AMA Review: How can HOPE become a New Global financial Option

HOPE Chinese AMA Review: Joy and Flex on How $HOPE is the New Global Financial Option

Original source: Hope

On March 29, HOPE held its first Chinese AMA. Host Joy and speaker Flex talked about the development of Stablecoin, the current macroeconomic situation, and the impact of regulatory changes in various regions on the future development of Stablecoin, and HOPE in particular.

Here's a look back at the AMA.

Joy: From the Fed's perspective, cryptocurrencies sit between gold and growth stocks.  

Joy: I'm going to share some perspective on macro information and recent events, as well as forecast future market trends.

There have been some important events recently, such as SVP thunder and Luckin risk clearing. These events have affected the risk of market funds to some extent. In this process, Silicon Valley Bank may affect the pace of liquidity easing in the United States, because the substantial expansion of bank liabilities and the sharp rise of financial asset prices actually have great risks and hidden dangers. As interest rate increases deepen, risks will continue to erupt in financial markets if high interest rates persist. However, our previous analysis suggested that pure SVBS and their affiliates would not pose much risk because their customer structure is relatively stable and their risk is not contagious.

Against the backdrop of exploding financial institutions, the US is under great pressure to raise interest rates. Since October, we have forecast that rate hikes this year will likely remain around 5 percentage points. That will be followed by a rate hike in May, the focus of which may become apparent. Recently, we have seen the market trading in June expectations. Volatility in risky assets, as well as safe-haven demand and the need for a collective focus on core assets, has led to gold, tech stocks and other emerging assets taking center stage. As the banks exploded, cash assets were not found to be absolutely stable. From an equity capital perspective, the market will tend to hold assets such as cash, over Treasuries, bonds, gold and high-tech stocks.

There are two risk appetites in the market, leading to a wider divergence between gold and tech holdings. Gold is held because it has no implied yield and is the safest asset in a recession. High-tech stocks are held because cash assets, Treasury bonds and corporate bonds risk of a sudden explosion resulting in higher bond yields and lower values. When people hold interest-bearing assets, the risk of their principal disappearing increases. In the course of the SVB boom, the attitude of the Fed and the Treasury led to a rally in core assets.

In fact, the core of the problem is not the banks, which do not have particularly difficult assets per se. The banks' holdings of long-term Treasury bonds are highly sensitive to changes in interest rates, and their value can fall sharply if rates rise even slightly. Technically, most banks are bankrupt now, mainly because they classified these long-term bonds as hold-to-maturity accounts. Gains and losses on this account do not directly affect the banks' balance sheets and audit reports, so they are not technically insolvent. For smaller banks, the problem is that they face the risk of a run and can only sell Treasuries they have held for a long time. The problem, however, is that by the time long-term Treasuries are sold, losses have already been realised.

The problem is essentially a US debt problem. To solve this problem, the Federal Reserve can step in. It could buy the debt outright or accept it as wholly owned collateral and then provide funds to the banks. Therefore, according to Lou, the problem is not difficult to solve. Moreover, it gives the Fed a good excuse to restart its zero interest rate policy. The Fed's policy cycle has been four years, with one year of tightening and three years of easing, for nearly 15 years. Since 2008, the tightening phase of this cycle has ended. So the next step should be for the Fed to ease policy.

From the Fed's perspective, we position cryptocurrencies somewhere between gold and growth stocks.

It depends on the characteristics of the token. Bitcoin (BTC) has essentially no implied yield, and despite features such as Lightning Network, DeFi, etc., participation is very low. Only a few bitcoins are involved in lightning networking, pledging, NFT, farming, etc. As a result, we default to BTC having no implied yield and more akin to gold. And Ethereum, with the implementation of the Shanghai upgrade, now has an annualized return of more than 5 percent, making it more like a high-dividend, high-dividend stock. So we classify it as closer to the growth end of the spectrum.

Bitcoin is similar to gold, while Ethereum is similar to a growth or technology stock.

