With all the discussion about Hive Bonds, it was mentioned that perhaps we should have an article of how they will work.
There are a few different ways they can be structured since the bonds themselves are actually on a second layer. We also could see this done on multiple sidechains. That is totally up to the developers.
In this article we will go through a basic structure of Hive Bonds along with the different components.
Time Vaults
This is the foundation.
Time vaults will reside on the base layer. This is decentralized finance (DeFi) on Hive. There is no counterparty in this equation other than the blockchain itself.
It is similar to the Hive Savings. The difference is there is a number of options providing people with a decision between time and interest rate.
We can think of these as certificate of deposits.
People can deposit HBD into one of the time vaults, locking the money up for that period of time. The idea is that one will receive a higher rate of interest for a longer commitment.
For example:
Savings - 2%
1 month - 3%
3 months - 5%
6 months - 7.5%
1 year - 12%
3 years - 20%
5 years - 25%
10 years - 30%
The numbers aren't important at this point and will be set by the witnesses. One key point is that whatever rate is present when one enters the vault (think buys the CD), that it is. The rate is locked in. Any changes in the future, up or down, are not applied to that transaction.
We are simply looking at an extension of the savings program. Front ends that have Hive wallets will simply show more options.
Like a CD, this is not liquid. If desired, there could be a early withdrawal to allow people access to their funds. That could either result in the HBD being burned or distributing to Hive Power holders as a way to increase the return.
The time vaults are the foundation for the Hive Bonds.
Hive Bonds
This is build on the second layer. It is tied to the application. In fact, it is not limited to just one project.
Bonds provide the same benefits as the time vaults with the difference being liquidity.
Under this premise, one deposits HBD through the application into a specific vault. The wallet will be one set up by the application, most likely using multi-sig and other security/decentralization options.
The application records the transaction and creates a layer 2 token (bond) that is deposited into the individual's wallet.
Interest is distributed to the individual by the application. The base layer operation does not change, hence the individual distribution is up to the app.
The token is a NFT. This is tied to the deposit on-chain. Like a bond, there is the amount (1,000 HBD), the yield (12%) and the timestamp (Aug 24, 2023). Thus, we have all the parameters that are contained in a bond.
This could be set up by 3Speak, Leofinance, PeakD, or Ecency. It could be open source software that someone writes. Since it is layer 2, it is up to the applications to design how this works.
We also have to consider the node system. SpkNetwork is laying the foundation for decentralized nodes that can scale. This might be an option for applications. HAF might also be able to host this service. This idea is to have these tied to a multitude of nodes, reducing the centralization.
Trading And Collateralization
Now we start to get into the basis of the Hive Financial Network.
What do we do with the token once we have it?
The first option is simply to collect the interest. One might bond to have the option of liquidity yet not use it.
Option 2 is to sell it. This will require an exchange to swap the NFTs. Again, SpkNetwork is setting up an exchange meaning another layer would be added for NFTs.
Over time, the goal is to develop a market where investors are swapping the bonds. We know people have different goals. Some might be seeking a greater return by hunting bonds that have a better yield because people are selling at a discount.
If someone is selling a bond at a 20% discount, the 12% APR just went up to 14.4% since a 1,000 HBD asset is going for 800.
The third option is to use this as collateral. Now we are entering the lending market.
Lending
Since the token (bond) is tied to a financial transaction with a stated return, this has a value that is quantified from the start. Here we see the foundation of collateralization.
This is not much different than some of the cryptocurrency lending platforms. We often see people taking out loans against their bitcoin.
Under this scenario, the 1,000 HBD token) would be posted as collateral against a $500 loan. The individual would be free to use the money as he or she saw fit.
The advantage to this versus using other cryptocurrency is volatility. Bitcoin is subject to large price moves. This causes the situation where people have to provide more collateral if prices drop a great deal. This is a risk that many either do not understand or find themselves short of resources.
Hive Bonds are tied to stablecoin. That is the foundation. We also have an asset that has a stream of payments. At the end of the lock up period, or maturity, we see the HBD returned to the individual along with the final interest payment.
Now we are dealing with an asset that tends to have more price stability than a speculation asset. Thus, we are dealing with a higher quality of collateral.
