Disclaimer: The technical feasibility of this at the base level is not know as of this writing. These ideas are being presented for discussion by the community.
The attack on DeFi and Stablecoins continues. The hearings on Capitol Hill are yielding the same results; more uncertainty and attacks from politicians basically seeking to protect the existing system. Between Senator Brown calling stablecoins neither decentralized nor transparent or Senator Warren tagging DeFi as the most dangerous part of the crypto world, it is evident that we need to do more to get out of the reach of these people.
Over the last few weeks we covered how the Hive Backed Dollar(HBD) could serve as an alternative to the regulations that are likely to emerge. Since it is an algorithmic-based currency operating at the base layer, there is little that can be done from a regulatory standpoint.
For this reason, we need to start expanding it. Hopefully, through the ideas presented here, we can attack some of the shortcomings while also created a more robust system on Hive. We can evolve this into a system where we have Hive Bonds on the base layer.
Ultimately, a few things need to happen:
- HBD requires even more stabilization
- We need a lot more in circulation
- A greater number of use cases are required
The ideas in here can hit upon all of this while advancing the opportunities on Hive.
As we look out over the monetary and economic landscape, we can see a few glaring holes that cryptocurrency should look to solve.
These are:
- The obliteration of the fixed income market
- The need for high quality collateral that is transparent and trustworthy
Source
Fixed Income Market On Hive
We recently saw the introduction of interest paid on the Hive savings account. Under this program, one simply puts HBD into the account and it earns 20% annually. The payout is determine by the medium consensus of the witnesses. We also have a 3 day waiting period of unlocking, so we know the blockchain is capable of time locked financial instruments.
Under this idea, we take it one step further. Here we create a typical bond tree. This would be coded into the blockchain and set there. The rates would be locked in for reasons that will be explained later.
It would look something like this.
1 year - 20%
2 year - 21%
3 year - 22%
5 year - 23%
7 year - 24%
10 year - 25%
20 year - 30%
30 year - 35%
This is an advancement on the savings idea. Effectively, at this point, we are setting up a certificate of deposit program. We will show how this switches to bonds shortly.
The idea is that people agree to lock their HBD up for extended periods of time in exchange for higher rates of return. Therefore, if one is willing to commit HBD to 30 years, a fixed 35% (.35 HBD) would be paid out each year.
After the time period elapses, the HBD is unlocked and the person would get the coin back since the commitment was fulfilled.
Advantages
Generates a great deal of HBD which is needed if it is going to become a legitimate player in the stablecoin industry. Circle CEO Jeremy Allaire stated his belief the stablecoin market is going to reach $120 trillion and set a goal of 10 trillion USDC on the market.
Larger markets tend to have less volatility. By producing a great deal more HBD, the peg should tighten up as more tokens are available.
While tokens are being produced, a significant percentage of them will be locked up as people hunt for yield.
No third party-counter risk. This is using "Code is Law" with the asset residing at the blockchain level. No company or entity is behind the project nor are the tokens in the possession of any other than the individual.
We establish a blockchain-based fixed income market.
The appeal to outside investors with low-risk, high-return assets being offered. One only needs to ask if the value of Hive is going to hit zero or will the blockchain stop running. Short of these two events, there are not many downsides that are evident (anyone who sees other risks, please put them in the comments).
** Disadvantage**
- A lack of liquidity. Who is going to lock their HBD up for 30 years, regardless of the return? Simply offering an expanded saving system is not enough.
Hive Bonds
Here is where some technical questions arise. Nevertheless, we should be able to handle some of this at the base layer while the rest can exist as second layer solutions.
To provide liquidity, we need to move this from a certificate of deposit concept to a bond. This is done by generating a new token for each HBD that is put into the "bond tree". For the sake of this discussion, we will use the 30 year option paying 35%.
When that option is selected, the second the HBD goes in, the individual receives HB30 (Hive Bond, 30 year) token in his or her wallet. This is an asset that is tied to the HBD placed in that account. Since the transaction is time stamped by the blockchain, everyone is well aware of long the lock up period is as well as the rate of return. The transaction is tied to the token so everyone knows the associated variables. It is all on the blockchain.
