By now, most involved in cryptocurrency have heard the phrase "total value locked". This is something that is mostly done on the EVM chains through smart contracts. Basically, it is the total accumulation of value that is staked under decentralized finance (DeFi).
This is something that is commonly discussed in regards to the health of the crypto market yet we tend to overlook the larger implications. For those involved with Hive, this is an important concept.
Here is the latest chart from Defillama:
When we look at the present financial system, we see government bonds at the center of it. In fact, we can get even more specific and focus upon U.S. Treasuries. Here is where the markets look to assess risk. The idea here is to establish a baseline of "risk-free". While this is never the case, since there is always counterparty risk, it does establish a metric to work from.
The important utility here is yield. While most focus upon the stock market, along with the swings, there is a reason why the bond market is the largest, even outpacing equities.
Yield is the foundation of the entire financial system. Government bonds tend to be the centerpiece upon which all else is built.
The reason is simple: fixed-income yield feeds higher financial entities from banks, insurance companies, as well as pension and hedge funds.
Government bonds pay out in the same "native" currency.
Staking, at the base layer, does the same thing. While this can operate at the second layer, there is also the potential to pay out in something else. However, when dealing with network coins, we see a mirroring.
For example, staking ETH not only helps to secure the network but also provides payments in more ETH.
Here is where we see the network produces a native yield that is tied to economic activity. From here we see a powerful engine for DeFi, fueling a food chain of potential financial activity. This can include everything from lending/borrowing to hedging.
Ultimately, this can serve as the foundation, crypto's treasury if you will.
Hive offers a different spin on things.
Since there are two base layer coins, we can see how the value is spread, multiplying the impact.
Here is a thread I sent out discussing what we have:
@taskmaster4450le/re-leothreads-2hby6xhcs
Repeatedly, throughout the discussion of the Hive Financial Network, the idea of time vaults was brought up. Why is that? Placing it against this backdrop shows how it all ties together.
We start the process with the economic productivity of each coin.
With HIVE, we are dealing with the governance coin which is used to establish the block producers. Much like Ethereum and its forks, this secures the network. There is, however, another feature: it provides access. The ability to write to the database is contingent upon the staking of the coin.
This is in lieu of transaction fees which can incentivize removing more from the liquid state.
HIVE, like most base layer coins, is a value capture token. Whatever is generated on the network is fed into this.
So far, this mirrors many other chains.
Next we have the economic productivity tied to the Hive Backed Dollar (HBD). This is a stablecoin used as a medium of exchange. It is fairly simple for people to see how economic productivity factors into this. Essentially, we are looking at commercial and financial activity utilizing the coin. This can be payments, funding, investing, and, also, staking.
Here is where things get very interesting.
Since HBD is convertible to HIVE, the value of the latter is basically split among both. This is a valid move by the ecosystem since having a native stablecoin is important for commercial activities.
Unfortunately, this is where the discussion usually stops. What gets overlooked is the value that HBD can feed into HIVE. This is a circular feedback loop.
As economic productivity is tied to HBD, the value of that coin grows. Naturally, the goal is not to see this in the market price since stability is desired. However, the value doesn't operate in a vacuum. It has to flow somewhere. Where is that?
Obviously, since the HIVE captures the value of the entire ecosystem, we see where the value increase in HBD ends up there. Hence the circular feedback.
The challenge with discussion about yield with something like ETH is price fluctuations. While the concept is not incorrect since the yield is referring to the native accounting, when dealing with the totality of the financial system, we have to have a unit of account. This tends to be the USD.
Therefore, the challenge with the entire premise is when looking at yield, it can be negated (or enhanced) by price movement. If, for example, the yield on ETH staking is 4%, what happens if the price declines by 20%? The yield is actually -16% in USD terms.
Here is where the analogy to a government bond ends. Some might make the case that it is the same since we are dealing with everything on that network prices in ETH. That is true. The challenge arises is that we are not a world where ETH is the main unit of account. For that matter, neither is BTC.
HIVE faces the same problem. Fortunately, we have HBD as the solution.
With a time vault, the premise of establishing a financial network, i.e. a host of financial services, based upon a native stablecoin is presented. Time vaults offer the same basic functionality as any other staking protocol yet we are dealing with a base layer stablecoin.
Even more important, this is not operating in isolation. Since it utilizes USD as the unit of account, any ties to other assets are easily convertible.
It is here where the treasury concept resides. By having a separate staking mechanism, we see the ability to develop an assortment of financial services tied to HBD. This has greater utility since it does not have the USD price volatility.
What this means is we see the ability to incorporate both commerce and finance into the equation. With the ETH example, commerce must be excluded due to price instability. The solution there is a token such as USDT or USDC added to the equation. This brings up a separate layer, creating a different level of risk, and gets away from the base layer security.
In other words, with Hive, we have treasury compounded.