Impact Upon HBD
The advantage to finance is the numbers can get very big.
Global commerce is roughly $100 trillion per year based upon GDP. The repo market through the NY Fed does $4.5T-$5T per day.
With the time vaults, HBD is going to be locked up for varying periods of time. The bonds give users the option of having liquidity to access the funds if needed. It could evolve where investors and traders are swapping these assets, providing market liquidity. Then, through lending, another form of liquidity is provided.
Here is where we could see another use case for HBD emerge. When getting a loan, what does the person receive? How is the loan paid out?
Platforms could create a derivative by wrapping HBD. This means HBD is placed in a Hive wallet with a layer 2 token produced (on a 1:1 basis). The loans are paid out in the wrapped HBD.
To me, this is one of the main advantages to having our own stablecoin. Anything built in terms of financial services can simply incorporate what is at the base layer. When operating on sidechains, a wrapped version will create even more demand for the coin.
Hence, we have HBD used in the creation of the bond and in the payouts for lending.
There are some other pieces to the equation, especially in terms of further expansion but this provides the overview of how it basically could look.
logo by @st8z
Posted Using LeoFinance Alpha
I'm actually a little confused as to why any of this would be on L2.
If Hive implements timelocks in this manner then it wouldn't be that difficult to turn those timelocks into NFTs directly validated by the witnesses, which could then be made transferable. This completely eliminates the need for multi-sig and trusting a small group of people. At that point the only L2 solution that needs to come into play is the frontend exchange used to provide fungibility, but even then all the backend transactions could be confirmed by the individual that actually controls the bond.
Maybe I'm getting a little ahead of myself here in thinking there won't need to be a transition phase with multi-sig, but if the protocol takes off it seems almost guaranteed that we would bake it into the core code.
I would prefer the idea on the base layer but not sure it is possible. Nevertheless, the answer I got is that the Bonds would have to be built on L2.
I am not sure if this is because of the tech or to keep the base code limited in terms of focus.
I dont even pretend to know the technical details of how this is coded.
Yeah I get it... it's because the code they are going to use is just a basic extension of the current savings account system. Making the positions transferable would be a whole other thing. Certainly not the worst option so I guess we'll have to prove the theory in the field before it's taken more seriously.
My sense is the general rule of thumb is to keep the base code as streamlined as possible by having basic features and pushing more onto L2. I think that is why we see Spk and HAF development.
But like you said, we will have to see how it works. Time vaults will start the process and is a good first step.
In the devs hands.
NFT can be thought of denoting contract.
It is going to become more commonplace as tokenization of financial assets occurs.
This sounds over complicated to me. I loved the simplicity of HBD savings … the more you invest in HBD , the more you earn, the longer you leave it invested, the more you earn. It’s called Compound Interest. It’s like Magic. We don’t need bonds or more second layer coins. Hive + Hive Power + HBD are enough. Hive should fix the Downvote abuse problem before it does anything else.
What downvote problem?
There is no Downvote problem. Everything is good now. Update: There is zero Hive Downvote Abuse Problem. Everything has been fixed. Just a simple misunderstanding on my part. I negotiated a Truce and All Hive downvote wars have ended.
I'm not naming names bc I'm not trying to get stuck on someone's downvote list, but unless the problem was fixed within the past few days, there are definitely still some malcontents out there downvoting other people either bc of reasons unrelated to the content, discord skirmishes, grudges, countering upvotes, etc.
All problems are resolved for me. There are no more downvotes. Hive is awesome.
Downvotes are always a blessing in disguise.
Interesting take. What's your logic on that one?
Every time I get downvoted I sell all my Hive for Bitcoin…. It’s always perfect timing.
Good enough for whom, though? I think if we want to appeal to a larger financial audience, we need to play the financial game. It's hardly complicated. I can imagine moving HBD to saving, and then the popup that already happens has a drop down menu to select which choice vault, then click OK. Done. I'm sure it'll be a bit more chaotic on the base layer but users probably won't be affected.
