How Crypto Loans Could Improve The HIVE ecosystem

Hey Jesssavers

I and @nickyhavey have been messing around with crypto loans of late to document the process and understand how to use the tool effectively! Nicks did a great write up of taking out a loan with the Celsius Network if you’re keen on a little bit of a deep dive.

The post and my experience of taking out a small loan with my Bitcoin got me thinking about how it could be applied to the HIVE ecosystem. I realise projects are working on HIVE loans, but I wanted to explain why the project could be perfectly suited for this ecosystem.

A taste of crypto

Many users who find their way into the HIVE ecosystem are here to earn their first bit of cryptocurrency for their labour, an experience I encourage everyone to do even just once. If you don't like it or think it's not for you or worth your time, I get it, but I do think it's something you should check off your list.

Earning cryptocurrency means different things to different people; for me, it's just a hobby; for others, it's a source of income, and we all want to do different things with our income. Many users who come to these platforms are here to earn a bit of money and don't really a time preference for the future; they want to cash out now; they want to realise gains and acquire something in the real world.

Sellers gotta sell

I get the appeal, but what happens in these cases is you never get off zero when you're constantly selling, and that's fine, but you're always using your labour to acquire more crypto, which naturally as a limit on it, you can only post or curate so much.

We know many in the ecosystem want to sell; we can see it by the price, and with so many price agnostic sellers, people are willing to dump at any price to acquire some value. I see so many people selling via blocktrades or other exchanges only to get a pittance of what they earned, but it's fine. I earned it on the internet; it's free money.

You could see it as free money, but you can also see it as selling your labour on the cheap. So what if instead of constantly selling the position you earn in the network, how about leveraging it through the loan market.


What is a crypto loan?

A cryptocurrency backed loan is a concept where you, as a user, take your funds, lock it up into an over-collateralised escrow service and secure capital in fiat for your asset. In Celsius's example, both Nicky and I locked away some Bitcoin and borrowed 25% of its value.

A simple concept can be applied to HIVE; a user would take their HIVE or HE token, let's say LEO. Lock it up into escrow; let's say you have $500 of HIVE.

You take that HIVE to lock it into a contract and borrow, let's say at a loan to value ratio of %50.

So you get $250 HBD added to your account.

You can then sell that HBD for the fiat currency of your choice or perhaps use it directly to purchase goods and services.

Paying back the loan

Depending on how long it takes to pay it back, you'll need to pay interest on that loan. The loan could be paid back by users repurchasing HBD at a later stage to pay it off or use their future HIVE earnings and token earnings to pay off the loan.

If the loan is paid off, the balance is restored to the user, and you can go on with your $500 worth of HIVE you had, use it to curate or stake or delegate to projects as you normally would.

If the loan isn't paid off, the escrow is liquidated, and the tokens are used to pay the outstanding debt and service interest payments for the liquidity providers.

Since HBD already gives you a risk-free rate of 3% and HIVE gives you a rate of 3.19% currently, loans would need to pay back something higher to attract capital to find loan pools.

Clawing supply off the market

A loan market like a liquidity pool pulls supply off the market, but this time from both borrowers who want to secure a loan as well as lenders who want to secure an improved yield.

In theory, the more supply locked into escrow, the fewer coins on the market, the fewer coins, the higher the price. The higher the price, the easier it is to secure loans against your HIVE as your LTV ratio continues to drop.

  • Loan repayments also keep coins from being dumped on the market; it helps bring additional income into the ecosystem as loans need to be repaid.

  • You are also paying your loan back with cheaper dollars since your dollars are pegged to the inflation rate of USD.

  • Loans also create a solid new use case for HBD and provide additional stability and demand for the token.

  • Stable coin loans bring ate it rage opportunities for traders as they can buy HBD lock it up get HIVE and trade the swings! Secure their short term profits and pay back the loan

Not as easy as it sounds

It might sound wonderful, but I am sure it's not easy to pull off; also, people will misuse it or fail to understand how the product works and take out loans on terms not favourable to them. People will hate the product some will love, but to me overall, it would bring a net positive to the ecosystem.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

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