The position that the [Hive Backed Dollar (HBD)](https://leofinance.io/@leoglossary/leoglossary-hive-backed-dollar-hbd) could occupy is becoming clearer.  A lot of it has to do with what is transpiring around the industry.  Between regulation, the threat to the banking system, and the upcoming sovereign debt crisis, it is evident that something has to step up.

According to Jeremy Allaire, one of the co-founders of [Circle](https://leofinance.io/@leoglossary/leoglossary-circle), the answer is USDC.  This is where Hive needs to take a different stance.

Before getting to Allaire, we need to note that stablecoins offer tremendous potential.  Unlike [fiat currency](https://leofinance.io/@leoglossary/leoglossary-fiat-currency), these are not created by issuing out [loans](https://leofinance.io/@leoglossary/leoglossary-loans).  While some like HBD are debt instruments, the dynamics are completely different.

Another advantage is the ability to leverage the USD to provide a safe haven.  By this we are looking at people being able to get exposure to the USD without actually having them.  This is vital for those in countries where the native currency is getting hit.  Since people deal with either shortages or corruption, [stablecoins](https://leofinance.io/@leoglossary/leoglossary-stablecoin) can be a great way to protect oneself.

That said, we have to understand what Circle is looking at doing.

In short, they want to become a [bank](https://leofinance.io/@leoglossary/leoglossary-bank).

<center>![image.png](https://images.hive.blog/DQmYdHkND75KkZD4DgoSMgNvbqy9H8fkngBzgA7dDC9F9nP/image.png)
[Source](https://leofinance.io/@taskmaster4450/hive-backed-dollar-hbd-becoming-a-stablecoin)</center>

## Full Reserve Bank

Many feel the idea of reserves are a good way to operate.  Unfortunately, this is disconnected from history and [money](https://leofinance.io/@leoglossary/leoglossary-money).  Even [gold](https://leofinance.io/@leoglossary/leoglossary-gold) always required a free floating rate.  Plus, in this era, we see trillions in [transactions](https://leofinance.io/@leoglossary/leoglossary-transaction) conducted daily which require [settlement](https://leofinance.io/@leoglossary/leoglossary-settlement-financial).  The idea of a currency deriving its sole value from something else means that market conditions could cause major problems.

HBD is market backed.  This effectively means that the totality of HIVE is what backs the stablecoin.  Each HBD can be converted to $1 worth of [HIVE](https://leofinance.io/@leoglossary/leoglossary-usdhive).  Under this scenario, the dollar is simply a unit of account, just like inches or centimeters are used in measurement.  We do not confuse the measurement with the ruler.  

This is not considered "reserve" since there is no HIVE sitting in an [account](https://leofinance.io/@leoglossary/leoglossary-account) serving as the backing of the stablecoin.  Instead, it is based upon [market capitalization](https://leofinance.io/@leoglossary/leoglossary-market-capitalization), in USD terms.  There is a haircut rule in place to help ensure the promise of conversion always exists.

Here we can see the contrast with Circle and [USDC](https://leofinance.io/@leoglossary/leoglossary-usd-coin).  This is full reserve in that the totality of USDC is backed by either USD or cash equivalents (US Treasuries).  From this, the company believes it could develop a complete banking system.

On the surface, this is something we could actually agree with.  In fact, there are some discussions that are erecting a framework whereby this could be possible on Hive with HBD.  Offering a full plate of financial services surrounding the stablecoin makes a lot of sense.

So is this simply a matter of questioning who does it?  Not in the least.  There is a lot more to what Circle is proposing which, in my view, has it running off the rails.

## Playing Within The System

It can be summed up like this:

**Circle wants to play within the system where [Hive](https://leofinance.io/@crypto-guides/what-is-hive-crypto-hive) is seeking to operate outside of it.**

Disruption almost always comes from the outside.  Rarely does it ever come from within an industry.  If we are going to alter the existing monetary and financial system, doing so within the framework of what is established is not going to work.

Yet this is what Circle is trying to do.

Here is what Allaire had to say about it:

>“We want to be a full reserve digital currency bank. We’d like a framework for that to exist. We’d like to apply for that license if such a license was available… We think the world needs a full reserve banking system. We think the world needs much safer base layer money and that’s what stablecoins represent. And so if that becomes something that say the Federal Reserve supervised, and we were sort of chartered and operated in that way and have the amount of supervision that goes with that, that’s absolutely something we will do.“

<center>[Source](https://www.cryptoglobe.com/latest/2022/10/circle-ceo-we-want-to-be-a-full-reserve-digital-currency-bank/)</center>

No surprise and, quite frankly, without any other option.