Hence we effectively generated an asset that has a specified payout over a period of time with an exact date of redemption.
More importantly, we now have a liquid asset that, although the HBD is locked up, can trade on secondary markets. This is exactly how bonds operate. There is a set redemption period which the face value is paid out along with all interest accumulated. Simply put, we just tokenized the process.
Now we have an incentive model for people to put in their HBD yet maintain the ability to liquidate out if desired, based upon market conditions.
Internal Exchange
Hive has its own, on-chain exchange. This is a valuable resource that isn't utilized to its potential. Here is a way to enhance that.
The bond tokens created can be integrated so as to trade in the internal exchange. At present, one can swap HBD for $HIVE and vice versa. What we add is the ability to swap the Hive Bond tokens for HBD. This creates yet another use case for the stablecoin.
We essentially create the first market for the assets. Of course, the goal is to get other platforms trading them, further increasing the overall liquidity. As more bonds are generated, the tradeable market only increases.
High-Quality Collateral
One of the major issues confronting the global financial world is the absence of high-quality collateral. In 2007 we saw how easy it is for collateral (mortgage backed securities), thought to be high-quality, to end up as garbage.
With Hive Bonds, we can see how this changes. Since everything is transparent, there is no question as to what is contained in the collateral. Anyone accepting a Hive Bond Token knows that it is backed by 1 HBD locked up for a certain period of time, paying out a specific rate of return.
Naturally, with collateral, there are a few things to consider. The first is the ability to unload it if received. Here is where the aforementioned exchanges are important. The second is what is the risk associated with the asset?
When accepting collateral, one needs to know it will cover what is owed (at least in part). With Hive Bonds, we see this clearly. One of the biggest advantages is that the rate of return is set. While the value of a bond can fluctuate on the open market, when held to redemption, one knows at time of acquisition exactly what the payout is. We see a lot of ideas about collateralization being tied to Bitcoin, which makes sense yet it susceptible to the price volatility.
With this asset class, that is eliminated to a great degree.
Lending Applications
Here is where we can see the formation of second layer lending applications. The ability to lend based upon high-quality collateral is the goal of every lender. When dealing with assets of this nature, lending becomes less risky since one knows what is being "staked".
This is also where Decentralized Finance (DeFi) can easily be brought to Hive. With a base asset that is tied to the blockchain, a multitude of applications can arise utilizing this as the core collateralized unit.
One of the major problems with existing DeFi lending platforms is the volatility. If the price of the collateral drops a great deal, the lender requires more put up or liquidates. This is expected when not only dealing with volatile assets but markets that are very small. Part of this should be reduced as the markets expand.
Nevertheless, having a lending platform based upon a low volatility asset to start should help in the matter. There will be situations where more collateral could be required but it is likely to be less often than some other platforms we presently see.
The value of this is the full transparency of the collateral. There is no question as to what is in it or what the present market value is going to be. Also, since it is a bond, it is guaranteed to maintain at least par value. The stream of payments as well as HBD backing provide that.
As we evolve further out in the process, the more it ties back to the core level. By having this at the base layer, we establish a strong asset that can be utilized for other financial purposes. We are providing low-risk alternatives designed in a way that people understand.
Ultimately, this will go a long way to establishing HBD as a legitimate stablecoin since it will aid in the peg while also expanding the amount available. As a great deal is locked up, the risk associated with conversion to HIVE is simultaneously reduced.
It also can provide other applications with a means of funding. For example, games could not only accept HBD as payments but lock it up into the high-yield bonds to generate a revenue stream to pay out players. Others could utilize this concept for contests. Lottery systems around this would spring up. Ultimately, the applications utilizing HBD could skyrocket.
Here is the best part in all this. For this to be successful, the initial HBD has to come from somewhere. We know there are only 25 million HBD available, with a large portion of that in the Decentralized Hive Fund. This means that the start is going to require people to convert their HIVE-to-HBD, likely reducing the supply of HIVE on the open market.
As other factors associated with the HIVE token start to kick in, such as the need for Resource Credits, a lowering of the amount of tokens will be offset by an increase in the value of HIVE. This will only create a more resilient system as the total market cap of HIVE heads up.
