Understanding the FOREX market helps us to realize the true potential of cryptocurrency. Most underestimate how large this really is. It reflects the levels that cryptocurrency can achieve if it truly becomes a monetary force in the global financial arena.
We discussed how this could make cryptocurrency worth quadrillions. This was simply arrived at by looking at the present value (based upon estimates) of FOREX. It is tagged at $2.4 quadrillion.
When we look at the market capitalization of cryptocurrency being around $1 trillion, we realize how much upside there truly is. A 1000x still places us at 40% of the total for FOREX.
A lot of this, as we will see, plays into the probably explosion of stablecoins. Since it appears they are going to be the tokens used for transactions, we are going to see these grow at a faster pace than the rest of the industry. This makes sense considering how the FOREX market breaks down.
It is also essential to understanding the power of the US Dollar.
When it comes to FOREX, the dollar is king. This is something where there is no competitor.
As we can see from the above chart, the most popular pairs involve the USD. In fact, no other currency is even in the same stratosphere.
The United States Dollar (USD) is on one side of 88% of all forex trades.
This is am important fact to note. It shows the domination of the USD in international affairs. We have to keep in mind that, for the Eurodollar system, the USD is the unit of account is the majority of transactions.
What this tells us is that stablecoins that reflect this are going to excel. This is a positive sign for the Hive Backed Dollar (HBD).
Stablecoins can piggyback off what was established over the decade for USD. We simply are looking at an extension of the FOREX market, something that cryptocurrency will likely chip away at over the coming decades.
The Stablecoin Opportunity
When we look at the raw numbers, they are mind-numbing. With $6.6 trillion in daily transactions, and more than 85% of them with the USD as a pair, we can see how large this is. Of course, this is only the transaction involved in this market. It does not include the currency involved in trade (commerce), the stock or bond market, or any derivatives. This is purely currency trading.
By looking at these numbers, we can see how there is a shortage in USD around the world. A number of countries are selling their U.S. Treasuries due to the fact they need dollars especially since half the global debt is denominated in that currency. The spreads in interest rate swaps reflect this.
In the Eurodollar system, we see a major shortage of collateral. This evolved into a secured lending platform meaning that is collateral is lacking, so is expansion. It is an important issue since this market is responsible for more than 90% of short term lending around the world.
This is where cryptocurrency, most notably stablecoins, can step in. They can make up for the shortage in a big way. Of course, to get there, we are going to require a lot of them.
According to Coingecko, the stablecoin market is as such:
As we can see, total volume does not even come close to comparing just the transactions tied to the FOREX market, let alone all global commercial and financial activity. Here again, we see tremendous upside. The stablecoin market could 10x and still be 1/10th the size of this FOREX.
Ultimately we are going to need tens of trillions in stablecoins. This is only going to accelerate as we head further into the digital world, moving closer towards the Metaverse.
People are going to realize how much money is required to feed the growth opportunities which will be provided in the realm. The anemic global growth rates show how this is presently lacking.
Again, this is the role that cryptocurrency can fill.
Hive Backed Dollar (HBD)
The Hive Backed Dollar is a stablecoin that could be a major player in this arena. It is tied to the USD as a unit of account. However, the coin is not backed by USD or any cash equivalents. Instead, it is based by $1 worth of HIVE. This makes the other native coin for the Hive blockchain the backing agent.
At present, placing HBD into savings on-chain pays out a 20% APR. Many question whether this is sustainable. Over the past year, we discussed how this is not only sustainable, but doesn't even dent what is needed.
Part of that stems from the fact there is so little HBD in circulation at the moment.
According to Hiveblocks, here is the present circulating supply of the Hive coins.
This is actually misleading since the true float is only 9 million HBD. The Decentralized Hive Fund is presently holding 18 million HBD. This is locked up and distributed very slowly as per the rules of the DAO.
It is clear there is little HBD available at the moment. If it is going to be a major player in the stablecoin market, one that is going to reach into the tens of trillions, we are going to require a lot more of it.
Here is where the growth of Hive, along with the development, can factor into this.
Here is where sustainability enters the picture. Starting with the 9 million HBD outside of the DHF, at the present 20% interest rate, which produces more HBD, we get these numbers over 20 years.
This was done using 9 million, 20% interest, compounded monthly.
Of course, it is vital to note there is only about 3 million HBD in savings at this time. The rest are freely circulating, not generating any HBD.
The key takeaway is that, even if all 9 million started to earn 20% today, there would be less than half a billion HBD in circulation in 20 years.
This is an insignificant amount if we are dealing with totals that register in the trillions.
How To Develop A New FOREX Market
FOREX give us insight into how to construct our market. It is decentralization and unregulated. Basically, it boils down to interbank transactions.
We have the ability to set something similar up, just excluding the banks. Liquidity pools are the solution to this problem. As cryptocurrency expands, DeFi should explode. This is going to mean many opportunities for staking all kinds of tokens for returns. One of the main use cases will be providing liquidity to different pools.
Just conceptualize this in your mind: imagine the totals in liquidity pools reaching $10 trillion. Again, that is a drop in the bucket to FOREX but still a massive amount.
What if Hive set up something similar. We discussed the idea of a Hive Central Fund which could serve as the foundation for the expansion of Hive's financial arena. On top of this, we could develop liquidity pools and other financial services with a derivative of HBD serving as not only the pair but also the transaction token for all financial activity.
As the system grew, the value (not price) tied to HBD only grows. It would form a basis for tying HBD to all major coins and tokens out there. Here is where billions could be needed to populate these different pools.
The numbers can get big very quickly. This is something we have to keep in mind. We have global GDP at around $100 trillion. Trade keeps growing in spite of the geo-political pissing contests that take place. Financial opportunities keep being spread all over the world.
All of this requires collaboration. That is what money truly is. As we head deeper into the digital world, things only expand and move at a faster pace. For this reason, it is logical to believe the need is only going to grow. Stablecoins provide a powerful solution to the lack the world is presently experiencing. An algorithmic stablecoin like HBD can expand as the market requires.
The process starts with recognizing how large the opportunity truly is. Once that is achieved, we can then start to form the foundation upon which to build the proper tools to achieve this end.
It is an enormous market and stablecoins will likely be an integrated part of what unfolds over the next decade or more.
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