Hive Advantage: 20% APR Without Counterparty Risk

This is the second part in a continuing series about what makes Hive stand out as compared all that is out there.

Here is the first part.

In this article we will discuss one of the most important topics in the world of finance, counterparty risk. Few consider this yet Hive has the opportunity to offer a wide array of financial features while reducing this radioactive bomb.

With the situation regarding FTX coming to light, this is crucial. When it comes to money, it is important to understand who has the opposite liability.

So let us embark upon this and see how Hive provides a better solution.

image.png
image by @doze

Counterparty Risk

It is best to examine what this is and how Hive makes this much safer.

Counterparty risk is best thought as the entity one entrusts to get paid. For example, when we put our money in the bank, we trust the bank will be there when business next opens. This means when we go to withdraw our funds, we will have access to them.

Under this scenario, the financial viability of the bank is important. Very few consider this these days since many governments in the developed world provide some type of protection. In the United States, the Bank Act of 1933 introduced the Federal Deposit Insurance Corp (FDIC). This means that deposits up to a certain level are insured should the bank fail. At the moment, that is set at $250K.

There is a similar situation with brokerage accounts. Investors and traders are protected against a brokerage firm going under and taking all ones assets with it. Again, this is part of the protection mechanisms governments put in place.

We also have this with the currency itself. Who is issuing it is very important. A government's ability to operate, in this era of deficits, is tied to its ability to sell bonds. The physical currency, banknotes, is dependent upon the managing of the balance sheet by the central banks. Finally, the overall currency is related to the viability of the commercial banking system to manage its loan portfolio (the expansion and contraction of the money supply) in a way that encourages not only lending, but the repayment of said loans.

The reason for this is the concept of a liability. Basically, it is essential that an entity be able to make good on that. Going back to the deposits, individuals and business know the repayment will be made, i,e the ability to withdraw, when the time presents itself.

Obviously, this is not something that happened in cryptocurrency.

The Blockchain As Counterparty Risk

We see how the world of decentralized finance (DeFi) was misleading. Ultimately, it was highly centralized, exposing people to enormous counterparty risk.

With most DeFi applications, one takes a coin or token and deposits it to the platform. This is the moment where the risk enters the picture. Whether it was Celsius, BlockFi, FTX, or a host of other companies, when dealing with a centralized entity, they are the ones who require trust. This is especially true in cryptocurrency where there are no protections in place.

The key here is that even though a coin is tied to a blockchain such as Bitcoin, the entity it is deposited on is not. Now we are adding a second level of risk to the equation. Even though Bitcoin is decentralized with miners all over the world, and it is almost guaranteed to keep operating for decades, the company entrusted with the coins through the farming process is not.

This goes back to the idea of the financial viability and practices of the entity itself. As FTX showed, there is much we often are not aware of.

It is easy to see how this can cause massive loss.

With Hive, the only counterparty risk is the blockchain itself. Through the savings of HBD, we have the ability to yield farm without the need for a centralized entity. One sill retains full control over the coins when moving it into savings. This is a major difference between Hive and most of the other projects out there.

Presently, we see Hive offering an APR of 20% with the only risk being whether the blockchain keeps running. As long as someone is running the software, people's wallets are accessible.

Hive is offering a very interesting option to the cryptocurrency industry. It is here where we see the potential to create an expansive base layer, fixed income market which, by default, adheres to the not your keys, not your crypto. The only way to access the Hive savings is by using one's private key. Nobody else has access or control over the money.

When we couple this with the Hive account management system which provides true account ownership, we see how powerful this combination is. There is no way to for a rug pull or a lack of financial viability to sabotage the return. Hive's balance sheet doesn't matter (it also doesn't exist).

New Financial System

The new financial system is DeFi. What we saw created so far is really nothing more than an offshoot of the existing financial system. Hive is operating differently by ensuring the node system underneath is not controlled by any entity.

When the blockchain is the only counterparty risk, we are dealing with something that is radically different than what we are accustomed to. In the wake of events this year, it is something that should be on the mind of all.

Hive already has this solved. While the offerings at the base layer are rather limited, the opportunities with HBD and Hive Power are both coded into the blockchain. There are no terms of service to adhere to or company executives that are making decisions that could affect the safety of the assets on the platform.

People do not value safety until it is lost. Hive is the safest form of yield farming there is in cryptocurrency simply because there is no counterparty risk other than the blockchain.

Since we are dealing with an entity that is decentralized, we can see how it is impossible to bilk one's funds.

This is not happening with most other blockchains.


If you found this article informative, please give an upvote and rehive.

gif by @doze

screen_vision2025_1.png

logo by @st8z

Posted Using LeoFinance Beta



0
0
0.000
18 comments
avatar

Been happily turning my HBD into savings when the price of HIVE is above .45 cents. Right now buying HIVE to sell for HBD when the price corrects. 20% Interest is a massive amount to get for holding safe USD pegged coins.

0
0
0.000
avatar

Which of those coins you mention do you believe is pegged to USD?

0
0
0.000
avatar

HBD

0
0
0.000
avatar

HBD is not pegged to USD. It's pegged to HIVE. 1 HBD is worth $1 worth of HIVE not $1 USD...

0
0
0.000
avatar

1 HBD is worth $1 worth of HIVE

1 HBD is worth $1 worth of anything means it is pegged to the dollar no?

0
0
0.000
avatar

pixresteemer_incognito_angel_mini.png
Bang, I did it again... I just rehived your post!
Week 132 of my contest just started...you can now check the winners of the previous week!
!BEER
9

0
0
0.000
avatar

I think there are two things that are at play here. Sure, the not your keys, not your crypto thing is the golden rule. But what about the people who don't keep their token on a centralized exchange. Yet others do and something bad happens. If the price of the token tanks, it doesn't really matter whether you have custody of them or not right?

Posted Using LeoFinance Beta

0
0
0.000
avatar

No but price tanking, if you still have your coins/tokens, means it can recover. Having them on an exchange that goes bankrupt means you are creditor in a bankruptcy case.

Bitcoin might crash, but it tends to bounce back. BTC on a bankrupt exchange means you lost your Bitcoin.

Reference Mt Gox.

Posted Using LeoFinance Beta

0
0
0.000
avatar

As much as I love HIVE and normally agree with you spot on... you are wrong, or sugarcoating it for some reason. I bet JS doesn't feel that funds are SAFU on HIVE.. I mean we basically rug-pulled him and made his funds our DAO..

0
0
0.000
avatar

His funds were never on Hive. There was a fork that created a new chain. When a fork takes place, nobody is guaranteed of an airdrop. Those doing the forking can give it to whomever they want.

You could fork Hive and give an airdrop to the 100 smallest accounts and zero out everyone else if you wanted.

Yet that, like Sun, is not on Hive. New chain.

Sun still has all his Steem stake. So if there is another chain, you might not get the drop but your Hive funds are safe.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Yeah… HBD is the best. I am slowly converting all my Crypto to HBD. I’m just waiting g for my Bitcoin to hit $20,000 again before I sell it all.

0
0
0.000
avatar

I think it's more or less dependent on the price of Hive for HBD. So I think it's more than just blockchain itself as a risk. However, I do think that Hive less likely to go down as a blockchain so it's all about bringing value to Hive and HBD will work out.

Posted Using LeoFinance Beta

0
0
0.000