Ultimately, we are creating a positive feedback loop since, after all, to even trade or lock up the HBD, one needs minimal Resource Credits that come from powering up HIVE.
This makes the correlation between HBD and HIVE even more powerful.
What are your thoughts? This "proposal" is in concept form. The idea is to start a discussion about the pros and cons of such a move, especially from a technical/security standpoint.
Let us know what you think in the comment section.
If you found this article informative, please give an upvote and rehive.
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This may need to be a tapered rate. For example, if 30 year lock in (to back against a run on HBD) and ur inflating at 35% per year for this lock in, where does the hive come from to back the HBD? Potentially (almost certainly here) u will not have the hive to back the HIVE at these inflation rates.
Let’s say 100M USD worth of hive was put into bonds with an average of 15% per year APR, by year 5 the HBD supply would have printed 100M HBD. The HBD is backed 1:1 with hive staked in the system. After this however, things start to get unstable in terms of how much backing there is in hive to support a run on HBD.
Interest rates such as 5% APR over 30 years seem more realistic. 35% APR would expand the HBD supply so much that there just would not be enough hive to back it with after year 8 or 9.
It’s a great idea, but we have to be careful tempting ppl with such high returns when i don’t see how we are backing the HBD after just a few years of such returns.
Maybe we need variable rates based on hive price or rates that taper off over time so that we can ensure there is enough usd value in hive plus a reasonable margin of safety to protect against a run conversion from HBD to hive that don’t exist
Answered in the next post.
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If any of you are wondering what maniac would lock up HBD for 30 years, you have to zoom out a bit to get the full picture.
First, you can buy and sell bonds.
https://www.finra.org/investors/learn-to-invest/types-investments/bonds/buying-and-selling-bonds
Second, the reason you are doing this is to package HBD into large units. When you borrow from the bank, you pay a premium for every dollar you borrow. For example, I'll buy $1 for $1.10. Or, like a 30 year mortgage, you are buying $100,000 for $200,000, effectively. Buying and selling individual HBDs is inefficient. You can pack them up in units of 1000 HBD to buy and sell. Why buy bonds? They pay interest in guaranteed amounts.
In the case of HIVE, we would collectively be buying money to be locked up in HBD, which would reduce the amount of HIVE in circulation, thus raising the value of HIVE. In order to make all this happen, the HIVE blockchain would incentivize savers with interest payments. This is similar to corporate bonds, which companies use to borrow money. You may think that stocks give you ownership of a company. However, bonds have to be paid first. Stocks get whatever profit is left over, if anything is left over. Bonds are a direct claim on capital.
In other words, with bonds, all of us Hivers would be buying money to lock up in our blockchain for 10, 20, 30 years. We would simultaneously be the lenders and borrowers. And, as bonds would be hard-coded into the blockchain, they are guaranteed income that is tradeable. This long-term stability is what could make HBD a less volatile stablecoin as we would have a constant release and lock up of HBD as bonds mature and are issued every month.
In other words, bonds would be like miner tokens for HBD.
Exactly. It would generate a lot more HBD over time which I believe is needed. However, to really jump start things, we will see the conversion of a lot of HIVE to HBD.
One other advantage of this, especially on the internal exchange, the cost of 1 HBD or 1000 is the same. Same selling on the exchange with the HB30..one or 20 is the same cost of transacting.
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This is why I follow you. Very smart and your posts are always interesting.
This is an absolutely fantastic idea. By this logic and design... Why wouldn't you lock up HBD for 30 years since your value isn't necessarily "locked" because you get the HBD30 bond tokens to trade on the market? I could even see the bond tokens trading higher than the HBD tokens due to the guaranteed payout per year on those tokens. This really creates a positive feedback loop as you said. Strengthening the whole Hive economy while generating way more HBD for the market.
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It can trade higher especially as time goes by. For example, if "locking" HBD up for 30 years nets out a 35% rate, what happens if you buy a bond 20 years in? Obviously the HBD is paid out at redemption in 10 years but still pays a 35% annual rate, much higher than buying a new 10 year bond. Hence there would, I surmise, be a premium on the bond for the shorter timeframe until duration.
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Thank you for breaking down what I was saying. This makes perfect sense and creates more incentive to bond your HBD.