Flex: HOPE wants to make an on-chain Alipay connecting DeFi, CeFi and TradFi

Flex: Last year, after paypal had problems, I was called back by shareholders and creditors to see if there could be a restructuring to fix the problem. However, the risk contagion did not stop at that time, from Luna to FTX to BlockFi to Three Arrows and paypal, and then further spread out from these institutions, affecting Genesis, the industry's largest lender. Unlike the traditional market, Crypto has no central bank, this kind of contagion can not be stopped, there will be no Federal Reserve, FDIC, Treasury joint end to solve the problem. Crypto didn't have a lender of last resort, and Genesis took on the role of a minor lender, basically ending up when it had no one to save. In the face of this situation, we and several large creditors have been trying to solve the problem. That's when I thought about what I wanted to do in 2019 -- distributed reserve stablecoins. It was just an idea, because paypal was so busy at the time that it didn't have the energy to do what it wanted. After such a dramatic change in the industry, I wanted to move on, so I had HOPE.

HOPE was originally intended to be a native stablecoin. But as the market developed, we found some problems. Initially, we wanted HOPE to be a new margin, and then connect to various centralized platforms. But then there were problems with FTX, problems with the reserves behind USDC, and people's trust in these platforms declined. So, while it started as a solution to the paypal problem, we realized that the project could be bigger. It is more transparent than paypal's business model and is a pure DeFi project. Its goal, like most DeFi projects, is to provide an open, transparent and frictionless financial service, rather than the middleman system of the past.

However, in the course of our project, we increasingly noticed a macro trend, namely the increasing conflict between China and the United States. From the balloon resolution to the later draft involving China, the House of Representatives voted with a rare zero vote. Then came the Taiwan draft.

The series of changes shows that the conflict between China and the United States is intensifying. In the process, something new may emerge. For example, China needs to de-dollarize, gradually removing dollars from the settlement process in China. But the internationalization of the renminbi is a difficult thing to do, and it has been difficult to move forward for years. This is Plan A. It takes a long time.

China needs to de-dollarize

There is also Plan B, which is to use non-dollar currencies for international trade, such as the British pound, Japanese yen, Singapore dollar and Hong Kong dollar. However, the Russian war with Ukraine set a precedent when the United States froze and confiscated the overseas assets of many Russians. So although Plan B is feasible, people don't fully trust it. That's when Plan C, what we call the encrypted payment gateway, came into being, which led directly to the rapid opening up of Hong Kong.

Hong Kong's encryption liberalisation has two goals. First, as Plan C, it will become a port for China's foreign trade. As a bridgehead connecting China and the world, Hong Kong will continue to play an important role in the future. On the other hand, we need to reassure people to invest in Hong Kong and hope that more overseas Chinese will come back to Hong Kong to start businesses, whether in the crypto or non-crypto sector.

因此，从这三个方面来看，香港的加密机遇是很大的。对于 HOPE 来说，也算是顺应了这一新趋势。在未来国际地缘政治变化的过程中，它有助于该地区的对外贸易。如果我们把 Plan A 看作是旗舰，那么 Plan B 就是驱逐舰，而加密货币起到的就是海盗船的作用。实际上，这是一个长期愿景，希望在未来成为国际贸易结算货币。短期来看，它仍然是一个类似于 BTC/ETH tracking token 的项目。我们希望将它打造成一个非常好的担保品——具有高流动性、利率市场的担保品。因此，我们将使用 hope swap 来实现它的流动性市场，使用 hope lend 来实现货币市场，从而形成高流动性的汇率市场和利率市场。只有这样，它才能作为一个非常优秀的担保品，才能被应用于各种事务。

So, our long-term goal is to become an international clearing currency by 2026 to 2029, and our short-term goal is to make it a very high quality collateral by 2023 to 2025. That is what I said across DeFi, CeFi, TradFi collateral. DeFi, Protocol, is coded, it means something you can't change easily, so we say DeFi is safer. But it has its own problem. It's not flexible enough. We wanted to push it to CeFi, and that's when we used a protocol called Connect, which is an on-chain light protocol, you can think of it as Alipay on-chain. For example, when using Alipay in 2006, the main goal was to keep your money in Alipay when the Taobao seller delivered the goods to you. When the goods are received, you can click "confirm" and the money can be transferred from Alipay to the seller, which is such a hosting function. And we hope that the light clearing system will connect DeFi in the future, connecting DeFi and CeFi first.

As for TradFi, it is still dominated by the dollar, and America defines who the good guys are and who the bad guys are. But why should the United States define these things? Why is it not defined by an agreement or by the people?

