The position that the Hive Backed Dollar (HBD) could occupy is becoming clearer. A lot of it has to do with what is transpiring around the industry. Between regulation, the threat to the banking system, and the upcoming sovereign debt crisis, it is evident that something has to step up.
According to Jeremy Allaire, one of the co-founders of Circle, the answer is USDC. This is where Hive needs to take a different stance.
Before getting to Allaire, we need to note that stablecoins offer tremendous potential. Unlike fiat currency, these are not created by issuing out loans. While some like HBD are debt instruments, the dynamics are completely different.
Another advantage is the ability to leverage the USD to provide a safe haven. By this we are looking at people being able to get exposure to the USD without actually having them. This is vital for those in countries where the native currency is getting hit. Since people deal with either shortages or corruption, stablecoins can be a great way to protect oneself.
That said, we have to understand what Circle is looking at doing.
In short, they want to become a bank.
Source
Full Reserve Bank
Many feel the idea of reserves are a good way to operate. Unfortunately, this is disconnected from history and money. Even gold always required a free floating rate. Plus, in this era, we see trillions in transactions conducted daily which require settlement. The idea of a currency deriving its sole value from something else means that market conditions could cause major problems.
HBD is market backed. This effectively means that the totality of HIVE is what backs the stablecoin. Each HBD can be converted to $1 worth of HIVE. Under this scenario, the dollar is simply a unit of account, just like inches or centimeters are used in measurement. We do not confuse the measurement with the ruler.
This is not considered "reserve" since there is no HIVE sitting in an account serving as the backing of the stablecoin. Instead, it is based upon market capitalization, in USD terms. There is a haircut rule in place to help ensure the promise of conversion always exists.
Here we can see the contrast with Circle and USDC. This is full reserve in that the totality of USDC is backed by either USD or cash equivalents (US Treasuries). From this, the company believes it could develop a complete banking system.
On the surface, this is something we could actually agree with. In fact, there are some discussions that are erecting a framework whereby this could be possible on Hive with HBD. Offering a full plate of financial services surrounding the stablecoin makes a lot of sense.
So is this simply a matter of questioning who does it? Not in the least. There is a lot more to what Circle is proposing which, in my view, has it running off the rails.
Playing Within The System
It can be summed up like this:
Circle wants to play within the system where Hive is seeking to operate outside of it.
Disruption almost always comes from the outside. Rarely does it ever come from within an industry. If we are going to alter the existing monetary and financial system, doing so within the framework of what is established is not going to work.
Yet this is what Circle is trying to do.
Here is what Allaire had to say about it:
“We want to be a full reserve digital currency bank. We’d like a framework for that to exist. We’d like to apply for that license if such a license was available… We think the world needs a full reserve banking system. We think the world needs much safer base layer money and that’s what stablecoins represent. And so if that becomes something that say the Federal Reserve supervised, and we were sort of chartered and operated in that way and have the amount of supervision that goes with that, that’s absolutely something we will do.“
No surprise and, quite frankly, without any other option.
Circle is a company that has to play by the rules. It has a major point of vulnerability so, if it tries to operate outside what the regulatory situation is, they will be blasted. We all know the SEC and other alphabet entities are just waiting to pounce. Circle is smart to approach it from this manner because they really do not have much choice.
Nevertheless, proposing the future as being under the Fed supervision is trying to recreate the same system. This is not disruption. Essentially, Allaire is proposing building another layer on top of the USD. They are still dependent upon the elasticity of the dollar to expand.
It does not solve the biggest problem: liquidity
Monetary Expansion
Let us go to the absurd to detail the limitations of what Circle is proposing. Keep in mind that USDC is backed by cash (USD) and cash equivalents (US Treasuries).
For our scenario, let us propose the global economy required $100 trillion in dollars to operate (do not think that outrageous as we move towards the Metaverse and further advance automation along with digitization).
Where does Circle get $100 trillion to back USDC? They use 20% cash which is about $20 trillion. That is about $5 trillion more than physical USD and the "digital" dollars created by the commercial banking system.
