Find a void and fill it.
This is some of the most basic, and sound, business advice anywhere. If one can do this, his or her enterprise will be very successful.
Many ask what the use case is for cryptocurrency. To this day, we still have not fully evolved this idea. Obviously, we are seeing things expanding, which is starting to answer the question. Naturally, with an organic, complex system, there is no concerted effort by any single group or individual. Many facets of the financial world are being targeted.
That said, To Take Out The Banking System, Hive Needs To Truly Understand It. We see a lot being discussed regarding this area. While a digital wallet is certainly a threat, we are not dealing with the basics of this system. In fact, it is something that few understand or are even aware of.
In this article we will delve into this world to see where cryptocurrency can step in.
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Ledger Banking
See if you can figure out what we are referring to:
- Ledger technology
- Global in nature
- Out of the reach of any government or central bank
- Peer-to-peer transacting
- Make money to make money
Any guess on what this is?
To this list, we need to add that it is 70 years old.
It is safe to say many thought of cryptocurrency until the last part was added. This is sensible since, in reality, cryptocurrency mirrors this system that we are discussing.
So what it is? It goes by many names. Some that come to mind are:
- Shadow banking
- Ledger Banking
- Off Balance Sheet Banking
Some might know it as the Eurodollar system.
This is a system of lending, borrowing, collateralization, and cross-border payments that the international banking system established over the course of 70 years. It spread so rapidly that, by the early 1970s, we saw the Federal Reserve start to question what money was. Things changed so much in 20 years that the most powerful financial institution in the world was completely left behind.
This is natural since much of it was occurring outside the Fed's control.
Hopefully you can see why cryptocurrency has such a bright future.
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Collateralization
Here are some terms that you might not have seen tossed around the cryptocurrency world. Many talk about taking out the banking industry yet few are pointing to what really takes place.
When delving into this world, things such as Repurchase Agreement, reverse Repo, bilateral/trilateral agreements, and swaps are vital. These are the true essence of banking and why the international bankers were able to run the world.
How big is this? In just trilateral agreements, which the Federal Reserve Bank of New York can monitor, there are about $3.5 trillion in loans done daily. As big as this is, it is minor compared to what is done in the form of bilateral agreements. That number could be in the tens of trillions. Nobody really knows since it is in the shadows.
Since the Great Financial Crisis, this realm is starving for one thing: collateral. The entire international banking system is starving for collateral. For this reason, growth rates slowed a great deal around the world. In short, the banking industry cannot come up with enough quality collateral to adequately feed the global need. This is presenting a major problem.
Of course, it is no surprise either. At present, US Treasuries are the only form of pristine collateral. Everything else is a step below it. We have about $20 trillion in US Treasuries available, not enough when there is an estimated $300 trillion in global debt.
So what makes collateral pristine? There are a few factors:
- Liquid
- Trusted
- Stable
Here is why US Treasures, bonds and T-bills, fit in this category. Unfortunately, the private sector has failed to come up with anything. The attempt at Mortgage Backed Securities as the solution blew up in everyone's face. Hence, we are still trying.
Here is where cryptocurrency enters the picture. To start, we can add a couple characteristics to the list:
- Transparent
- Inclusive
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Cryptocurrency As Collateral
Here is the golden opportunity. Find a void and fill it.
The entire global financial system is looking for a solution to its collateral elasticity problem. This is something that cryptocurrency might be able to fill. To do so, is going to require focus.
What made this banking system so powerful is the fact that it was essentially decentralized. There was nothing vertical about it. Banks struck up lending agreements between themselves without any oversight. If a deal was reached, then so be it. Both parties had to agree on the amount being lend, the terms, and what collateral was placed. Both parties negotiates what they wanted and either complied with the deal or walked away.
This kept them out of the reach of the alphabet agencies from around the world.
There is a two0fold challenge. First, we have a closed system where only the banks and other global financial institutions are allowed in. The second is the fact that collateral is often not transparent. With no record of an agreement between two banks, there is nothing stopping one of them from re-pledging that collateral. When the system is starved, this is what happens. In fact, we started to see "collateral trees" forming the last 10 years.
A decentralized cryptocurrency system can target this market. At the base layer, this fulfill the needs. This cannot come from something that has centralization, pretending to be decentralized. It truly has to be outside the control of an individual or company.
This is where trust comes in.
Now we see that only liquidity and stability are left. Here is where the focus on growth is required. Obviously, to meet these conditions, especially liquidity, we need a lot more out there. This is something we discuss when referring to the Hive Backed Dollar (HBD and for good reason. When it comes to the qualities that coin exhibits, hopefully people can start to see where it fits in.
Stability is crucial. A stablecoin-based collateralization tree could be the solution. To grasp why, just consider Bitcoin. This can move 10% overnight. When entering a lending agreement for, say, %50 million, if the deal calls for the same in Bitcoin to be pledged, we could have a problem. The lender risks higher default if, the next morning, the collateral (Bitcoin), is now worth $45 million. Why pay back the cash when you can just hand over the Bitcoin and profit $5 million?
