This is a financial framework that is being worked on. Please note it is a work in progress. However, this spells out the basic essence of what is being discussed. Some of this could be subject to change based upon a variety of factors such as development.
Goal
- To feed value to the Hive ecosystem with Hive Power being the focus
- To develop a platform where a derivative of the Hive Backed Dollar (HBD) is the basis for all operations
- To utilize the base layer capabilities of the Hive blockchain while also utilized a decentralized layer 2 node system
- To provide a better return for staking Hive, offering further incentivization
- Deflate the amount of HIVE by converting the value to HBD
The Apiary
This concept was briefly spelled out in the article The Hive Central Fund.
The Apiary is the basis of the entire financial network. It is an entity that is built at the second layer that serves as the central repository for all activity. It is governed by the holders of the Larva token which will be airdropped to Hive Power holders on a 1:1 basis.
Larva provides not only governance but also a return. The profits above a prudent reserve level generated by the Apiary will be distributed as such:
- 6% going to holders of Larva
Of the remainder:
- 90% to Hive Power Holders
- 10% to Decentralized Hive Fund
The Larva distribution will be based upon a snapshot. Those are the only governance tokens issued. The 6% goes out based upon token holding. People can buy or sell Larva as they see fit.
Distribution of other profits is based upon the HP holdings at that time. It will change as people power up or down.
All other applications are built upon the Apiary. This is the underlying entity that provides the liquidity along with much of the baseline financial operations.
sHBD
This is the base token for the Hive Financial Network. It is a derivative of HBD and is created on a 1:1 basis. We will have a bridge built that allows for the deposit of HBD in the Apiary's wallet with sHBD showing up on the other end. All financial activity takes place in sHBD.
Since we are on another node system, a derivative of HBD is required. The idea is to have each sHBD backed by 1 HBD, which is backed by $1 worth of HIVE. Thus we have a clear path of reserve that can be tracked.
The vast percentage of HBD that is in the Apiary's wallet is placed into savings (perhaps some can be placed into a time vault). This will generate a 20% return for the Apiary. When interest hits the wallet each month, the associated sHBD is created in the Apiary wallet at the second layer.
Dividends to the Hive Power and Larva holders are paid in sHBD. The DHF gets paid out in HBD since it is resident on the base layer of Hive.
For example, we will use $100 million in profit. Under this scenario, we have distribution as follows:
- 6 million sHBD to the Larva holders
- 9.4 million HBD to DHF
- 84.6 million sHBD to HP holders
DeFi Applications
All Defi applications are built on top of and tied to the Apiary. Here is where revenues are generated. As activity increases, the profitability of the platform should follow suit. The idea is to keep expanding the numbers each year, providing a greater return to the Hive Power holders. This creates the circular feedback loop. As the return increases, there is more incentive to power up HIVE. The result is less HIVE on the market, pushing this price up.
This is vital since it is the backing agent for HBD. Under this system, we are looking at providing value (not price) to both HBD and HIVE directly. However, the greater the market capitalization of HIVE, the stronger the reserve for HBD.
By providing use cases for HBD, the need also increases. Eventually, to meet the requirements, HIVE will need to be converted. This will have a deflationary effect on the distribution of that coin. Fortunately, the value is not being lost since it is being transferred to HBD on an equal basis.
Hive Bonds
We discussed this in detail on a number of occasions. Here is where Hive Bonds come to life. With base layer time vaults, people are able to lock up HBD for prolonged periods of time. In return, they can receive a greater return. The challenge with this is liquidity. HBD is locked up which is good for the ecosystem but bad for the individual if he or she should need the money.
In this scenario, as soon as the HBD is locked up, a token is created on the second layer. This effectively is a NFT since each token is unique, applying to a particular transaction. Since each will be different, the token is non-fungible.
