Hive has a tremendous opportunity to be a player in the fixed income market. This is a drum that we will keep beating until the proverbial cows come home.
Over the last year we saw a lot of attention being paid to the Hive Backed Dollar (HBD). For an asset that was overlooked for so long, it is now turning into one of the strong points of the Hive ecosystem. Ironic that so many were ready to toss it aside.
If you didn't notice, the range of the token has tightened a great deal. This is due to the use of the HBD Stabilizer. Here we see a bot that goes in and buys/sells HBD based upon the price relative to the peg.
As an aside, there is a new proposal put forth by @smooth to increase the funding. Keep in mind this is an activity that actually returns money to the Decentralized Hive Fund.
A recent estimate from @dalz was that the HBD stabilizer had generated a profit of well over $1 million, adding funding for the DHF, helping to stabilize HBD, and, on net, removing many millions of HIVE from circulation.
By having the price of HBD float closer to the peg, this increases the value as a stablecoin. After all, a highly volatile stablecoin is counter to what its intended purpose.
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Algorithmic Stablecoin
Most are aware of this but for those who are not, HBD is an algorithmic stablecoin. These are becoming popular these days with UST being probably the best example of this.
It is a coin that is created entirely by the community. There is a possibility of money equilibrium since supply can be expanded or contracted as demand necessitates. Through the conversion mechanism, individuals are able to create more HBD from HIVE or reverse the process. This is how the amount of HBD is, at least in part, determined.
We also have the choice of getting rewards in 50/50 as opposed to 100% HP. This is the second method to generate it. Finally, people can put their HBD in the savings account which earns 12% annually. This payout comes from new HBD created.
Thus, we can see how there is a correlation between HBD and HIVE. If the community wants to generate more HBD, HIVE can be converted, reducing the outstanding supply. This could positively affect the price of HIVE in USD terms.
The key to understand is that HBD is worth $1 of HIVE. There is no USD involved. It is HIVE that is actually backing each HBD token.
All of this is coded into the blockchain.
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The Fixed Income Market
In the wild world of cryptocurrency, the fixed income market seems boring and bland. Even compared to stocks, it is not exciting. Yet, it is a powerful mechanism for wealth creation. Understanding this market, especially as compared to speculators, is vital.
To start, we have to consider the is a market that is worth well over $100 trillion. Globally, it is the most common form of investing. Whereas crypto people like to set their hair on fire and buy something they hope is going to 1000x, fixed income buyers operate on a different principle.
One of the important criteria is the known return. We see this with the Hive savings program. When one puts in 100 HBD, he or she knows exactly how much will be paid out over the 12 months. In this instance, there will be 12 HBD claimed (we will ignore the compounding each month for simplicity).
That is how fixed income investors think. How much will be received if X amount is put in?
The important factor here is yield. Investors in this market are forever seeking a return in light of the risk accepted. Some prefer more safety, opting for Treasury bonds. These are very safe but the yield tends to be low. If one is willing to increase the risk parameter, higher returns can be achieved in junk bonds. However, the trade-off for the return is more risk.
Ultimately, the safest is a simply placement of one's money in a savings account with a bank. In the United States, this is insured against loss. Of course, the return is near zero in this environment.
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Why Hive Is Ideally Suited For This Market
Hive can truly be of impact in the fixed income market because it has the HBD token at the base layer. This can result in the construction of different fixed income options tied directly to the blockchain.
The big benefit to this is the removal of any third party risk. No application or company needs to be trusted. One simply does not exist.
It is said in cryptocurrency, not your keys, not your coins. Often when people get involved with DeFi projects, their tokens are staked on a platform (application). This removes them from their wallets. At the same time, payouts are in another token which adds another risk factor.
For example, staking Bitcoin in a yield farming project to get a payout in ABC token might be a good idea. However, not only does one have the risk associated with Bitcoin but also the second token. Obviously a lot opt for this but it does added another element to the equation.
What we can build on Hive eliminates this. We can see base layer operations which keep in line with this motto. All is accessed by the individual through his or her wallet. The tokens are always in the possession of the owner. The only trust requires is in the blockchain itself, not a company or any third party.
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Attracting In Millions Of Dollars
By now, anyone who is around cryptocurrency a short period of time realizes there are insane amounts of money tied to Decentralized Finance (DeFi). Recently the total value locked in DeFi crossed $200 billion again. This is a lot of money that is funneling in.
Many of the projects contain the risk just described. At the same time, many are questioning some of the stablecoins that are being used. Circle and Tether are both coming under scrutiny for their claims of backing their coins with USD. Are they really holding that many? Does Tether have $90 billion worth of USD on hand? Since they are unaudited, nobody knows. Of course, regulation will require audits which could pose a problem if the truth is different from what is claimed.
Here is where Hive differs. There is no questioning the amount of HBD available or what it is backed by. We have full transparency since it is all posted to the blockchain. Anyone can see how much is outstanding and simply look up the market cap. As long as the $1 worth of HIVE is available for each HBD, the backing is there.
There is the opportunity to build a suite of products, offering different types of returns. This can be done at the base layer. In addition, these assets could then be taken and tied to second layer projects that generate more options. For example, holdings at the base layer could be collateralized at the second layer for further expansion.
Having this options could pull in millions of dollars from outside the ecosystem. We are watching the industry transition. If cryptocurrency is going to evolve, it must start to address the risk-averse investor. This means fixed income with virtually no-risk. Hive can offer this since it eliminates the third party counter-risk.
There are trillions of dollars in the fixed income world that can be tapped into. Even within cryptocurrency, we are seeing tens of billions of dollars. It seems even the stablecoin market is now over $100 billion.
We can see how big this can become. Hive is rather unique because of the fact that HBD is at the base layer and is tied to HIVE. It is something the ecosystem can leverage a large amount of growth.
For this reason, Hive can stand out from a lot of what is operating out there.
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