During the past few weeks, we discussed some ideas surrounding the idea of the Hive Backed Dollar (HBD) and the creation of a fixed income market on Hive.
Part of this is the concept of Hive Bonds. Here we have a bond tree that provides liquidity while also producing a fair bit of HBD.
We also have to understand that Hive Bonds focuses more on the development of pristine collateral based upon HBD. It is fully transparent, enabling lending platforms to have confidence in it as a collateral piece. Also, creating the possibility of a liquid market where the Hive Bond Tokens are traded enhances the appeal of the entire project.
What we are going to embark upon today is a part of the larger outlook while allowing the community to experiment.
For this reason, it might be beneficial to start with a Hive Certificate of Deposit (HCD).
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Certificate of Deposit
Before embarking upon the discussion, let us clarify what a certificate of deposit is.
According to investor.gov:
A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years, and in exchange, the issuing bank pays interest. When you cash in or redeem your CD, you receive the money you originally invested plus any interest. Certificates of deposit are considered to be one of the safest savings options. A CD bought through a federally insured bank is insured up to $250,000. The $250,000 insurance covers all accounts in your name at the same bank, not each CD or account you have at the bank.
It is a rather simply concept. In fact, it already exists on Hive. The savings account actually fits into this category. When one puts HBD is in the savings account it is subject to a 3 day withdrawal period. Thus, we see a certainly amount of money put in for a fixed period of time (minimum 3 days). Of course, with the savings account, it is open ended. One can leave the HBD there for as long as he or she sees fit.
This would be a bit different. Instead of it being open ended, the depositor is agreeing to lock up the HBD for a certain period of time in exchange for an increased interest rate. We will cover that in a moment.
As for the guarantee, this is where the blockchain enters the picture. We do not need an outside entity providing the protection. Here we have the blockchain code telling us what will take place. Once again, this is in keeping with establishing assets that depend upon no third parties.
Benefits Of A Hive Certificate Of Deposit
The Hive Certificate of Deposit would simply be an extension of what is already in place with the savings plan. We would establish another layer to attract investment capital, especially from the outside.
What would a good starting point be?
Here is where we can start with the first layer in a bond tree. Why not install a 1 year CD? This means people can opt for the locking up of their HBD for a 12 months.
In return for that commitment, we can offer an interest rate of 20% for the twelve months. This is about 8% difference from what the existing payout is in savings. Of course, with that one there is really very little time component involved. Hence, we would see the system incentivizing a longer commitment.
This is an asset that could be marketed outside of Hive. The Hive CD is guaranteed to return the money based upon the code. It is a base layer operation. Also, payouts could occur monthly, providing individuals with a stream of income.
As asset like this helps in the creation of HBD while not flooding the market with it. Since a fair bit will be always locked up, the release of "staked" HBD will be scattered as the 12 month window is hit. Each day, CDs will mature, returning the original HBD.
Of course, the front ends could build a feature in that gives people the option to reinvest when the term ends.
Imagine this concept applied to a community or game. Money taken in for commercial purposed can be placed into a HCD. The ongoing payouts could be used for contests or rewards. Those behind the project know what they are receiving since the annual payout is 20%. As this grows, it can allow for greater incentive within their organizations.
It also enhances the wealth within the Hive ecosystem. One advantage that Ethereum has is plenty of money floating around. Few can dispute that Ethereum is the "big bucks chain". While Hive does not have to target this, increasing the wealth tied to the ecosystem will create for greater development and expansion.
Finally, we provide the confidence by having the rate coded into the chain. While the Witnesses can alter the savings rate based upon their choices, this is hard coded. This way any investor, especially those outside Hive, understand what the exact payout is and how it will not change throughout the year it is locked up.
Technical Development
Since much of this is already in place, it seems like that it would not require that much coding.
As stated, the savings feature is already available. It simply would require adding another layer at a higher rate. We also would have to code in the 365 day lock up period from the time the HBD is put in.
The difference might come from the fact that the payouts of savings are kept in there. When people claim their interest, it is added to their savings balance. With the HCD, we should not automatically lock that up for another 12 months. If someone wants to reinvest their payouts, that is a personal decision. Payouts in liquid form would provide a great deal more flexibility and enhance the appeal of HCD as an asset class.
From my limited coding knowledge, this all there seems to be. Perhaps some of the more experienced developers could add to the technical conversation, especially if we are missing something.
As for the front end, again it is just adding another feature to their layout. In Peakd, as an example, another level could be added to the wallet, right below savings. The application already has different forms of notification so coding in an alert as to when the HCD is coming due should not be that difficult.
Total Value Locked
This is a concept that is spreading through the Decentralized Finance (DeFi) world. We could really enhance this concept on Hive.
Whereas many other entities are using staking, this is actually a time-based asset. The present financial system uses them all the time. This is one of the key factors. Instead of recreating everything in a different manner, perhaps we should take some of the easier concepts. Of course, having this at the base layer is paramount. We instantly eliminate the 3rd part counter-risk that is inherent in so many DeFi applications.
We already know the numbers that stablecoins can reach. We already know that UST has more than 10 billion tokens issued. How much HBD would we have in total value locked if we were able to garner 20% return on a base layer token without 3rd party risk?
It would seem this would hold a lot of appeal, especially to those who are mostly unfamiliar with cryptocurrency.
The final point to consider is that we are creating a massive wealth building vehicle. Cryptocurrency is about inclusion. While 20% might seem small compared to the numbers typically tossed around the crypto world, it is important to note that 20% compounded over a decade or two can result is massive wealth generation. That is what we want to be able to offer people.
As this concept starts to build, the Total Value Locked (TVL) will rise accordingly. This is one of those metrics that can help to gain Hive greater attention. A low risk asset with a high return (at least compared to the traditional financial world) is sure to hold great appeal.
What are your thoughts on the Hive Certificate of Deposit (HCD)? Let us know in the comments below.
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