We are continuing with the ongoing series about what makes Hive stand out. This is the 4th installment in this series.
Here are the first 3 articles:
- Hive Advantage: True Account Ownership
- Hive Advantage: 20% APR Without Counterparty Risk
- Hive Advantage: Decentralized Database And The Foundation Of Web 3.0
In this piece we will discuss Hive's algorithmic stablecoin along with the other base layer coin. There is a relationship between the two that is very powerful. As development occurs, we can foresee the day when the two can leverage each other providing more stability to the system.
Fixed Income Market
We discussed how the search for yield exposed many to situations where they lost. Counterparty risk is something that has to always be considered, especially in cryptocurrency.
With Hive, both coins are resident on the base layer meaning the risk lies with the blockchain itself. This is an important point.
At the same time, we have native DeFi built it. Each coin can be staked to earn a return. On HBD this is a 20% APR when placed into savings. $HIVE can be staked, creating Hive Power, which presently has a 3% return as an adjustment for inflation. This can be coupled with activity such as curation rewards which will enhance the payout.
Being able to invest with minimal counterparty risk is becoming more important. The key is that both coins earn more of the same. This is a stark difference to much of what we see in cryptocurrency whereby one stakes tokens and receives something else in return. Many DeFi applications allow the staking of Bitcoin, as an example, while paying out in someone other token.
There is nothing wrong with this approach. What is in play though is another layer of risk. One needs to trust the platform along with the ability to generate value for the token. The latter is something that most DeFi products had little interest in.
With Hive, the base coins are earned for staking. This means that one is not dealing with another token. All of this helps to provide value.
Of course, that does not guarantee that either will have this. There still needs to be some utility for the coins.
Here is where development enters the picture. Being the foundation for a base layer, fixed income market is powerful. From this point, layer 2 applications can be built that extend the reach of these coins through the use of derivatives, tied to other DeFi features. This is something we are starting to see with both HBD and $HIVE.
Value Leveraged
The stablecoin world is approached with the money market mindset. We repeatedly hear about what a stablecoin is backed by. The idea that value comes from asset backing is not what makes currencies effective. Certainly it is one approach and the main driver of stablecoins these days.
Hive has the opportunity to take a different approach. HBD is backed by the fact that each can be converted to $1 worth of HIVE. Here is where the asset backing enters. This, however, is not where we derive value.
Again, utility is key. There are a number of ways to do this with a currency, much of what we covered in other articles. The key point is that features such as lending, collateralization, commerce, and funding all provide resiliency to a currency. Add in more layers through the use of derivatives and we can see how this shapes up.
This is the future of HBD. We see a number of projects already working on different aspects of this. Over the next few years the buildout around this stablecoin will make it a major asset for the ecosystem.
Another key concept is the fact this is not operating in a vacuum. Anything accrued by HBD ends up being filtered to $HIVE. This coin represents the value of the ecosystem. With increase in utility, users, and activity, we can see how the need for $HIVE increases.
One of the main components is the fact that HP is required to engage with the blockchain. Expansion of activity means that more resource credits are needed. This is directly related to the staking of $HIVE.
Here is where we see a baseline tied to the backing asset. It is something that is enhanced by the success of HBD. As more transactions using that coin occur, more RCs are utilized. This provides a powerful feedback loop that positively affects the value of both coins.
Thus, we can see how the value accumulated by one coin is leveraged by the other.
HBD As A Foundation
One of the main challenges in the stablecoin world is they are operating on an island. The teams behind these assets are simply creating the coins. They do not provide use case nor tie them to other applications.
This is not a major problem if other developers decide to incorporate them in. It is where the network effect can be of benefit. With Hive, we are taking a bit different approach.
HBD is tied to other things within the ecosystem. We are seeing projects on Hive that are developed incorporating HBD. Since it is native to Hive, there is every reason to utilize that coin.
Ultimately, we can see HBD as the foundation for an financial and commercial network that is built upon Hive. Even those projects that are on Layer 2 can utilize a "wrapped" version of HBD, pushing more value back to the base layer.
Of course, there is incentive to do this since HBD success equates to greater value of $HIVE, which makes HBD stronger since it is the backing agent.
This was one of the major flaws with UST. What utility did LUNA have other than to create more UST?
Hive is an ecosystem with its very own, built-in stablecoin. There is also the Internal Exchange, a base layer DEX where individuals can swap the two coins. The correlation between the two is what sets it apart from most other projects. While they are trying to add value to their token or coin, Hive has the ability to use one for the benefit of the other.
In short, HBD could end up providing more value to $HIVE as compared to the reverse.
Over the last few weeks, we discussed Elon Musk and his plans for Twitter. One major difference is that, for all commercial and financial transactions, he is going to have to incorporate some currency. This will be a combination of fiat and cryptocurrency. Due to his love of DOGE, that could be integrated into the system. However, the success of Twitter under Musk does not add more value by having DOGE.
With Hive, by utilizing HBD, we see how this will add value to it, which only further enhances the entire ecosystem. The value of the currency is not pushed outside. With Twitter, it could enhance DOGE, which does nothing for Twitter.
Eventually, the belief is that all this will end up pushing the market cap of $HIVE even higher, providing greater stability and resiliency to the ecosystem.
This is something we do not find elsewhere.
In the end, the stablecoin is for transacting (a medium of exchange) and other coins or tokens are for value capture. This is something the industry has not realized yet Hive has both at the base layer.
Another huge advantage for Hive.
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It is very nice that the use case for one is valuable for both coins as they strengthen each other indeed.
The fact that 20% diva on hbd in savings is easily sustainable in a bear market is absolutely incredible.
I don't know how many utility tokens associated with DeFi are out there. If there are I wonder if they have use cases like Hive and HBD. The correlation between Hive-HBD puts the Hive ecosystem at an advantage with options for us all on which to opt for depending on our need.
I doubt this exists out there.
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HBD can have some amazing use cases which drives a great deal more value to HIVE. We only need the latter to cature the value of the ecosystem.
This is not something we see out there.
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Like they say, "keep your friends close and your algorithmic stable coins closer"!
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What’s the best way to explain the tokenomics to someone who comes from the BTC?
“HIVE has infinite supply”? (Therefore you know how the BTC maximalists would label us)
I think Hive works well as the backbone for HBD and as long as Hive has value, HBD will be fine. That makes it way better than UST or the IRON stablecoin that I saw depegged. I am just wondering if it could hurt if BSC or Polygon were to shut down and the HBD kind of got trapped.
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