By now, most have heard about wHIVE being created on Ethereum. This was the development of @fbslo.
While there are mixed opinions on the value to this for Hive, I wanted to try and connect some of the dots. It became clear to me after seeing some comments made by @cardboard.
To start, wHIVE is just one piece to a larger puzzle. By this I mean that it is not meant to stand on its own. Certainly, it does bring in a DEX such as Uniswap into play. However, when looking at things from the broader picture, this is a small step forward.
So what is the value of wHive? Ultimately, it is going to come down to what takes place going forward. DeFi is an explosive industry and Ethereum is killing it right now. This is the epicenter where all the activity is taking place. Thus, being a part of that ecosystem can be highly valuable.
The goal, ultimately, is to get listed on some of the DeFi platforms that are in operation. This is where the payoff for Hive will occur. Suddenly, Hive will be part of the collateral loan world.
This is what Cardboard has to say:
Notice how powerful that is. If we think about it for a second, we realize this just opened up an entirely new access point for HIVE.
Perhaps if we apply some numbers it will be a bit easier to see. I will take some liberties for simplicity of math sake by rounding off. The numbers might change slightly but you will get the point. The associated fees will also be omitted in this illustration.
We will presume one has .1 Bitcoin valued at roughly $1,200. This means that one could get 4,800 HIVE at 25 cents. Using an exchange, this could be easily done, the HIVE powered up and all is well. Of course, under this scenario, the Bitcoin is gone. Any price appreciation of BTC will not be realized.
Using the DeFi idea just mentioned, we could enjoy both worlds. We will presume there is a 150% ratio that must be maintained. Since Bitcoin is a bit volatile, we will play it safe and set a 200% ratio (meaning we have twice as much BTC value as the HIVE we took out). Here we see the $1,200 gets us 2,400 HIVE. We use this to power up.
Over the course of a year, we actively engage in Hive activities. The HP is put to use and does attain the 10% return Cardboard mentioned. This gives us 240 HIVE.
We also see the price of BTC move higher. Let us, for discussion sake, say that Bitcoin went up 50% and is now worth $18,000. This means our .1 BTC is, in USD terms, up to $1,800.
At the end of a year, we pay back the 2,400 HIVE, unlocking the BTC. Now we are left with .1 BTC valued at $1,800 and 240 HIVE. In the real world, we would have to factor in interest and other fees but I think the point is understood.
By opting for a loan using BTC as collateral, we are able to leverage our position higher, gaining benefit from both ends.
Of course, there is always a risk, so what are the dangers here?
To start, if the 150% ratio is not maintained, we could be liquidated out. This would occur if the price of BTC feel greatly. Of course, the HIVE then becomes ours which will offset the loss of the BTC. We might actually come out a bit ahead if BTC drops a great deal while the price of HIVE remains the same or goes up since we would be looking at the BTC/HIVE pricing.
Of course, we always have the option of adding more BTC to the loan to maintain the ratio required. This would negate any closing of the loans and keep things in effect.
The Value Of Hive Power
Here is where we see HIVE (wHIVE) standing out. When we look at the DeFi world, we see all kinds of tokens being created. They ultimately serve the purpose because they can be used to interact with other tokens, thus realizing the token appreciation along with the original token staked.
However, Hive offers a different option to people. HIVE has value to those using the platform in the form of Hive Power. This adjusts people's standing on the network, influencing a host of different activities they engage upon. To start, voting in the proposal and witness pools is affected by the amount of HP one holders.
That said, there is even a more direct impact: HP affects VP which can dictate what one gets out of the reward pool. The higher one's vote, the more value they are giving, This ultimately comes back in the form of curation rewards as well as possibly a larger following. It is obvious those with the larger amount of HP tend to have a greater following. This can result in larger payouts of individual activities.
Thus, unlike many of the DeFi tokens, HIVE have an enormous utility for those who are actively engaged on the platform. In this scenario, it can move far beyond simply speculation and, instead, be a tool to help increase one's standing.
It is this viewpoint that also helps to offset another one of the potential risks of the loan mentioned above. There is the possibility that, throughout the course of the transaction, the price of HIVE does fall. Hence, priced in USD, the return on that end of the transaction could be less. This point is less significant if one is looking at the value of HIVE for what it provides on-chain as opposed to what its value is for trading purposes.
Once again, Cardboard hit the nail on the head. He showed where wHIVE has a bit different backing than many of the other DeFi tokens being utilized.
Essentially, there is another layer to the Network Effect that could take place.
It all holds interesting possibilities.
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