Of course, the one on the other side is not going to look kindly on this.
Hence why stability is crucial. When it comes to the monetary system, the USD leads in this. It is why stablecoins using the USD as a unit of account actually make a great deal of sense. They can be built out in a manner that satisfies the needs of the global financial system.
Collateral elasticity is a problem few are discussing. However, if cryptocurrency wants to get into the realm of hundreds of trillions in value, here is where the opportunity is. While it is overlooked, it is at the core of the banking industry. Taking this view, we can see how there is an opportunity to step in and take over.
Here is where we can see the true threat to the banking system. It opens up the world to a completely different financial foundation.
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Banks are not only afraid of crypto but also afraid of the online neo banks. Banks which run through the AI and the automation. Banks employees around the world are afraid of that because they will lose jobs in the middle of their age and they have gained no new skills to combat this.
Crypto will surely kill those jobs in next 4 years and what's left of it will be killed by neobanks which are operated in such way that kids born after 2010 and now going towards adulthood would be using it like how we used the passbooks in past.
Crypto is making banks decentralized whereas AI and automation is getting rid of the humans from the system. Banks are surely reaching the extinction from both side.
That is true. Those in the traditional banking industry are going to be affected. There is a lot more to the puzzle though.
Here is where we can see Hive potentially stepping in.
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Wait and see, in UK they just had an 180 degrees turn, and declared that they want UK to be a crypto-hub. facilities for crypto-companies, friendly legislation on fast-track, with an accent on stablecoin to be used in everyday life. The treasury is even minting an NFT to celebrate this. Sounds very strange and all alarm bells are ringing. How they will mess this out?
What I am referring to is outside the regulators. Always was. Now that we have the path, we simply follow it.
This is where decentralization comes in. Unlike the shadow banking system that arose outside the view of most, crypto is doing it in public. For this reason we need to start doing things in ways that cannot be attacked.
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And I was reffering at the fact that the financial system is waking up and trying to gain control and centralization on the decentralization. This is worrying.
Interesting stuff. I am still trying to fully wrap my head around this idea of using crypto as collateral. I think I commented on another post that it seems to be a no lose prospect when many people talk about it. I know that can't be the case though, but I am not seeing the other side of it I guess.
Depends upon what is being collateralized. The challenge with crypto as collateral, for the most part, is volatility. That makes it bad for that use case. Of course, it is still small. With size comes stability.
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Yeah, I know they were talking about loans and collateral in polycub. That seems like it would be a bit more stable. Plus if you can just use your harvests to pay it off, it feels like a win win.
Mi amigo @taskmaster4450 excelente su contenido, totalmente de acuerdo con usted, mi opinión, dentro de 10 años las criptomonedas estarán en todos los niveles de la economía (Bancos, comercios, transporte publico) para mi es la mejor tecnología financiera.
Cheers!!! to finding the void and filling it. The failure of the private sector making it huge even after decentralisation reeks of power and Greek by governments to stay I control of every sector. Clearly crypto has some milestones to tick before the house of cards falls..Anc that's where our place as retail investors is..fill the bag and grow with the market by just being in them regardless
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Cryptocurrencies will either kill or recruit banks. In fact, as crypto technology developed, everything related to technology began to be gathered. Change is a must to develop in technology!
good post
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If SHTF and there isn't any electricity, food, water, or fuel, don't blame foreigners, people of different skin color, or belief systems than you. Remember, it was the
bankerswho made it happen.They do run things, so they could have a plan.
Although they love money more, so if it interrupts their cashflow, watch out.
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I believe with the impact of Crypto that definitely wouldn't be much problem as crypto would really fit in to help the situation positively.
I believe with the impact of Crypto that definitely wouldn't be much problem as crypto would really fit in to help the situation positively.
I have to admit I don't really understand why banks have been dragging their heels with crypto as surely the earlier they take it on board the earlier they can find their own niche. The longer they leave it the danger is they will be left out in the cold and that is also worrying as they will find a way to muscle in somewhere through regulation. I am not sure how the banks can actually fit in to be honest as unless they are tied to exchanges they have no purpose in 10 years time.
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It would be interesting to see crypto used as collateral but will it be similar to the loan system we currently have? If the value drops below a certain amount, you get margined and does that happen in the current system?
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While some bankers see where blockchain and cryptocurrency are heading to, the bank sees it as a big threat. What the traditional banking system builds in years, and it serves them well, cryptocurrency just takes it away from their hands. They will lose control gradually. At some point, hope they realize, it is better to see how to incorporate blockchain and crypto. Otherwise, everything they build will be replaced!
The block chain can really solve so many problem and its doing that already.
I personally believe the challenge you posted above have been solved already by big exchange, offering the highest loan with lesser collateral.
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