For example, I could lock up 100 HBD at 25% for 1 year. If I do that today, there are 12 payments due totaling 25 HBD. This is different from a token that is tied to 100 HBD that was locked up 6 months ago under the same terms. That would pay out 100 HBD plus 12.5 HBD since half the overall interest was already paid. We can also see how it differs if the transaction was 1000 HBD or if the lock up was 3 years at a different interest rate.
The idea is to build a bond tree, similar to what the sovereign debt market uses. This provides Hive with a fixed income market, probably the most popular form of investing, at least by dollars. Offering out different rates for longer lock up periods helps to stabilize HBD while providing more activity.
It also moves us into the area of pristine collateral. Since there is a clear path and full transparency, as long as there is liquidity, we have an asset that can be collateralized.
One important point: We are not issuing more debt by having the Hive Bonds. The debt to the ecosystem was created when the HBD was created. The bond is simply tokenizing the HBD locked up, providing liquidity.
DEX
This is going to be multi-faceted. As we spell out some of the different assets, we can see the need to trade them. Part of the development will be to build out DEXES tied to the Apiary. This allows for the different products to be traded/swapped. The Apiary is responsible for maintaining liquidity to the different markets.
All DEX activity is paired with sHBD. So when a Hive Bond is created by depositing HBD into a time vault, when the individual goes to sell the bond (token) on the exchange, sHBD is received in return.
Market Maker
The Apiary serves are the market maker for the different markets. There are a few ways this can go which we won't get into. However, similar to the HBD stabilizer, the premise is that the Apiary funds trading bots to engage with the different exchanges. It is responsible for liquidity (hence why the Apiary needs a prudent reserve) that can keep building over time.
This is vital when we get to some of the other financial products.
SIPs/Liquidity Pools
The SpkNetwork is building out some of the infrastructure required for the Hive Financial Network. One of the ideas is to create SIPs for each community along with one providing massive liquidity for HIVE and HBD. This is another feature that can be built on top of the Apiary.
As before, the pair is sHBD for all SIPs created. Also, the Apiary becomes the market marker for each new community set up. This provides liquidity to these pools, further incentivizing activity.
Lending
This is something that is discussed a great deal in the DeFi world. There are a number of platforms that are approaching this. Here is where things get very interesting.
The two biggest factors with secured lending is volatility and the liquidity of the collateral. This is especially true for short term loans. A 3 day loan backed by an asset that can drop 40% is not strong.
A lending platform can be established using Hive Bonds. These are fully transparent since the life of the transaction is on-chain. Since it is fixed income, i.e. a specified return over a set period of time, the payout at any point in time is known. Since the base layer return is set by the witnesses, it is likely it will not change often. All this means the value of the bonds should be rather stable, reducing the volatility.
Anyone with assets who wants to take out a loan has two choices:
- buy HBD, put it in a time vault, get the Hive Bond token, and use that as collateral
- go to the exchange and buy an existing tokens on the open market, then use as colalteral
We might see the configuration change a bit if the bond tree has to be established at the second layer
Synthetic Assets
This is an overlooked aspect to the DeFi market for obvious reasons. Here it is best to think of the Apiary as Wall Street. It will be taking on similar functions. Of course, it is also why a decentralized node system is vital.
How would you like to use your HBD to buy Tesla, Amazon, Home Depot, or Verizon stock? This is the idea of synthetic assets.
We can recreate any market on the Hive Financial Network, including equities. Under this scenario, the Apiary sells the preferred token into the market through the open source application that is set up.
Things can operate in a few different ways. Obviously, the Apiary market maker is in operation. Since this is tied to a traded asset, i.e. the stock, the maker can operate based upon the price feed from a Yahoo or Google finance during trading hours. This will enable the market to mirror the overall trading. Off hours, the maker could be shut off and let supply/demand activity take over.
This, naturally, is the advantage to a derivative. Stocks are only traded during certain hours. This would be 24/7/365.
Futures
Much like equities, a futures market could be set up offering similar contracts as the existing markets. All kinds of commodities can be established. Again, the Apiary is akin to Wall Street, providing the same services.
