The announcement of Bitcoin wrapping on VSC along with the demonstration was an enormous breakthrough. We are looking at a few more months and we will likely have something that is in operation. Testing is starting as well as other aspects of the system being built out.
There is a reason why this is one of the most anticipated rollouts related to Hive. As I dig into it deeper, the impact could be enormous.
In this article we will delve into the specifics that affect Hive along with doing some game theory with numbers.
What does HIVE look like in a year if there is $200 Million wrapped on VSC?
Multiple Coins
In the last article on VSC, it was mentioned that multiple coins can go on this system. It is one of the differences from Lightning Network which is Bitcoin only.
With VSC, we are talking about wrapped Bitcoin. From there, it is easy to add Litecoin, DOGE, and BCash since they are forks of that chain. The code is basically the same, meaning we can be dealing in a number of coins in relatively short order.
Multiple coins equates to great potential for activity. This means the [float that can be accessed and wrapped is larger.
Centralized Exchanges Encountering Issues
FTX went down. Binance is facing many headwinds. CZ is looking at jail. The company left the United States along with a number of other countries.
The world of centralized exchanges is suffering right now. This is the perfect opportunity for another network to step up. Could VSC be that? We will have to see how it unfolds.
However, we can expect a great deal of uncertainty surrounding the CEX over the next 18 months. With elections taking place in many parts of the world, the political landscape is in flux. Thus, people like Gary Gensler can keep causing carnage without much pushback.
Here is where an opportunity exists. By developing around the governments, i.e decentralization, we can end up creating something that operates without regard for what they think or do. That is the defense. The banks provided this decades ago.
HBD: The Driving Force
The impact of this network on Hive centers on the Hive Backed Dollar (HBD). Since this is a collateralized system, any node that is wrapping Bitcoin will need to have 2x that amount in collateral. Presuming this is posted solely in HBD (at least for the sake of this article), we can see how this has an impact.
What we have is essentially a system where more HBD is required to be posted as more coins are wrapped. If someone wants to move $50K of BTC over, an associated amount has to be on a node.
Here is where the numbers can get insane.
To provide a simple backdrop, there are billions of dollars out there as a target.
For example, Binance, back in April, had near 700K BTC on its exchange. This is worth around $28 billion. WBTC has over $6 billion. The market capitalization of DOGE is $12 billion with Litecoin coming in at $7 billion.
The point is that we are talking about an enormous market. Hence, when looking at $200 million, we are talking about a very small part of the overall.
For the sake of our discussion, this is the number we will focus upon.
HIVE Market Capitalization
When we look at the dynamics of this system, we can easily see how it all compounds upon itself.
By starting with the $200 million figure, if this is pulled into the system over the first year after release, we are looking at 400 million HBD posted as collateral. This alone is a stunning amount and is more than triple the present HIVE market capitalization.
Think about that for a second: we are talking about needing 3 times to the total market cap of HIVE just in HBD as collateral.
According to the block explorer, there are 33 million HBD in total circulation. This floating supply is actually less as 22 million are locked up in the Hive.fund account. This means there are only 11 million HBD on the market.
That is a long way from 400 million. So where are the rest going to come from? The answer is HIVE will have to be converted to HBD.
Do you see where this is going?
This is not, however, the end of the story.
With Hive, the amount of HBD cannot be equal to the market cap of HIVE. In fact, it is capped at 30% before the haircut rule takes effect. That means the creation of 400 million HBD equates to a market cap of around $1.35 billion. That is 10 times the price of Hive now.
This one network could 10x the value of Hive if it can pull in $200 million in coins.
Time Vaults
There is another piece to this puzzle.
Our tendency is to look at things in isolation. VSC is being built. That said, over the last couple years we discussed the Hive Financial Network. One of the fundamental components to that is time vaults and Hive bonds.
What we are discussing with VSC regarding HBD only pertains to collateral. This has nothing to do with the vaults.
So, what happens if we have VSC wrapping BTC and other forked coins (and possibly the EVMs) in conjunction with time vaults? Could we see the rates set at a level to attract capital, placing it on chain in the vaults?
This is easily the case, especially if VSC is drawing in people with its ability to transfer Bitcoin with minimal fees.
There is no reason this cannot hit another $25M-$50M. As people become aware of the services offered, some of the money will flow into the vaults.
Here we see the numbers increase again.
Staking HBD
Another potentiality is that HBD could be staked on VSC in lieu of transaction fees. This could be tied to the savings plan, using the inflation to incentivize the node operators.
Here is where inflation is being used to stimulate economic activity. Using a system similar to Hive's resource credits, those who stake HBD can then operate in a fee-less manner.
How much HBD could be added to our numbers there?
Liquid HBD
There is one final piece to mention.
We are seeing some success in countries such as Venezuela where HBD is being accepted as a medium of exchange. This is likely to keep growing as more local currencies encounter issues.
When businesses start to accept HBD as payment for real world goods and services, people have incentive to hold it in their wallet. Liquid HBD can actually rival that of the collateral posted to VSC if enough economic activity is tied to it.
This is a number that could easily top $100 million and not even be significant in terms of the global medium exchange system.
In Conclusion
Here is why many are calling HBD "Hive's Trojan Horse". Understanding the relationship of what is being built and how this coin is at the center of everything is crucial.
A couple years ago I wrote something very simple: we are going to need a lot more HBD.
Hopefully, as we delve into what is taking place, this is evident. We laid out a scenario where around 600 million HBD might be required. This might sound like a lot but consider Tether as has 89B coin in circulation and USDC around 24B.
We are still talking a drop in the bucket.
All of this will likely unfold if VSC, as a network, can pull in $200 million out of the tens of billions in market cap of some of the largest coins. This discussion is focusing upon ones that are ranked in the top 10.
It is an enormous segment we are going after.
Here we have a path for HIVE to legitimately carry a multi-billion market cap.