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This is a great idea and the secondary markets are also a great place incase someone needs to liquidate and collect HBD right away. Am I right in assuming the returns of the bonds will be paid out monthly or quarterly as dividends?
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That would be something that would have to be decided. The present savings uses a monthly pay out. I would presume the same scenario could be followed. I fail to see any reason to alter that since it appears to work well.
Not sure what some of the others thing about this particular aspect.
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My big takeaway from your post is "Bonds help to create and maintain liquidity"
I think this is a brilliant idea. I will participate. I have read where some liquidity pools pay their members upwards of 300% APR.
To be honest, until Hive and articles like this I have never even considered liquidity and market caps.
What book are you currently reading?
The bond is not part of a liquidity pool per se. The bond idea (the HP30 token created) is the liquid form of the HBD locked up. This gives people an asset they can trade if desired on an open market just like bonds are traded.
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This just keeps getting more interesting. Is this an actual project in development or a concept you came up with for discussion?
I'll be brief seems like a good idea. I only have one question. Will the interest on the bonds be charged in a given period, as a discount on the bond or as an accrual at closing?
I would imagine it can be paid similar to the savings. We know it can be programmed to pay out monthly. I see no reason why that cant be done in a similar fashion.
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I agree there are people (The 1%) who will die protecting the current financial system, the issue here is we need USD, I mean where can I pay for a service with crypto? I don't mean to be a pessimist but the war will always be on until the last banker bakers-up.
For example, I don't have any problem buying Hive with 10K USD and bonding them for 30 years, because with the 10K USD I will get about 6,666 Hive, lets say I get 35% as a profit, these are 2,333 Hive, I see the Hive price one Year from now above 10 USD, so basically I made more than 100% of my investment in one year, These projects are the real estates our fathers and grandfathers missed.
The bond is not used by locking up HIVE but HBD. Thus, you would lock up 10K HBD (roughly) for your $10K.
What you do with the money is not being discussed here. Whether payouts are converted to USD, Bitcoin, or you buy skins in a game is up to you.
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I love percentage alot and think one the reason why have been saving on hbd is because of percentage but for me I will go for 1year 20% unless I get more clarity on why I should for a longer time.
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Sounds awesome until we realize the fact HBD can grow sustainably only when Hive grows at the same time, those two are bound to each other and no external tool will work other than organic growth of the network.
Healthy financial might be build only on the top of healthy economy. This is what traditional-finance people forgot long time ago...
If HBD grows in total value, that cannot help but to push the value of HIVE higher. There is a relationship especially when we factor in the conversion mechanism. While that might not be the most used tool down the road, it does allow for the community to constantly adjust the amount that is outstanding.
With HBD though, it doesnt really come down to value as much as transactions. A stablecoin is not dependent upon market cap but uses. So yes we need organic growth in the system, more uses cases for HBD. As those develop, the "value" the token provides to the ecosystem expands. This will only help the value of HIVE on the open market.
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Hmm, this post was really educative. I'm asking myself what I really learnt in Economics back then in school. The simplicity in explaining what bonds mean is amazing. Looking at Hive bonds, and your projected returns with increased years of holding, that looks awesome as it could really help to position HBD at the top of lists of stablecoins.
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Not sure it would be at the top yet it would make it a legitimate player.
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really cool idea! But I think the rates would have to be adjusted, why keep it for 2 years with 21% when you can have 20% for one year?
When is that Hive loan things coming?
@tipu curate
Have you seen the difference between the 30 year Treasury and the 10 Year?
Actually right now the yield curve is inverted and the 20 is higher than the 30.
So the separation that I am putting in is much wider than the half a percent that separates the 10 from the 30.
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Upvoted 👌 (Mana: 64/84) Liquid rewards.
This is a really interesting idea. It makes a lot of sense to me. I would definitely participate on some level if they started something like this.
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I'm not really sure about something. Let's imagine I'm puitting some HBD for 30 years at 35%, let's say the payment is once per year.