Though I don't see why the current status quo couldn't also just be one of those options (albeit with reduced APR because 20% with no commitment is hard to trust)
Why do we want to be like the Existing Banks ? We already have those … If I want bonds I go to the bank and buy bonds, CD’s , GICs… if I want to stake my crypto with the Hive Blockchain I park it in HBD savings forever. If I want to earn a good interest rate I leave it there and add more every day. If I don’t want to earn compounding interest I move it back to Hive Power and earn from Curation. More coins on 2nd layer that I need to exchange on Hive-Engine is adding layers of centralized control and fees.
We already have banks yeah, but we don't want them as centralised as they are. If we want to offer a viable alternative, it's smart to provide what the rest of the world provides, but better, rather than a hollowed out version of it that might not suit every lifestyle.
The HBD savings was never meant to be 20% forever, and will likely drop eventually to rates lower than my own country's current inflation rate. I would prefer the option to counter-act that inflation by holding it longer term, while also not being beholden to the whims of centralised banks who shut down out bank accounts arbitrarily.
I guess I don't really deal with any other 2nd layer coins and tokens so perhaps it seems overwhelming for the people who do, but for me it seems perfectly straight forward on the face of it.
Any inside info on when we might see this on the base layer and who is coding it?
I mentioned your ideas to gtg in his recent HBD interest rates post but he seemed to want to "keep it simple" on the base layer, if I understood him correctly.
There seemed to be an idea going around that HBD paying Hight Interest was causing less investment to be made into buying and holding HIVE. My thought was to add to your "longer pays better" idea with a "more HIVE POWER pays better" idea. So having less than A amount of Hive Power gets you the lowest rate of interest on your time locked HBD, then having between A and B amount of Hive Power gets you the next higher level of rate of interest on your time locked HBD, etc. for as many levels as desired.
I think this is maybe one way to incentivize the buying of HIVE and staking it as Hive Power, AND also buying and locking HBD. Not sure what others think, or how practical it is to implement. Just putting it out there!
It was said in one of the next two hard forks. No idea if they can get it in the upcoming one.
The who is likely the Blocktrades team.
As for the notion of interest on HBD versus HIVE investment, I disagree. They are two completely different asset classes. People, for the most part, do not invest in speculation assets for an APR like a fixed income asset. If there is an APR, it is from price appreciation.
You can have an APR on HIVE of 12% but if the price declines 50%, you have a loss. The same is not true fixed income products that pay an interest and return the funds at maturity.
As for the tight on the blockchain, that seems to be the general rule of thumb among those developing the blockchain code.
Streamlines base layer and the rest on sidechains.
Thanks for your informative reply, I always appreciate the interaction.
Nice to know that the Blocktrades team is likely working on getting Time Vaults in our Base layer "soon". Looking forward to that and Bonds and whatever anyone else does on Layer 2 with the new Time Vaults infrastructure.
Have a great day! :)
Also, increasing APR according to your wealth is the perfect recipe for extreme wealth inequality in a corrupt plutocracy
I'm definitely in favor of the idea of interest that fluctuates according to the time deposited. That is pretty much how the world works, across a very wide swath of our experience: Low risk, low rewards, high risk, high rewards.
I also like this better than the current chatter about reducing the rate on HBD. It's overly simplistic.
I suppose treating each individual "contract" as an NFT makes sense, in a way... as does the idea of having a marketplace where people can trade aftermarket bonds, prior to maturity. Still, I'm a little challenged by the whole "Layer 2" aspect here, since that tends to be a lot more centralized in our ecosystem.
=^..^=
There is no smart contracts on the base layer.
As for the centralization, depends upon the node system that is running the contract and exchanges.
Is there a timeline for releasing bonds on Hive?
The first is the time vaults and no time frame on them.
hey man, a little offtopic..
but could you kindly provide me the leo discord link ? :>
greets
https://discord.gg/G8G8uEWSxG
thank you!
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This is brilliant! The fact that the Hive Blockchain has it's own stable coin proves that it is indeed a powerful space. Bitcoin is too volatile and I'm very sure a lot of persons have suffered great losses but then, using HBD, you don't have to be more of a crypto guru to invest in it because one can hardly suffer great loss because of it's stability.
!PGM
!PIZZA
!CTP
bookmarked to read later