The we have the 80% backed by US Treasuries. Could they produce that much debt? Sure, Congress is always willing to spend money. The challenge is how does it get sold? When Treasuries are "printed" they are sold for existing USD. Again, we do not have that money out there.
This is the flaw in Circle's design.
How can the Hive Backed Dollar handle our example? The market cap of HIVE simply needs to be higher than what is required to fuel the economy. If $100 trillion is needed, then the market cap of HIVE explodes higher to back the amount of HBD that must be created in this scenario.
We are obviously going to the extreme here but it does exemplify how much we need to alter the system. Also, there is another point that should be abundantly clear:
The future of money is not a single stablecoin.
To reach the numbers required in the future means we are going to require a number of different currencies filling the void.
HBD: Market Based And Outside Control
HBD has no company behind it. There is no single entity responsible for the currency. Instead, it is tied to the blockchain and backed by another cryptocurrency. The USD is the unit of account (measurement) but there are no dollars involved. For this reason, its expansion, or contraction, is not dependent upon the underlying supply of USD and its cash equivalents.
There is no financial institution looking to file for a banking license on behalf of HBD. The desire is not to have the Fed or any other central bank regulate the currency. We are not going to have a CEO or CFO on television talking about the plans to make the regulators accept what we are doing.
With HBD, the parameters are coded into the blockchain. Over time, the community decides how to alter things, as evidenced by the increase of the haircut. This is changed in the software. Since it is tied to a decentralized system and based upon what the holders of the coins decide (i.e. conversions), this is where the monetary policy comes from.
Allaire is right. The world could use safer base layer money. However, the approach that Circle is taking is incorrect. It duplicates many of the same limitations along with potential pitfalls as the currency system. HBD is different in that it is not tied to USD. Thus, the elasticity is based upon the market (community) engaging with the two currencies on Hive.
When this is branched out using derivatives, we see how powerful this can be. Here is where resiliency is provided similar to what the Eurodollar system does for the dollar.
In short, HBD is the anti-thesis of USDC.
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Another reason I think Hive is positioned for massive growth. I truly believe when 3Speak is up and working correctly consistently that will have a huge impact and draw for already established content creators. In turn this will lead to a percentage of their following to create Hive accounts and earn for watching content they already consume. At this point there seems to be no alternative where you own the content and create income from interaction. Live streaming and podcasting will be huge also and are obviously correlated in the content creation process. With SPK Network developing another incentive level and solid tech base for expansion I cannot see Hive's regular daily users growing significantly. This should lead to people using HBD and if the future brings us a HivePay interface for brick and mortar business to accept payment this will continue to evolve into more use and users. Vamos a ver.
All possibilities that are being worked on to some degree. We need to get more liquidity pools, deeper ones, and also start the process of building a huge financial system.
This will take smart contracts, something Hive is really lacking at the moment.
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I hope very much that this will be possible, I create a lot of content on YouTube and would like to switch to 3speak but many times I have problems uploading videos, let's hope for an improvement soon.
However, I think hive dollars can give good financial support to content creators.
I listen to Community Token Talk (CTT) where they discussed the development the other day and it sounds like they are being very thorough in the process.
This is a good thing, on youtube so many creators drop out because they are discouraged by the fact that there is no money in the end.
No doubt that is discouraging and worse when you build a following they can still delete you. Censorship sucks.
One of the problems with HBD is that there is so little of it. When the price of Hive crashed several months ago even more Hbd was burned/sold as many bought Hive reducing the supply to only like 8 million I believe. The Hbd created through posts and interest is way too little to ever have 100 millions of it I think. What could be the solution? Could we increase interest again? I think this could be one idea. Let's say we increase it to an outrageous 100% Not only I think this could be sustainable for at least some time but it would also attract tremendous attention. Of course your Hbd bonds idea is a great idea as well. Do you think it can realistically be implemented? Anyone working on that?
The biggest production of HBD is going to be from conversion. Keep in mind, we dont have many use cases for it so there is really little reason to produce it.
