Bitcoin as Collateral
One of the strengths of the derived Bitcoin assets (in wrapped versions, or native via Thorchain) in recent years is its ability to act as collateral to receive loans in a stablecoin, in most cases.
Since the cycle of Bitcoin is quite well established, ways to "have your cake and eat it too" can be planned pretty thoroughly, and Khal explained the process in a few posts. Without going into details, the process is pretty straight forward: you take a stablecoin loan against (some of) your Bitcoin holdings in the bear market, and pay it back in the bull market, after Bitcoin went up against the USD. Theoretically, if you calculate well, the timing is good, and the market reacts as it always has, you keep your cake (i.e. most of your bitcoins), and eat it too (the stablecoin loan, which you pay back from your bitcoin gains in USD after the bull market, remaining to replenish and increase the bitcoin stash during the bear market).
There are some conditions to this method:
- you need bitcoins and usually more than a fraction, or it doesn't help much
- you need to understand the process well, otherwise you might get screwed
- there are some risks: market price volatility risks, protocol risks, or platform risks
HIVE Power as Collateral
Having the ability to use HP as collateral to take a HBD-based loan could make sense. Note that I say HBD-based, not HBD. I believe this would probably be at the second layer, most likely.
How would it help? Well, it would make it more enticing for some people to hold HP instead of HBD reserves. That would probably prevent at least a good part of the "power down - sell and keep as stables for yield - buy & power up" dance (or a more complicated one) that people is tempted to do throughout the cycle.
Witnesses can use such a process to pay for infrastructure, instead of having a continuous power down running, for example. And choose when to sell HIVE, probably at a nice price toward the end of bull markets. Other services and businesses on Hive can use it too.
On the other hand, we need liquid HIVE, and enticing HP growth even more may not be such a good idea. It's certainly debatable.
I don't think we can have such a system built (if there is interest) before we have smart contracts. So, it looks like VSC needs to be adopted first throughout the ecosystem.
There are differences between having Bitcoin and HP as collateral. Bitcoin doesn't have many use cases, and this is one of its main ones. It also is a better (probably not ideal, due to its volatility) collateral than HP. But HP also has enough other roles.
I love how lending is implemented on Thorchain, with "0% interest, no liquidations or expiration". There are some worries about sustainability during the bear market, since it's a new feature, that's why I would wait to see it test through fire first.
Want to check out my collection of posts?
It's a good way to pick what interests you.