing it won't have much effect. Given to people who will spend it, much larger effect. One thing is for sure, the money supply has increased dramatically over the past several years. That's bound to have an effect sooner or later. Obviously there are other issues in play such as overreaction to COVID, war in Ukraine, etc. that also have an impact by creating shortages.

But in any case, putting your wealth in dollars is a good way to lose about 9% of your purchasing power every year currently. There are faster ways to lose it of course...

Keep your eye on BRICS. Whether they initially intended it or not, they're now the first multi-national co-op to have both the ability and motivation to move away from the PetroDollar.

Supposedly, Egypt, Turkey and Saudi Arabia are considering joining, which would obviously only strengthen BRICS's position in the petroleum market.

I have no clue how this will play out in any way, but it's certainly worth paying attention to.

The PetroDollar is a myth. People think that is what gives the USD its strength. It isnt. The global oil market pales in comparison to what I just outlined.

This is leftover from the idea that the USD only had value because of the Gold standard, so, since that was closed, it has to be something else commodity related.

As for the BRICs to do anything, they have to have the infrastructure.

After all, if it just took another currency, wouldn't the PetroYuan have taken off?

Over 4 years and still dead on arrival.

https://en.wikipedia.org/wiki/Petroyuan

To have a currency used internationally, there needs to be access. The CCP is not about to open up the flow of YUAN to the rest of the world. If it did that, capital controls are impossible.

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So, its a diferent stablecoin, that should thrive with the utility of HBD itself that debt portion of Hive... and as use cases of HBD increases with all developments then it becomes a mature stablecoin like USD.

I hate fiat currency but agree that USD dollar is the strongest fiat currency in the world for now and we have to wait and watch what happens, if it will remain so because of so many possibilities that can change things.

Again, right now HBD is taken as algorithmic stablecoin.. and I am sure all have fear of such stablecoins, lets see how HBD goes. I would love HBD to do well... I am very much part of Hive community and connected with it!!

I hate fiat currency

Sadly, most hate fiat currency without even understanding it. Most think it is "printed" by the central banks, which it is not (at least the major currencies). Few also realize why the USD has value, or that it even has value.

This is why most get things completely wrong. For 30 years, I heard calls for the collapse of the Dollar and the end to the system.

Yet in all that time, it never happened.

So, if we are going to develop a stablecoin that truly has the ability to change things, we need to understand the present system and not ideological theories that are based upon falsehoods.

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It's always the bigger piece of the pie, every product in the market is priced against its utility, this is primarily where value is drawn from, it's rather crazy that many don't think about this when it's by default a clear piece of everything, HBD will definitely flourish with utility built around it.

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We need to build a great deal of utility for HBD. This can spread rather rapidly if a few projects actually get on board.

I am excited about the projects of what something like Leofinance can build over the next 6 months if they are committed.

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