Things are starting to get very exciting around the Hive Backed Dollar (HBD).
We had a discussion about this subject on the most recent episode of CTT with @theycallmedan and @starkerz. During the broadcast, we talked about the concept of Hive Savings Bond as well as the success of UST. It is becoming evident of the power of an algorithmic-based stablecoin and what it can bring to the ecosystem. At present, there is a circulating supply of almost 16 billion UST. This means we are going to need a lot more HBD to be valid.
The correlation between HIVE and HBD cannot be overstated. It is vital for people to understand that we have the ability to expand the amount of HBD that is in circulation by converting HIVE. This does not burn HIVE as much as converting the value to another form. This is vital. Instead of destroying value, we are actually keeping it and, hopefully, using it for profitable purposes.
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Expansion Through Creation
One of the main premises behind the idea of the Hive Savings Bond is to generate more HBD. Right now, there are two ways the blockchain creates it. One is when there is a 50/50 payout on posts. The second is when the interest is paid on the HBD that people put into their savings account.
The concept is simply to expand this using the time-locked feature on Hive. This will allow us to pay a higher return, say 25%, for a one-year lock up. It is a simple idea that will increase the amount of HBD that is organically generated.
Of course, the goal is to use this feature to pull in more money from the outside. Compared to what other stablecoin projects are paying, Hive can be very attractive. The UST return is presently 20% yet that is going down. On Hive, we can have an aggressive interest rate and sustain it for long periods of time since we need so much HBD.
Using the present 12 million in circulation (not including what is in the DHF), if all was put into a 25% return account, we would have 1.04 billion HBD after 20 years. That is 1/16th what UST has today.
This shows how we have a lot of upside with what can be created. In short, Hive can be the most aggressive fixed income, stablecoin market there is. To go from 12 million to 5 billion is going to require a lot of expansion.
Polycub Adding HBD and HIVE LPs
On the most recent AMA by the Leofinance team, we got some major news. Khal announced they are going to set up liquidity pools for both HIVE and HBD on Polycub. This will put both token on the Polygon network.
As stated on that broadcast, the goal is to have the largest liquidity pool for both tokens. It also appears the pairing will be with USDC. That is huge for HBD.
Users are going to be incentivized to fill the LP by being rewarded in POLYCUB. The HBD that is put up will be put into savings earning the 12%. This will help to feed into the pools rewards. At the same time, LP providers will get a percentage of the transaction fees.
This could be highly profitable if people use this as a way to get into and out of HIVE and HBD.
The idea is to have a great deal of liquidity available for people to be able to enter both tokens. We face the challenge of neither being on many exchanges. Having a large liquidity pool could help alleviate that issues.
HBD Scarcity Means Higher HIVE Prices
If the goal is to have a large liquidity pool of HBD, we are right back to the same problem. There simply is not enough HBD out there to fill the LP. Even if the Hive Savings Bond was implemented immediately, the pace of growth would not present enough HBD.
This means there is only one option: convert HIVE to HBD.
Here is where things will get very interesting. The relationship between the two is price in USD. Since HBD is backed by $1 worth of HIVE, we can see how the higher the price of the latter, the more of the former that can be created through the conversion.
Since HBD is needed, and not available, some large amounts of HIVE are going to be converted. This means somebody is going to have to pick up a great deal, at some point, on the open market. While the initial stages might be from present HIVE holders, that will likely run out quickly. Many are already staking their HIVE, using it for on-chain utility.
As an aside, we must also mention that Resource Credit delegation is going to be part of the next hard fork. This means that some investors could be attracted to the idea of powering up more HIVE and delegating the RC for a return. It is likely we start to see applications offering rewards in their token based upon RC delegation.
This will only be compounded by the fact that some are going to convert HIVE to get HBD for LP purposes. As we can see, if the Hive Savings Bond is coded in, we could have a number of different options available for HBD in a short period of time.
If we have a liquid pool paying around 20% along with an on-chain time-locked option of 25%-30%, we can see how the appeal of HBD escalated very quickly. When it comes to returns in the stablecoin market, that will put Hive directly in the center of the conversation. It gets even more interesting if we add higher payout amounts for longer time lock periods. In other words, Hive will be an epicenter for the fixed income market.
Chicken Or The Egg
As we can see, there needs to be some use cases for HBD before large amounts are generated. Yet, we also need large amounts of HBD for people to develop use cases. Here is the chicken or the egg scenario.
We are getting the use cases. A 12% return in the Hive Savings Account is a strong destination for HBD. This is in the range of what stablecoins are paying. However, adding a liquidity pool to the mix takes things to another level.
It is evident that we are going to soon be at the point where a lot more HBD is required. This is where people are going to have to start creating however they can. More money might flow into the savings program, expanding the supply organically. That is a slow process.
The quickest way is going to be conversion. This requires buying HIVE on the open market and moving it to HBD. It is how the egg part (or is it the chicken?) gets solved.
For this reason, we are going to see the price of HIVE explode. It is easy to picture how the use cases for HBD will keep expanding as more becomes available. The key is to get the process started.
This is now on the horizon. For this reason, it is not unreasonable to think that we might need a hundred million HBD over the next 12 months. Where is all of it going to come from?
Remember the correlation between HBD and HIVE? That is about to become very important.
Be prepared, things can move very quickly. This could be one of those situations where the floodgates open very quickly.
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