A futures exchange is built to satisfy the requirement of the traders. The existing market is 24/7 5 days a week. It could be similar to the stocks market maker.
We also could expand this to include games of chance. Futures are usually tied to the price movement of a certain asset. However, it is really just a prediction market. An application could be built where people can buy into the outcome of the Superbowl or World Cup.
Options
We could build a platform of options to trade that derive their underlying from the synthetic tokens. One could take 100 tokens of Apple and create a put (or call) on it. Again, we have this traded on an exchange tied to the Apiary.
Other Possibilities
Since the bonds are effectively NFTs, we could basically have an OpenSea built that is tied to this network. We could enter the world of real estate, both virtual and tied to the real world. Want to have a share of the equity of a major skyscraper in Tokyo? We can duplicate that.
The ideas literally start flowing once the basic concept is in place. Interest rate swaps, forwards, and gap options are also possible. If people want it, the network can build it.
How The Apiary Makes Money
As we can see, there are many ways the Apiary can make money. Is it any wonder Wall Street is so powerful? They basically are printing money with all the products they create and sell.
The first thing that should catch your attention is the selling of synthetic assets. That would be an ongoing revenue stream for the Apiary. Each time the market maker sell an asset, that money (sHBD) is deposited into the Apiary's wallet.
Historically, investment banks operated as the MM for different markets. This tends to be a profitable venture. We see something similar with the HBD stabilizer. Each year it returns more to the DHF than is paid out. Here we have the opportunity to spread it across many different markets.
This is the financial world. That means we have transaction fees. This is another revenues stream that can be fed into the Apiary. With different markets having round the clock activity, fees on each trade go into the wallet.
As more markets develop, arbitrage opportunities result. Again, the Apiary can be programmed to have a bot that exists to arbitrage price variances for the gain of the entity. This is not only a potential profit center but also serves as an additional way to provide liquidity.
There are likely a few that are being overlooked but this should make the point clear.
In Conclusion
Going back to the goals listed in the beginning, having sHBD as the core token used will provide enormous value for HBD. Since there is a 1:1 ratio, if we have billions of dollars in activity occurring, that is going to require a great deal of HBD. Since much of it will be in savings (or time vaults), we can see how it will keep generating more to feed the system.
In terms of markets, what was listed here is hundreds of trillions of dollars. When looking at equities, bonds, and commodities, we easily surpass $200 trillion. Capturing even a small portion of that will provide an incredible use case for sHBD. This is replicated on HIVE since there is the correlation between the two coins.
We spoke a lot of Elon's Everything Application. Here is where Hive can stand out. Since all of this is tied to Hive, any application can tie directly into this. Thus, Peakd, Leofinance, and Ecency can add these features to their front ends. Why should one have to leave an Hive based application to trade? Built it and let people access the markets directly.
There is also the potential to feed the entire system with liquidity pools tied to BTC, ETH, USDC, and all the other popular coins and tokens. This will help to push value into the system, opening Hive up to a much wider audience, at least on the second layer. Of course, under this concept, the increased activity helps to drive value down to the base layer since that is where the underlying coins are located.
In the end, we could see billions being run through the Apiary with all that is proposed here. As liquidity builds, it could become an epicenter for DeFi activity. Since it is truly decentralized, with both base and second layer operating on decentralized node systems, it is already setting itself apart.
Ultimately, between the conversion of HIVE-to-HBD and the added return, there will be a lot of incentive to get have HIVE staked. All of this is in addition to the other use cases such as access to Hive via Resource Credits, curation, and whatever else people are tying in.
This is where we stand for now. As stated, this is a framework that is being refined. Here is the first public release of it. We are going to see more evolutions especially as the technical people start to take hold of it.
Nevertheless, it should give everyone an idea of how we are looking to push a ton more value to HIVE and take the entire ecosystem to a much higher level.
Let us know your thoughts on this.
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