Hypothesis: Hive could be EVM compatible and run DeFi applications.
This event would eliminate the need for cryptocurrency bridges as a security risk for members of the Hive community, allowing better security by reducing the need to move your cryptocurrency around to engage in DeFi and potentially stimulate and / or revive the various token economies on Hive-Engine and their projects by creating Liquidity pairs to stimulate trading and potentially earn a new token whose value is tied to the Hive community token Hive or HBD.
Understanding how this is possible.
- To understand how this is possible, you first have to look at the mechanics of the building blocks of DeFi; the EVM, EVM compatibility, smart contracts, and gas.
Step 1. What is the Ethereum Virtual Machine?
The Ethereum Virtual Machine or EVM is a computation engine that is in charge of deploying and executing smart contracts and computing the state for every new block added to the Ethereum blockchain.
EVM compatibility is an essential feature of blockchains that have enable many popular networks - including Avalanche, Binance Smart Chain, Polygon, Solana, Harmony and Fantom - to become highly successful by reducing the barriers to entry for application developers to deploy smart contracts on these new chains due to the code being compatible with the Ethereum network.
EVM has some drawbacks, including the increase in gas fees which sometimes make dapps too expensive to use during times of network congestion. However, layer 2 scaling solutions like Optimistic and ZK-Roll Ups are aiming to solve this problem.
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Step 2. What does everything in Step 1 mean?
What is Ethereum?
Ethereum is a blockchain network that enables developers to launch their own tokens and build decentralized applications (Dapps) using smart contracts.
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What are Dapps?
Decentralized applications (or Dapps) are applications that are built on top of blockchain protocols and leverage smart contract technology.
Dapps take many of the operating models of web2 platforms and traditional banking services and apply blockchain technology to make them operate in a format that is peer-to-peer, trustless and more transparent.
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What is Ether? Ether (or ETH) is the currency of the Ethereum blockchain. It is used to pay miners to validate transactions and also used to pay for products and services on the various Dapps and marketplaces built on the Ethereum network (e.g purchasing NFTs on OpenSea).
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What is a Smart Contract?
One of the core features of the Ethereum network is the ‘Smart Contract’, which is a type of computer program that executes a set of functions based on predefined rules or conditions set by the developer.
With smart contracts, users can conduct all kinds of agreements that involve anywhere from two individuals to several thousands of people without the need of an intermediary.
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What is Gas?
Gas is a measure of how much computing power is needed to process transactions and power smart contracts and Dapps on the Ethereum network. Gas fees (priced in Eth or ‘Gwei) are paid to miners on the Ethereum blockchain in order to validate a transaction.
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What is a Virtual Machine?
The term ‘virtual machine’ (or VM) refers to the idea of virtualizing a physical computer. This means to run a software system that can replicate the functions of a hardware system, such as running other software programs and deploying applications.
VMs consist of a virtual “guest” machine (e.g MacOS VM or Ethereum VM) and a physical “host” machine (e.g a physical PC or a blockchain node). In the traditional software industry, Virtual Machines enable businesses to run multiple operating systems that each function like independent computers on top of a single physical computer.
This allows the VM to run unique software that requires a different operating system from the user’s underlying computer, create sandbox environments to test new programs or make use of different processing power requirements.
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What is EVM Compatibility?
EVM compatibility simply means the ability to write and deploy smart contract code that is compatible with the Ethereum virtual machine and can therefore be recognized by the Ethereum nodes.
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Step Three How does EVM compatibility work
What are the Benefits of EVM Compatibility
EVM compatibility has enabled many popular Layer 1 blockchains, including Avalanche, Binance Smart Chain, Polygon, Solana, Harmony and Fantom, to become highly successful by reducing the barriers to entry for application developers to deploy smart contracts on these new chains due to the code being compatible with the Ethereum network.
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Downsides of EVMs
Gas fees on Ethereum and EVM chains tend to rise significantly during times of network congestion. This is because the Ethereum network operates a ‘fee market’. In a fee market, an increase in demand for block space leads to an increase in the gas fees that must be paid to miners in order to get your transaction confirmed in the next block.
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EVM chains like Polygon solve the gas fee problem by leveraging layer 2 scaling solutions like Optimistic and ZK-Roll Ups. With roll ups, transactions on Polygon are executed ‘off chain’ via payment channels or independent blockchains consisting of a smaller group of validators, and then periodically bundled together as one large transaction that is confirmed on the Ethereum network. This allows the Polygon EVM to execute smart contracts and users to transact more frequently while saving on gas fees. However, in order to make its network more scalable and lower the cost of gas fees, Polygon must sacrifice some decentralization, which also makes its network less secure.
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Step Four: How would that work on Hive?
- If you look at Binance Smart Chain, it was purpose built to be EVM compatible and Binance basically replicated both the Ethereum Virtual Machine, but also made the Binance Smart Chain blockchain so compatible to the Ethereum blockchan, the DeFi Applications running on Ethereum could easily run on Binance Smart Chain once the Binance version of the EVM was finished.
- Then Binance kick started DeFi on Binance Smart Chain by creating a duplicate or fork of Uniswap, the wildly successful decentralized exchange on Ethereum.
- So for starters an EVM would need to be created here on Hive, compatible with Hive and using Hive as gas. Now this sentence is deceptive in that the difficulty of this step is significant. But since there is a company which has mastered this process, and is in the process of creating EVM clones for other dis-similar blockchains, this is not an impossibility.
- Then this EVM would need to allow use of Hive-Engine tokens as Hive NFT's so they could be traded on the new decentralized exchange, which I would call Honey.
- Honey would be a fork of Uniswap or Pancake Swap. Whichever was the most technically compatible with the Hive EVM.
- Then we could have trading pairs for Hive and HBD, Hive and USDT, HBD and USDT, and potentially trading pairs for other popular Hive Engine tokens, Leo included.
Step Five: Why would we want DeFi on Hive
- Improved Yield: While curation yields good yield of 6-30% ROI per year depending on what you read, and how proficient you are at maximizing curation rewards. DeFi could potentially yield higher APR's depending on the popularity.
- Increased interest in Hive Blockchain. One of the things I have always felt is that when people find out about the Hive blockchain through Splinterlands, Cubfinance, Polycub, Leofinance, or any of the great projects on Hive which draw interest from outsiders by themselves. They increase interest in Hive, and people start to utilize other things on Hive, like the NFT store, the Hive blogging interface, the other interfaces like Peakd and Eccency, or the other topical interfaces like Travel blog, and the other games like D-City.
- Other projects could also be developed here which require EVM capabilities like a crypto bank. The model which comes to mind is MakerDao. If we have an EVM here, Hive would be able to host a Bank like Makerdao, and we could then have collateralized lending. You could potentially deposit your Hive and borrow HBD. That wold be where I would start, but we cold also see people depositing their other tokens and borrowing HBD against them. This bank would require capitol, which would mean selling a DAO token, which would create community governace and community ownership of the Hive cryptobank.
- These are things I can think of, and I wonder what thngs others can think of?
Last Words
- I think the future of cryptocurrency is bright, and during this bear market many things will be built on blockchains with strong communities, and I think Hive fulfills the definition of a strong community.
- It is written that the future belongs to Dooers: the people who dream and then take action to plan out a path of execution for their dreams.
- Dooers are a special class of dreamers, and they are sometimes called visionaries.
- I think we have some visionaries on Hive. So I am sharing my dreams.
@shortsegments