Circle is a company that has to play by the rules.  It has a major point of vulnerability so, if it tries to operate outside what the regulatory situation is, they will be blasted.  We all know the [SEC](https://leofinance.io/@leoglossary/leoglossary-securities-and-exchange-commission-sec) and other alphabet entities are just waiting to pounce.  Circle is smart to approach it from this manner because they really do not have much choice.

Nevertheless, proposing the future as being under [the Fed](https://leofinance.io/@leoglossary/leoglossary-federal-reserve-bank-the-fed) supervision is trying to recreate the same system.  This is not disruption.  Essentially, Allaire is proposing building another layer on top of the [USD](https://leofinance.io/@leoglossary/leoglossary-usd).  They are still dependent upon the elasticity of the dollar to expand.  

It does not solve the biggest problem: [liquidity](https://leofinance.io/@leoglossary/leoglossary-liquidity)

## Monetary Expansion

Let us go to the absurd to detail the limitations of what Circle is proposing.  Keep in mind that USDC is backed by [cash](https://leofinance.io/@leoglossary/leoglossary-cash) (USD) and cash equivalents (US Treasuries).

For our scenario, let us propose the global economy required $100 trillion in dollars to operate (do not think that outrageous as we move towards the Metaverse and further advance automation along with digitization).

Where does Circle get $100 trillion to back USDC?  They use 20% cash which is about $20 trillion.  That is about $5 trillion more than physical USD and the "digital" dollars created by the commercial banking system.

The we have the 80% backed by [US Treasuries](](https://leofinance.io/@leoglossary/leoglossary-us-treasuries)).  Could they produce that much debt?  Sure, Congress is always willing to spend money.  The challenge is how does it get sold?  When Treasuries are "printed" they are sold for existing USD.  Again, we do not have that money out there.

This is the flaw in Circle's design.  

How can the Hive Backed Dollar handle our example?  The market cap of HIVE simply needs to be higher than what is required to fuel the economy.  If $100 trillion is needed, then the market cap of HIVE explodes higher to back the amount of HBD that must be created in this scenario.

We are obviously going to the extreme here but it does exemplify how much we need to alter the system.  Also, there is another point that should be abundantly clear:

**The future of money is not a single stablecoin.**

To reach the numbers required in the future means we are going to require a number of different currencies filling the void.  

## HBD: Market Based And Outside Control

HBD has no company behind it.  There is no single entity responsible for the [currency](https://leofinance.io/@leoglossary/leoglossary-currency).  Instead, it is tied to the blockchain and backed by another [cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency).  The USD is the [unit of account](https://leofinance.io/@leoglossary/leoglossary-unit-of-account) (measurement) but there are no dollars involved.  For this reason, its expansion, or contraction, is not dependent upon the underlying supply of USD and its cash equivalents.

There is no [financial institution](https://leofinance.io/@leoglossary/leoglossary-financial-institution) looking to file for a banking license on behalf of HBD.  The desire is not to have the Fed or any other [central bank](https://leofinance.io/@leoglossary/leoglossary-central-bank) regulate the currency.  We are not going to have a CEO or CFO on television talking about the plans to make the regulators accept what we are doing.

With HBD, the parameters are coded into the [blockchain](https://leofinance.io/@leoglossary/blockchain).  Over time, the community decides how to alter things, as evidenced by the increase of the haircut.  This is changed in the software.  Since it is tied to a [decentralized](https://leofinance.io/@leoglossary/leoglossary-decentralization) system and based upon what the holders of the [coins](https://leofinance.io/@leoglossary/leoglossary-coins) decide (i.e. conversions), this is where the [monetary policy](https://leofinance.io/@leoglossary/leoglossary-monetary-policy) comes from.

Allaire is right.  The world could use safer [base layer](https://leofinance.io/@leoglossary/leoglossary-base-layer-blockchain) money.  However, the approach that Circle is taking is incorrect.  It duplicates many of the same limitations along with potential pitfalls as the currency system.  HBD is different in that it is not tied to USD.  Thus, the elasticity is based upon the market (community) engaging with the two currencies on Hive.  

When this is branched out using [derivatives](https://leofinance.io/@leoglossary/leoglossary-derivative), we see how powerful this can be.  Here is where resiliency is provided similar to what the [Eurodollar system](https://leofinance.io/@leoglossary/leoglossary-eurodollar-system-market) does for the dollar.  

In short, HBD is the anti-thesis of USDC.


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