How Crypto Loans Could Improve The HIVE ecosystem

in LeoFinance4 months ago

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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Thanks for the mention.

Taking a loan out used to be a dirty phrase for me having had a student loan in the past but the way it works with crypto is completely different. I like the speed at which a loan can be approved as it is already collateralised from the assets you already have and once you pay the loan back, you get your original asset back which may increase in value.

Like you say, the difference with Hive loans is that you can earn the HBD or HIVE back from a variety of sources which is a unique situation. That and not needing KYC to get the loan, just the collateral and it's got a USP.

That's what I dig too, no need for background checks and risk assessment because you're overcollaterlaising, the onus is actually on the person to repay or have their funds liquidated and lenders have the security of returns. Naturally, you don't want to liquidate contracts but it's part of the no need for trust verification.

I think people will be keen because many users here actively seek to use their hive to buy goods and services so why pay all those fees to exchange and try and lock in a good sell price when you can just lock and loan

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For the moment, I have the impression that the only use for the loans is "engaging in arbitrage" (trading and speculation). But it's hard to consistently make money from arbitrage and trading, and it's a very competitive area prone to consolidation: the best get to the top, the others are washed out.
By comparison in the fiat world, loans are typically used to finance real-world investment.
How sustainable are crypto-loans if their only use is trading and speculation ?
Going further, Celsius offers cheap loans at 1% to those who want to take them but advertises returns of 5-6% to creditors ... That doesn't sound sustainable either...

I don't see anything wrong with arbitrage trading, it keeps markets more efficient and if people can make a spread and then pay capital allocators, why not?

The reason I say HIVE loans are different is because if I lock in my HIVE or HBD for a loan, all you then need is a P2P off-ramp, lets say I am willing to accept HBD for my local currency, then South Africans can sell me HBD for Rands and this can be replicated in a lot of countries. I will naturally take my fee, perhaps its less than that of exchanging it with a centralised service and then you can buy your real-world goods.

In addition, the guys at CTP have already set up a WordPress plugin so consumers can actually purchase with HBD directly on WordPress sites with their HBD.

Also, I don't see it as that simple, many of CEL's users are 1 BTC or less so they get a premium rate but on a small balance, when you secure 1 BTC or more you get a far lower rate. So while it looks like a lot the nominal payouts are small.

While the loan interest charged may be 1% the value of the loans are larger so that 1% is a sizable amount of fiat or Bitcoin and in that they make their spread and pay an attractive yield.

Yes, there's some juggling involved but that's no different from any fintech company. Not saying they can't go bust, but it's still a mathematically feasible

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Wordpress plugin? I'm interested, I was wondering what became of Steempress. Can you please share a link to these CTP guys ? TIA

The plugin is called HIVe Pay you can find more about it here

Steempress was replaced with exxp for HIVE, you can find it here

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Very great point. If hive could adopt this, I think we wouldn't be so scared of the value of hive dropping after this bullish season is over. I really don't think it's a bad idea but it will require mass adoption.

I have a question; what would be the collateral since the crypto world does not use KYC and what kind of people will be able to get a loan from this service?

In all, this is a very nice idea... still a jessey

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Why would it need mass adoption? It would be peer to peer so lenders and borrowers would meet in the middle and the market will decide it’s rates. If you want an example check out HODLHODL

It’s not a complete solution for everyone only those who feel their crypto position is worth more to them than selling abs having to get back to it from scratch

People will still sell, but those who know whay they are doing could profit from a product like this

So your collateral in this example would be your HIVE and you’ll have to find a lender let’s say me willing to give you HBD at either 50%, 33% or 25% loan to value ratio

So you give me $500 of hive

At 50% you ger 250 HBD
At 33% you get 165 HBD
At 25% you get 125 HBD

Then depending on the amount of collateral you put up you get a interest rate you need to cover with your payment

There would be no minimum or maximum, since you’ll find other hive members in a peer to peer market willing to lock up funds in an escrow for various rates and amounts

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Sounds good... think its just a matter of time before it comes to Hive. Lots of innovation here which is very impressive.

Lol I just want to be able to leverage my HIVE in ways I can get a better yield not that 3% risk free is not great but come on we can do better than that

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as a person who don't really good in investing in crypto i might be staying away from these crypto loan.
until i have a better understanding, or know how to make a good investment maybe i will have a hand on those services.

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Yeah I wouldn't recommend using it unless you've done your research and calculated your repayments or versus your fees + selling and tax implications

All depending on understanding how to effectively use the loan to one's gain and it will be sweet gains all the way

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Keeping the token moving and circulating helps build a better internal economy, you could even have a burn fee when locking the funds into escrow so that there's also a small supply that's removed from the market permanently. I am not saying scarcity is the only factor in improving use of the coin but it sure will help

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Sounds good and interesting, but how can that compete with Celsius? They have interest rates down to 1%

To me, it competes with CEL and others because you can earn HIVE with other crypto loans those tokens are only available for purchase. The fact that you can earn HIVE or other tokens to help pay off the loan fully or partially sets it apart for me

In Addition, no KYC for HIVE loans makes it a more attractive proposition, CEL interest rates are only a teaser rate, that won't be the market rate, they are offsetting a lot of the cost by leveraging their books in other trades.

CEL also only supports ETH based tokens, where in theory with HE we can easily support any tokens users want to make markets for giving it more flexibility.

If we look at HODLHODL's model people are borrowing Bitcoin P2P at rates of up to 17% because they don't have to KYC, not everyone wants to use custodial services.

Finally, If we look at payday loan markets, people are paying upward of 70% interest which is nuts, that market could be disrupted by what I am speaking about here, so your TAM is much higher than trying to compete with CEL user base.

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You are way more into this than I am haha xD
But I get it. I did also rethink my comment, but I had already sent it :D

Is Cardone a EC-20? Its not added yet, but they have talked about it.

I personally dont care about the KYC at all :D

Cardano, is no longer an ERC-20 it launched its mainnet ages ago, but I honestly think its a shiny turd shitcoin just like LINK and a lot more of the top 10 but that's just one mans opinion

I don't like KYC, I don't see why you need to know who I am, my money green, take it or let me go somewhere else

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Okay cool, Cel still plan on allowing Cardone trades :D

I get KYC, I just dont care xD

Nice post bro,have a nice day,I am a jessie

I think this is a great offer, thank you so much for sharing ,have a great day

Thank you very much for sharing information, have a good day and a great mood