Is that payment some HBD sent to my account or added to the locked up HBD and compounding for the next year ? Because with compounds this really makes a lot of money. Like 1 HBD would become 8k HBD after 30 years, I would love that but not sure this would be sustainable 🤔
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I would say we want the payout to be directly into people's accounts. We want the HBD to be liquid. Of course, people could opt to auto-reinvest, a feature I would think the front ends could add.
It might not be as attractive to have the interest reinvested. Bond holders often buy for the stream of payments.
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That's what I'm thinking too ! Thanks for clarifying ! :)
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It's a very interesting idea, which would surely interest me, but the value of HBD should be a bit more stable to get it really going, in my opinion. But it would sure push Hive up, and attract loads of investors.
Actually, this is what is going to add tot he stability of HBD. A program like this will create more HBD plus with the time lock feature, will generate a stability that will hold it closer to the peg.
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That's a wonderful idea. Thus, together with high rates, much more HBD will be saved in accounts. TBH, I was thinking to convert my HBD to HIVE, I should think about that again.
If you are making a move into HIVE, you can use the internal exchange if you are looking at it as a trade.
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New ideas with different options is what is required and I would support this. Hive in 5 years time will be a total different beast with so many cool ideas added.
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Hive is certainly evolving. I dont think there is any doubt about that. We are seeing so many different projects and ideas coming to light.
Just trying to throw something into the ring that I think could add to the platform. Hopefully others like the idea and we can pursue getting something like this in future upgrades.
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If this HBD we are looking for as a stable coin in Hive, actually acquire this quality, that Means HBD will be know by many people.
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It will still need to be promoted but it certainly, in my view, gives us a wonderful option to pitch to people.
High yield with very low risk; that is how I view this.
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I like it, no I love it. I want to know if and where you went to school?
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I went to school for Economics (30 years ago now) but never used it. Found what they were teaching to be pretty much useless since it was all academic.
That said, as I got involved in crypto-economics along with the technological evolution of economics, it really started to inspire me to dust off the ole econ hat.
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Thanks for answering. Time to start reading more. 😉
Wow!! 30 years is a long time for me to want to lock my assets, will I be given my 30 years Interest upfront?
Just another question regarding locking up, I thought locking Hive up in savings gives you 10% APY interest? I also thought getting HBD rewards from post is another way of the blockchain generating more HBD and adding it to circulation
No, you do not get the interest up front. It gets paid out in intervals just like HBD savings.
But, just because the HBD is locked up for 30 years doesn't mean that you are stuck. You can sell the HBD30 bond at any time. The HBD is locked up, not the value.
With bonds, you can usually calculate or look up the value, which goes down as the expiration date approaches. This is why the issue date is important.
https://www.investopedia.com/terms/b/bond-discount.asp
https://www.investopedia.com/terms/p/premiumbond.asp
Thanks for the clarification
I'm doubting that the US dollar will even exist 30 years from now. I think stablecoins are good way to defend yourself from short-term market volatility, but not somewhere I'd want to park my wealth for years or decades.
HBD is not backed by USD. It is nothing more than a unit of measure.
HBD is backed by HIVE.
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But HBD has been engineered to mirror the value of one US dollar. If the USD collapses, what would happen to the value of your locked up HBD?
It would still pay you in HIVE. Whatever $1 worth of HIVE is worth, that is how much HIVE you get.
Of course, we have been hearing about the collapse of the USD for decades and it only keeps getting stronger.
So there is there.
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The united snakes dollar will persist, but, the federal reserve debt note is on its way out, imo.
Instead of the fed issuing dollars, the treasury will do it directly.
Thereby, the value created will accrue to the treasury, and not the private owners of the federal reserve, as was intended by the constitution.
The Fed doesnt issue dollars.
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Where does the treasury get them?
I do not believe the interest is paid in savings on HIVE. It is my understanding that the interest is for HBD locked up.
Maybe someone has more information on that.
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I like to think long term, but who would lock their HBD literally for 30 years? I mean, if you have so much HBD that you do not even need it, just/only its interest, then it is fine.
Maybe you will not even live for that long. So what if you do not even live for 30 years from the time of locking?
I currently have only one idea about this. Building a savings account for your child/children.
https://www.finra.org/investors/learn-to-invest/types-investments/bonds/buying-and-selling-bonds
You don't actually have to hold a bond to maturity. This is why there would be HBD30 tokens.
