A look at why stablecoins are needed in place of ‘real’ US dollars and what popular stablecoins like HBD are used for.
In volatile cryptocurrency markets, having access to USD pegged stablecoins is invaluable.
By keeping the price of stablecoins pegged to government-issued fiat currencies, the ultimate advantage comes in the form of a secure price floor.
If you’re still valuing your assets in USD, then stablecoins offer a risk-free alternative to cash, without having to actually cash out of the crypto ecosystem.
This section of our Hive Backed Dollars (HBD) guide further covers why we need stablecoins and why crypto investors would use HBD over other currently more popular choices.
Why use stablecoins instead of USD?
The biggest reason to use stablecoins instead of traditional US dollars is that they offer the safety of holding your money in cash, while still keeping it within the crypto ecosystem.
You can view stablecoins as doing the exact same job as fiat currencies do in the traditional investment realm.
But instead of, for example an equities trader moving out of stocks and into cash, a cryptocurrency trader might move out of Bitcoin and into a stablecoin.
When traders look to take profits or move between different cryptocurrency investment instruments, stablecoins offer the same safety and utility of a domestic cash market.
As you can see, stablecoins allow you to lock in profits or protect yourself from downside risk, without having to actually cash out.
As long as assets are valued in USD terms, stablecoins will be a necessity within cryptocurrency markets.
What are Hive Backed Dollars (HBD) used for?
But as you’ve already discovered in this guide to Hive Backed Dollars (HBD), not all stablecoins are created equal.
Collateralised stablecoins that hold fiat USD in a bank account will always have US regulators looking over their shoulder.
With stablecoins such as Tether, the risk of the entire market being blown up by a regulator will trigger what will essentially be a digital run on the bank.
In our opinion, this scenario is inevitable and when it plays out, your stablecoin exposure is going to want to be in an algorithmic alternative such as Hive Banked Dollars (HBD).
Instead of being pegged to the value of USD via bank deposits that are easy prey for the regulator, Hive Backed Dollars are instead backed by the value of HIVE crypto.
This Hive network backing is administered by an on-chain conversion operation that allows holders to at any time convert 1 HBD to an equivalent of $1 USD worth of HIVE.
Of course the same is true in the opposite direction.
As a result of this conversion mechanism, the price of HBD is tied to the price of the USD, though no USD is actually held as collateral or transacted in the currency.
Final thoughts on why we need to use stablecoins like HBD
As you can see, we don’t just need stablecoins.
What we really need is algorithmic stablecoins such as Hive Backed Dollars (HBD), that are out of reach of governments and regulatory bodies.
Make no mistake, US regulators have come and will continue to keep coming for collateralised stablecoins.
With a current market cap of just under $70 billion, all that money tied up in Tether is sooner or later going to have to move to an algorithmic stablecoin alternative.
When it comes to stablecoins of this nature that run on truly decentralised, permissionless networks, there aren’t many options besides Hive Backed Dollars (HBD).
Best of probabilities to you.
Direct from the desk of Dane Williams.
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This Hive Backed Dollars (HBD) blog is exclusive to leofinance.io.