We are spending a lot of time discussing the future of Hive and the financial services that it offers. There is a good reason for this. When it comes to Web3, we are laying the foundation. While that could be said across the entire spectrum, Hive is providing some things that are novel.
To me, this is what separates it from the rest of what is being talked about across the industry.
A major part of the crypto world is to close the gap between what is offered to the wealthy as compared to everyone else. This is something that dates back to the earliest days of Bitcoin and Satoshi Nakamoto. It is no secret that our financial system is rather exclusionary. Most do not have access to the opportunities the select few do.
Web3 can change all this. Between tokenization, decentralized finance (DeFi) and banking the unbanked, we can revolutionize the entire system.
We also can impart one of the most common strategies employed by the super wealthy. With the development of some applications (along with the infrastructure), this can be offered on Hive.
Buy Borrow Die
This is a standard practice for the wealthy.
Let us contrast this with the average person: buy, sell, pay taxes if a profit is realized, die.
What is the difference? There is a major component in the model that the average person does not entertain. The reason for this is likely the fact that most view debt as bad. We are conditioned to believe it is not a smart thing to go into debt. Of course, this is offset by the continued message that we deserve whatever is being sold and to simply swipe the Visa card.
This is not what the wealthy do. Instead, their borrowing is targeted.
The buy borrow die idea is another reason why lending on Hive is crucial. It provides the opportunity to all who are on here with any assets in their wallet.
Essentially, the wealthy buy an asset, have it appreciate in value, then take out a loan against it. They do not sell it when money is required. In fact, often the move is done when money is not needed, yet opportunities arise.
This could apply to any asset that can be used as collateral. A penthouse, business, or works of art could all qualify. If someone is willing to lend against it, the wealthy will borrow.
Basically, there is no point in dead equity. Also, the idea of selling has a bunch of horrific consequences. To start, in most countries, this becomes a taxable event. Loans are not taxed. Hence, the idea of selling means the government is suddenly a partner.
A second drawback is all cashflow and future equity growth is lost. These people thing long term. Selling an asset today means that, if it goes up in value 10% per year, in half a decade it will be worth 50%+ more than today.
Taking a loan against it means the asset value is still enjoyed while also having access to the money tied to the value.
We will omit the die part since that gets into a host of financial planning tools such as trusts. However, the main point here is to have an asset and borrow against it.
Hive Lending
The idea behind a lending platform is to release the value that is already accumulated and be able to put it to work.
Naturally, we are referring to layer 2 solutions. However, by developing this, we could see a massive shift in the ecosystem. By using some layer 2 tokens, along with HIVE, it is easy to see how individuals could start to access the value, a move that could allow them to get involved with different projects.
It also would create buy demand on some of the more promising opportunities.
Why do people sell token A to enter another one? Certainly, there could be the situation where one does not really think highly of the first. But what happens if both are desired? The individual has to choose which one looks more promising.
The wealthy do not consider either/or; they think both.
Lending would allow that. One could take out a loan against the first token to buy the second. If the value was $1,500, some of that could be taken out and used to purchase the other one.
Operating within the framework of tokens is rather limiting but it does make the simple point. Let's extend this to real estate. What if the value of a holding in some crypto-asset could be accessed in the form of a loan to buy a house?
Let us say one had $1M in a particular currency. During a bull market, this can occur. What if the person accessed $300K to buy a home instead of getting a traditional mortgage?
Of course, this negates the idea of selling some to buy the house.
Isn't This Risky?
Here is where the conditioning of the system leads people astray.
It likes to highlight the moron who leveraged to the nth degree and say everything blow up. Or we see the reports of athletes, singers, or other talents who have no money management skills nuke destroy their wealth by excess purchasing.
What is not mentioned are those who take a sensible approach to this. There are billionaires who collateralize their assets in a restrained manner so as to keep growing their wealth while minimizing the risk.
Talking a loan against 100% of the asset value is stupid. Leveraging to 30 or 40 times like many of the investment banks do is a recipe for disaster.
However, when one taps into the value of an asset to the tune of sub-50%, it is likely not a problem. Certainly, the asset class is important due to the volatility. Cryptocurrency is not ideal for this since it is very volatile compared to some asset classes.
Again, let us look at real estate. Even the meltdown during the Great Financial Crisis, we saw real estate prices drop less than 50%. Granted, a 40% drop is tough but if the loan was for 35%, then one is still not in jeopardy.
Here is another case where long term thinking enters. What happens to the prices since then? In most areas they rebounded, at least in large part.
Warren Buffett has a reputation of being a very conservative investor. His value model borders on being outright boring. However, what most do not realize is Buffett will use some very aggressive strategies and products periodically. The difference is he knowns when to apply them and, more importantly, to what degree. He does not put his entire fund at risk by overleveraging to the point where, if things go against him, it suffers a non-reversible loss.
Hive: A Wealth Generator
Lending can make Hive a wealth generator.
People will have the ability to access value and put it to work. This is not only beneficial for the individual balance sheet but also the entire Hive economy.
This is where some will provide some blowback. Again, look at how economies work. Real estate is the ideal in this discussion also.
The overwhelming majority of people purchase a home using debt. Nobody thinks about taking out a mortgage and society, in general, doesn't believe it a bad idea. What is a mortgage? Basically it is a loan against an asset that is done before acquiring the asset. Ironic, few look at it this way.
What level is the loan at? Most often it is near 80%. Notice how I discussed sub-50%.
That said, why is this crucial? The reality is that, without mortgages, the real estate industry would freeze up. Few have the money to purchase a home outright. This would devastate the economy since so many jobs tend to be tied, either directly or indirectly, to this sector. That means lending is the fuel that drives a fair portion of the economy.
It is also a tremendous wealth generator. So why do not not apply the same concept to Hive? Are we not, in many ways, talking about digital real estate? That is exactly what we are referring to. The question is are we talking a major market like New York City or some swamp land in the Bayou?
To me, the answer lies in what is being developed.
Nevertheless, what we are looking at is bringing a long utilized financial tool of the wealthy to the masses. By establishing lending platforms where assets can be used as collateral to access the value, then we can grow the wealth of individuals along with the entire Hive economy.
We can also have the resources to invest in projects that could further this cause.
This is why having these financial services is so crucial.