Excellent proposals here, congratulations!
It is a perfect idea to incentivize the use of HBD as a stable coin for several purposes. Besides the interest rate, I think the frequency of the distribution can also be adjusted according to the interest rates. For example, the longer periods may require longer time to claim the interest payments✌
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That is true, that could be added.
The savings account allows collection monthly. I guess it would depend upon how much liquid is required. It would seem that we need to get a lot of HBD out there.
But it is open to varying to add another layer of incentive.
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I think, one should be allowed to unlock any time, and not do a commitment from the beginning. The rates would apply based on current period of staking - that way, everyone is free to take it when they want.
That is the savings account. You already have that.
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But it does not increase the rate, right ?
The interest rate would be increased only if you lock up the amount. If you want to get more from it you will have to lock it for a while.
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But right now this is not there in savings. So my point is that, the savings should be like fixed deposits, which one can break any time. Even banks have similar schemes. You tell them, to deposit for certain time ( lets say 5 years), they will put an interest rate accordingly. Now in between if you want to withdraw, they will recalculate the interest but will allow you to withdraw. So you do not get the same interest, but you are not locked to withdraw in emergencies.
Why would the savings rate increase the rate. It is liquid based upon when you withdraw it (accounting for the 3 day window).
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Ooooo, this is very appealing investment opportunity for a gurl like me! Let's see where this idea goes. Great post!! Thank-youuu :)
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We will see what happens. It is an idea I was toying with for a while. I would like to see the technical possibilities on Hive. Is it something that can even be done, at the bond level. We can do the longer lock up periods obviously since that is an extension of savings account model.
However, to get the liquidity, we need the new tokens that can be sold if someone wants to.
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I will like to get involve in bonds as well
It is quite alright to leave your HBD in savings for a very long time but 30 years is a bit to far to wait because the life we live is borrowed and we are not promised tomorrow.
That is why the idea of the bond as opposed to just doing a CD type account.
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Now by calling it a “bond” might that attract negative attention from potential regulators?
It is tied to the blockchain. What can the regulators do about it? They are no more able to regulate it than they can HBD.
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Thanks for all the new info. Upvoted and rehived
How do you think the granting of this patent is going to affect things going forward?
https://patents.google.com/patent/US20170187535A1/en
If I read it right, it is pretty comprehensive.
Escaping it's reach is going to be difficult, imo.
It would be interesting to see what type of credit rating a rating agency would put on this. 🤔
Since they are corrupt anyway it wouldnt matter. But if we wanted a good rating, just pay them enough money and it will be AAA.
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I think this idea would add many benefits to HBD and to the ecosystem in general! It's likely not so trivial to implement, because there are many changes necessary, both to the core and to the internal exchange, which hasn't been updated since launch I believe.
A small note:
That would be swapping for staked HBD or however we would call the HBD that enters the tiered interest-paying system. As opposed to liquid HBD, that can be sold immediately and which loses the information about accrued interest and expiration date.
The Hive Bond being sold on the internal market would be for liquid HBD. What is locked up is locked up. There is no unlock.
This is how one can still have a liquid asset while locking HBD away. It is the same as selling HIVE in the internal exchange; one get liquid HBD.
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Got it! I misinterpreted it, at first read.
Interesting
that coin must be on more exchanges then two (plus @blocktrades)
These are great ideas presented but pose a great challenge on how to explain it technically to retail/institutional investors outside/inside the blockchain.
I'm just seeing your post now and I find it very interesting I'm following you now❤️
I encouraged one witness to signal for 20% but they voiced some concerns over the trillion cap and some stuff about Luna. I thanked him for his opinion but still suggested 20%. I think the ability to hold HP and HBD for different strategies is incredibly valuable and it makes holding funds in HBD appealing. We want millions of users to buy and hold HBD, and likewise they take the risk that HIVE wont increase more than 20% in said year.
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I like it. More options, more flexibility, and giving a long-term horizon on the chain and goal to keep it going for basically forever for more users is a good thing.
Personally I think it provides a lot more options while adding a lot more stability to the chain long-term. We also can leverage this, I believe, into a larger user base.
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