One of the features I am really looking forward to is high interest rates on HBD savings accounts. I know witnesses will set the interest rate and afaik they're thinking of something on the order of 20%. This to me has the potential to attract institutional investors who are currently using banks or similar and are looking for a way to get into DeFi but finding the DeFi risks unacceptable.
As an example, last year a nonprofit organization I am involved with was looking for a new bank for months since its current bank stopped paying any interest. After lots of due diligence, a new bank that payed a tiny interest rate was chosen and the nonprofit holdings were moved there. Now, if Hive offers something resembling a bank account (very low risk and high predictability) but paying an interest rate on the order of 20%, this would be an astonishing proposition and would certainly be seriously looked at. After all, for a nonprofit it would be similar to suddenly having 20% more donations (or more, if we count compounding of holdings over multiple years).
What does an institutional investor (like the above nonprofit) look for?
- Price stability. If we can have HBD stay at $1.00 (not lower or higher), then we mimic the functionality of a traditional bank account.
- Liquidity. If the investor wants to buy hundreds of thousands of HBD to put in a savings account, it should be able to do that without raising the HBD price. If it wants to sell hundreds of thousands of HBD, it should be able to do that without lowering the HBD price.
- Security. Is the money safe? Can someone hack into the investor's account, impersonate the investor, steal its passwords, etc.? Is the organization behind the savings account reliable, here for the long-term, implementing best security practices, etc.?
- Long-term predictability. Is the interest rate going to remain the same or similar for years to come? Is the savings account even going to be there? For example, many DeFi farms might have a stablecoin liquidity pool but they can deactivate that pool in favor of other pools at any point in time. Imagine an institutional investor doing huge due diligence before putting large holdings into a pool, only to see the pool deactivated after some weeks or months. Unacceptable. Moving large holdings here and there quickly is not an option.
I think HBD savings accounts have long-term predictability since it's a layer 1 solution. The witnesses have incentive to keep high (but not unsustainably high!) and stable interest rates if it attracts capital. The blockchain network will be here for a long time to come, we have lots of money in the community treasury. Nobody can unilaterally make decisions, it's the whole network that provides the savings account, and the network has been around for over 4 years.
On security, where Hive can use improvement is in better password management solutions (such as integrating with hardware wallets), and in better account recovery solutions. If the password is lost for whatever reason, there has to be a clear and reliable way to restore your account. Maybe with oracles, maybe with some other social mechanism, or whatever else. But the current account recovery seems lacking and unreliable in many ways, and I don't think it works anyway if you lose your passwords.
On liquidity, I think we are doing OK already, and the coming Hive to HBD conversion will additionally incentivize market-makers to create more HBD.
On price stability, the coming Hive to HBD conversion feature seems like it might stabilize the price at $1.05 (due to 5% conversion fee). This is a problem since if a large investor buys at $1.05, they may not have assurance that they'll be able to sell at $1.05. The even larger problem is that the price can go below $1.00 during a bear market, which creates a difficult to accept risk for an institutional investor.
If we work on some of these challenges, I think the HBD savings account can become extremely attractive for institutions who need something with low risk. I know many institutions like pension funds are looking to get into DeFi, their managers are getting calls all the time from people whose money is in the fund and who want the money to be put in DeFi. But the risks are probably unacceptable. With a layer 1 solution, Hive can mimic the long-term stability of a traditional bank account combined with sustainably high interest rates, enabling low-risk institutions to get into DeFi. It could be an extremely attractive proposition if we work on making it better.