We HOPE that in the process it will become a universal margin in all three areas. Through such planning, we HOPE to gradually achieve the long-term goal of providing a new option for international trade settlement, while providing high-quality collateral in the short term to meet the needs of all sectors and promote the development of the entire cryptocurrency and financial ecology.

Joy and Flex review the history of Stablecoins

Joy: The first Stablescoins were supposed to be issued in 2014 as an asset-backed stablescoin of BTC, but at that time the regulation in various countries and regions had not reached the level that it is today. But as regulation gradually changed, it became what it is today.

Flex: USDT becomes middleware. There are various reasons for the development of USDT, USDC, etc., including endorser, interest earning ability, security, etc.

Joy: Different types of stablecoins such as USDT and USDC have their own advantages and disadvantages in the market, and may develop into an internal decentralization management model in the future. The U.S. political environment has had an impact on start-ups like Coinbase.

Flex: The rise and fall of Terra Luna are closely related to risk-free arbitrage in the market, capital flows and other factors. Project HOPE is prepared for market fluctuations and attacks by pre-stocking.

Joy: One of the reasons USDT has done better in recent years is because it has a more diversified portfolio of assets backed by commercial paper, corporate bonds and money market funds. USDC's anchoring is relatively undiversified, with 74 per cent cash and cash equivalents and 26 per cent short-term government bonds. From this point of view, USDT is more survivable and more secure.

Flex: USDT evolution:

1. At first, it was relatively difficult to exchange USDT.

2.Bitfinex supports USDT, so there is a market.

3.USDC is institutionalized in the US, launched by Coinbase and Circle, and is legal, so US institutions are more willing to use it.

4.BUSD is a product of cooperation between Binance and Paxos, and Binance has also held a series of events targeting BUSD.

Joy：我们认为所有的公链、Layer 1、Layer 2 甚至 Layer 3，在 Web3.0 中都会被视为内部分权进行管理。目前，CFTC 和 SEC 已经在争夺监管权。

Flex: Coinbase isn't actually in the interests of the American establishment, which is in the interests of Nasdaq, NYSE, banks, etc. As a result, the establishment is likely to kill these new cryptocurrency exchanges in the future, depending on the political environment in the United States.

Joy: FTX's thunder was affected by Luna's aftermath, and as a proxy for an overmortgaged stablecoin, the rise and fall of Terra and Luna cannot be used as a criterion to determine whether an overmortgaged stablecoin is viable.

Flex：Luna 的生态、Swap 做得很好，机制也不错，Base Rate 这种创新也还可以。Terra 之所以起得快崩得也快，原因在于 2021 年的市场暴涨带来了很多机会，尤其是加密市场的无风险套利，年化收益率达到了 40% 到 50%。然而，在 5 月 19 日之后，这个机会消失了。不过，由于出入金的高摩擦等原因，资金仍不愿离场。资金无处可去，便流入了 Luna 和 Terra，规模从五千万美元不到一年的时间，冲到了一亿美元。但市场热度不高，大量资金涌入，压力过大，转而储备 BTC，用 Luna 铸造 Terra，再用 Terra 购买 BTC。虽然由 Luna 购买 BTC 引起了一波小牛市，但当 Luna 遭受攻击时，引发了市场的大波动。当时 FTX 是市场最大的流动供应商，但其算法没有考虑到市场归零的问题，所以最后崩盘了。

To prepare for any kind of attack, Project HOPE builds reserves first, then algorithms.

Joy: I concluded that the algorithm Stablecoin has an impossible triangle. The three angles are its stability, decentralization, and capital efficiency. These three angles are impossible to coexist.

Common stablecoins are basically divided into four routes:

1) USDT, USDC and other resources mortgage;

2) MakerDAO and other excess mortgage;

3) Algorithm stablecoins such as USBN on Terra Luna and Venus;

4) Fully decentralized stablecoins, such as Reflexivity, Liquity, etc.

These stablecoins face challenges of stability, decentralization and capital efficiency, which are difficult to coexist.

HOPE chooses assets as underlying collateral at this point in time, which cannot take into account the degree of decentralization, but its distributed storage and capital efficiency perform well. Impossible triangle will change with the change of market capital risk, there may be many development possibilities in the future. HOPE will launch Lend, Swap and other functions in succession, which is an iteration and further development of the product.

