What is it that gives a currency value?
This is a question that the entire world of cryptocurrency is confronted with. Unfortunately, there are some misguided notions in this area, including the believe that asset-backed securities are the way to go. This is not currency as much as simply a money market account.
While that can work in some instances, it does not get at the core of the matter.
Simply put, a currency's value is derived from the economy productivity tied to it. This was true throughout history and we see it today.
When it comes to cryptocurrency, the thing most concentrate upon is payment. What can I buy with it? While this certainly is a feature, the medium of exchange, there are other ways that have a more powerful impact.
Funding Through A Currency Is Essential
In my article, we covered how Bitfinex is funding bonds for a Hilton hotel in El Salvador by using USDT. This is important, to me, since it is starting the process of setting up an entirely new debt market, outside the hands of Wall Street.
The deal was for $6.25 million.
While this isn't the biggest project in the world, it is still a tidy sum. There also needs to be a lot of purchases of coffee to equal that amount.
Here is one of the pillars that a currency requires. The numbers get ridiculous when entering this realm.
For example, in this United States, for the first 3 quarters of 2024, the amount of new mortgages was $1.1 trillion. Source
Imagine if a sliver of that amount was done using a particular crypto-based currency.
The other point here is, this amount, was funding in US dollars. What do you think happens when it comes time to make the payments? They require dollars.
Hence, funding actually leads into increased payments.
HBD: Economic Activity
The Hive Backed Dollars (HBD) is the base layer stablecoin on the Hive blockchain. This is an algorithmic stablecoin meaning that economic productivity is even more essential.
Funding is the mechanism which provides a compounding effect.
Investment in different initiatives can create economic activity. As start ups become more successful, their productivity grows. In most instances, this is recognized in the form of revenue.
When businesses become more successful, they are of greater impact. Of course, those who funded it also look to get their return on investment. Here is where the payments start to flow.
The circular nature of things happens when the investment pays off. These investors look to repeat the process, i.e. seek another place to send the funds.
It is an ever growing system that spurs on economic progress.
In many instances, we are referring to straight-forward lending. This is often handled by banks. However, we have to acknowledge many larger gains, as a percentage, are done through private funding. These come in many forms such as venture capitalists. Firms involved in this seek out start ups that can generate massive returns over time if successful. The risk profile is higher, which is why the commercial banks do not touch it.
Cryptocurrency is going to have to follow a similar pattern. To start, the path of VC funding is a double-edged sword. While it can bring in some big money, the expectation of payment is always hanging out the founders heads. There is no ecosystem the VC firms are a part of. This is pure business.
Also, the funding unit is usually the US dollar. There is no incentive to add utility to a coin or token. The VC firms do not care.
The same is not true for an ecosystem like Hive. In fact, the opposite is true. Each individual that has stake benefits from the growing use of the currency. It also can help the value capture token (HIVE) since the entire ecosystem benefits from increased productivity.
Digital Platforms
Digital platforms can become very valuable for a reason. The activity tied to it is captured, no matter how small, and spread among all users.
This is an important characteristics for an ecosystem like Hive. When dealing with different platforms, the value can, in part, be imparted upon HBD. As the utility expands, especially with funding, the entire network finds more value. This enhances the productivity tied to the stablecoin.
We know the large market caps the traditional digital platforms have. Even a small fraction of that being tied to an open system like Hive would have a major impact.
Funding is a compounding machine. Within an ecosystem like Hive, there is an added benefit for the stakeholders: HBD.
It is a process that ultimate can feed upon itself.