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aha, right how could I forget that :D So HBD supply will increase only really once Hive price increases again as people would then be more likely to sell/convert.
Increasing interest higher then 20%? I’d vote no
Circle is trying to work within the system because they have no other choice. As a corporation, they are exposed to regulation. Ultimately, they have a fiduciary duty to their stock holders, which makes them subject to regulation.
Hive doesn't have such a duty. It is just a ledger without any say or master. As a community, Hive will rise or fall based on the collective sentiment of us users. It's never going to be a matter of just a few people making decisions for everybody.
Your post made me think about what would happen if we had people with, let's say, $200,000 worth of HBD. For now, most savings accounts are relatively small. But, if we could afford to buy a house with HBD, it would be more efficient going wallet to wallet. This avoids the conversion loss and market price fluctuation. There are millions of homes around the world. Thousands sell every day.
In short, you're right in that like USDC, HBD requires massive amounts of liquidity to handle commerce. We're still in the chicken and egg quandary in which we can't have commerce without liquidity, and there's no sense having liquidity if there's not commerce.
Well Circle isnt a publicly traded company so the responsibility it has is more derived from what it is contracted as opposed to securities law. Since it was, presumably, VC funded, there are obligations spelled out between the parties.
Yes HBD traveling from wallet to wallet is vital. Whether it is at the base layer or layer 2 through derivatives, we need to see it moving. That is why erecting a financial system is one of the keys going forward. This will promote the use case to an extreme level.
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Hbd is truly decentralize and can't be attacked by government, what hbd brings to table is different and no other stable coin have this kind of power.
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Well it certainly can be attacked and will be. Can the attacks have any effect is the real statement, or they can not have any effect is a better way to put it.
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I don't know why they would want to build something new within the system when they can build outside of it with more freedom. The statement is filled with 'I think' so it's probably still just a concept. A brilliant concept at that. It's just the way the want to execute it seems a lil bit off the mark.
Well since they are a company, they have the point of vulnerability. There is no way around it. If they go outside the law, the will get sued or even worse.
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They can’t go outside. There a US Corporation. Stuck playing inside the lines.
Right. So they have to play by the rules and think 'within the box'. I believe there's a way out if they think outside the box.
It is uncommon to have a decentralized stablecoin as we have in HBD, any attempt to create stablecoins tends to end up sucking up to the Fed which is the only choice they have if the stablecoin isn't completely decentralized.
I hope we get to have more stablecoins like HBD to give people the options to operate outside the current system.
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It certainly is a rarity from what we see so far. There is always a company behind them.
HBD stands out as unique here.
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I guess this just goes to show that people are going to need more time to figure out all of this stuff. They are still trying to apply old school methods and principles to doing things the new way. It's not always going to work unless you go all in.
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Well you know where I stand on HBD and the risks blowing it up and it being used widely. No reason to repeat but I must say I dig the podcast brother 🍻
BOOST ✌️
we have a little hbd use case we need to make known like USD or usdc and because they're is less supply we see fluctuation from time to time
Glad to hear you bring up the ETH issues! I agree 💯. Great new episode, I’m in middle of it as I type! Boost!
I guess it's probably as backed as any bank can be right now. I guess they might not get the full amount covered if they had to dump it on the market though. However, I do think the banks would cover the cash if needed because they don't want the treasuries to crash
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You made a great argument for HBD! The need for funding is colossal and will only grow. We can also see what happens with the other fiat currencies now as USD sucks up all the liquidity from the market. We don't need more products blocking large amounts of USD, we need stable products (like HBD) backed by something else. In HBD's case, by the much larger market cap of HIVE and with the failsafe measures in place.
HBD is a potent stablecoin but behaves in mysterious way when looking at the conversion schemes and its truly remarkable to flex the calculations you made through here. I think,for being the central currency of the chain,it can turn the whole idealistic currency patterns into a self-directed way, where conventional rate and tokens would find hard to understand the nature of it.