How does HOPE solve the "Triangle of Impossibility" of Stablecoin?

In order to avoid the dilemma of the impossible triangle, Flex: HOPE trades time for space, giving up the current capital efficiency to exchange the future capital efficiency. The next phase is expected to be accommodative, with both monetary and fiscal policy easing. Next year may be a turning point, monetary policy and fiscal policy will be loose, which will be conducive to the rise of emerging assets such as BTC and ETH. In a bear market, we reserve first, and in a bull market, we will have a lot of leeway to ease. After that, we can change the BTC and ETH reserves into stable reserves, including the fifth generation stablecoin, such as CurveUSD, AAveUSD, etc. These stablecoins could become a future reserve for HOPE.

Joy: The current debt structure is in the shape of A triangle debt, A in B, B in C, C in A, the core and essence of the underlying asset prices. As long as the underlying asset price recovers, the whole price can recover. The challenges of bank friendliness, the difficulty of getting money in and out, and the application scenarios for stablecoin are both opportunities and challenges for Flex and HOPE. Hong Kong's compliance measures in custody, trading, capital management and stablecoin will expand the market size and lower the threshold for gold entry.

Flex: Hong Kong has two advantages. First, it has stricter regulation on speculation. Second, the ability to regulate stablecoin is stronger. In the future, Hong Kong will have a strong regulatory voice and development space in the stablecoin field. Many excellent stablecoin may choose Hong Kong, because Hong Kong's HKMA and SFC know how to regulate.

Joy: Hong Kong's regulatory environment and the synergy of other business forms will help Stablecoin grow rapidly. Many banks in Hong Kong, for example, are more stablecoin-friendly than banks in places like Singapore. In general, access to the gold channel in and out of Asia is much smoother than in Europe and America. With the theme of rising east and falling west, HOPE's stablecoin has a promising development prospect. This is just like Wang Huiwen in Web3, who switched from Meituan entrepreneurship to AI and entered a larger and more deterministic track with a very high probability of success.

Q& A: How does HOPE plan to hold BTC? How to implement protocol reserve?

Flex: At heart, we are a DeFi project, but we made some compromises for two reasons. First, to develop incremental markets, we need to make it easier for money from Hong Kong, the Middle East and Europe to enter the market. So, for the first few years, we chose distributed hosting, initially choosing Coinbase because it had the best hosting support, user experience, and compliance.

Second, we need to resolve the BTC contract issue. Although HOPE aims to be decentralized, we actually use centralized hosting. Coinbase offers separate accounts, which makes us similar to what Bank of China, Standard Chartered and HSBC do with the HKMA. These banks can reserve dollars with the HKMA and then issue Hong Kong dollars with their own logos.

In HOPE, we are similar to HKMA as the issuer of stablecoin. We don't go directly to customers, but through distributors. After customers deposit their BTC into Coinbase's designated address, we will confirm their reserves and allow them to mint the corresponding amount of HOPE in the HOPE agreement. When customers want to withdraw their reserves, they need to first destroy $HOPE, then initiate a coin withdrawal application, which is approved by Power Oracle and then approved by Coinbase.

Despite the risk of centralization, Coinbase is one of the least risky institutions and most are still willing to deposit their coins. Initially, HOPE will use Coinbase as a reserve, but the long-term goal is for regional compliance funds and institutions to become our distributors and issue HOPE. Even less developed public chains can issue HOPE and have it run on their defIs.

HOPE's initial approach is to use Coinbase reserve reserves, but the long-term goal is to achieve agreement reserves. At the moment, HOPE operates like the dollar: reserve first, buy later. Our essential goal is the same, which is to reserve HOPE first, and when the reserve assets greatly exceed the issued HOPE, we can overissue HOPE. Overissued HOPE is returned to the community at a 30% commission. In fact, the HOPE issue could operate in various DeFi agreements and generate more value. At this point, the HOPE reserve becomes a marketing tool.

Q& A: What is the casting process of HOPE? How to solve the problem of price anchoring?

Flex: The rules and design for HOPE may indeed present challenges in tracking prices early in the project. To achieve decentralization with security, HOPE uses a distributor model with wholesale and market expansion by a dedicated distributor. In the meantime, individuals can purchase HOPE directly with various coins on a decentralized exchange platform.

On the question of tracking the price, the initial value of HOPE is 0.5. In theory, when the increase of the mortgage asset doubles, the price of HOPE should track to 1. But there may be some challenges in practice. For example, in the early days of DAI, the price was lower than 1 for a long time due to insufficient usage scenarios. When ETH plummets, only those who need to buy back DAI will push the DAI price back to 1.

Similarly, HOPE may face price tracking difficulties in the early stages of the project. Because the redemption process is not silky enough, a trustee may need to be sought, and the cost of friction and time in between may cause the price tracking to deviate. But this should gradually improve as the project grows and the scenarios become richer.

For the HOPE project, the key is to gradually realize decentralization and enrich usage scenarios on the premise of ensuring security and compliance, so as to improve the practicability and value of the project. Over time, the project team can continuously optimize and improve the product design to better address these challenges.

The development of Project HOPE can be divided into three stages:

1. Stage 1: As margin for derivatives trading on a centralized exchange. The customer puts HOPE on the chain, and through a mechanism similar to Maker, USD can be cast after the HOPE is identified. This USD has a designated purpose and can be used for brokerage accounts to trade on the exchange.

2. The second stage: decentralized financial management. The customer puts the coins on the chain to generate USD, hoping to grant credit to the fund manager. After the fund manager completes the transaction in the centralized exchange, the profits return to the chain and the settlement scheme is realized.

3. Phase 3: Connect DeFi, CeFi, and TradeFi. In cooperation with global brokerages, USB generated in CDP can directly purchase synthetic assets, stocks, etc., realizing that stocks can be traded without money.

HOPE is initially intended as a margin, but in the future its most important functions will be payments and global settlement. The project's vision is not just to use HOPE for revenue, but to make HOPE practical. Open and transparent light settlement will reduce the likelihood of malicious acts.

Project HOPE is similar to Alipay in that it is a financial product first and then a payment function. The reason for financial products to go first is that HOPE is not a stablecoin at the beginning and needs to ensure liquidity, so the margin function is used first. In the future, when HOPE becomes a stablecoin, the trust function will become even more important.

In the future, the project will be decentralized in making decisions about hosting, with the establishment of DAOs as the core goal.

HOPE and light are the two main goals of Project HOPE. The first is to give young people hope in their hearts and build better communities of their own. The second goal is to do our work above board and provide a fair, open and transparent platform for people.

Q& A: What is the understanding of the third stage of storage exchange? If you want to change in the future, why choose BTC and ETH now?

Flex: The third phase of HOPE's development will be a storage swap. In the initial stage, HOPE will have BTC and ETH as reserves, which do have the characteristics of cryptocurrencies. But at a later stage, reserves will shift to decentralized stablecoins. This shift does not mean a loss of identity, but for the following reasons:

1. Use time for space: In order for HOPE to quickly become a large-scale stablecoin, the project needed to take advantage of the rising processes of BTC and ETH. In addition, using BTC and ETH as reserves can bring great value to LT, making it a perpetual call option.

2. Future stablecoin market: The storage exchange target is not the existing stablecoin, but the excellent stablecoin in the market two years later, such as CurveUSD and AaveUSD. These stablecoins have unique natural advantages, such as curve's ability to quickly convert other stablecoins. More diversified reserves, including non-US dollar assets such as US dollar bonds, Hong Kong government bonds, Singapore government bonds, etc., can also be used as reserves. This option is associated with greater capital efficiency, increasing reserve efficiency by reducing excess reserves.

In the longer term, when the HOPE protocol has good credit, there may be more applications. For example, as a system party, the on-chain debt of curve may be directly purchased and reserved by HOPE, making HOPE an important part of a pool. This will allow HOPE to evolve into an algorithmic stablecoin.

Project HOPE also plans to launch various compliance funds worldwide, with HOPE stablecoins issued by well-known fund institutions. This will attract fiat currency investment into the HOPE ecosystem, and generate income to return fiat currency to institutions. Such a development strategy will help Project HOPE succeed on a global scale.

This article is from submission and does not represent the views of BlockBeats

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