We often talk about the defense of Hive.  Security is obviously a major premise when dealing with [blockchain](https://leofinance.io/@leoglossary/blockchain).  With all that is taking place online, we need to ensure that people can operate safely with the different [applications](https://leofinance.io/@leoglossary/leoglossary-application).

There are other factors that determine the safety of the Hive ecosystem.  As we saw with UST, something that is poorly designed can be fatal.  For this reason, Hive has some safeguards in place regarding the [base layer](https://leofinance.io/@leoglossary/leoglossary-base-layer-blockchain) coins.  For example, [Hive Power](https://leofinance.io/@leoglossary/leoglossary-hive-power-hp) has a 13 week unstaking.  This is enormous along with being the source of great controversy.  However, it is a very strong security mechanism in case one's account does gain unauthorized access.

Over the last few months we made a number of propositions.  Interwoven in this are steps designed to defend Hive even further.  In addition to coding, there are financial ways to protect Hive.  It is something that is often overlooked in a world where "code is law".  Nevertheless, this is where we can see layers of defense arising.

In this article we will discuss some of these concepts and how it all makes the base [coins](https://leofinance.io/@leoglossary/leoglossary-coins) stronger.  The goal is to make the entire ecosystem as resilient as possible.  This means pushing the possible attack vectors further out, away from the core.

<center>![image.png](https://images.hive.blog/DQmWVhsmAfchiMZoAHRG1rbRbRvs8gppYXWPFqRonwquz9M/image.png)</center>

### Derivatives

We covered this in great detail so we will not have to explain it all.

[Derivatives](https://leofinance.io/@leoglossary/leoglossary-derivative) are widely misunderstood.  What most remember is Warren Buffett's weapon of mass destruction statement.  That said, we need to understand Buffett does a lot with derivatives.

The entire financial system is a process of transferring [risk](https://leofinance.io/@leoglossary/leoglossary-risk).  We basically move it from people who do not want to those willing to take it on.  This is the primary role of derivatives.  They are used as a [hedge](https://leofinance.io/@leoglossary/leoglossary-hedge), especially in the era of [Value-at-Risk (VaR)](https://leofinance.io/@leoglossary/leoglossary-value-at-risk-var) [balance sheets](https://leofinance.io/@leoglossary/leoglossary-balance-sheet).

How does this apply to Hive?

The idea is to get the base coins, [$HIVE](https://leofinance.io/@leoglossary/leoglossary-usdhive) and HBD, operating in different forms.  This is where the concept of a wrapped [token](https://leofinance.io/@leoglossary/leoglossary-token) enters.  When we start to design different versions of the coins along with generating utility, now we can see how the attack vector is moved further out.

For example, if [bHBD](https://leofinance.io/@leoglossary/leoglossary-usdbhbd) has a deep [liquidity pool](https://leofinance.io/@leoglossary/leoglossary-liquidity-pool-lp), then we have accessibility.  One that occurs, others can start to integrate use cases.  If the token gains acceptance for [payments](https://leofinance.io/@leoglossary/leoglossary-payment), funding, or investing, the incentive exists to hold it.  This is backed by HBD in a Hive [wallet](https://leofinance.io/@leoglossary/leoglossary-wallet) yet it is going to just sit there, not threatening the system.  

It was one of the main premises of the [Hive Financial Network](https://leofinance.io/@taskmaster4450/introducing-the-hive-financial-network).  By creating a derivative of Hive's [stablecoin](https://leofinance.io/@leoglossary/leoglossary-stablecoin) that is the centerpiece of the system, the utility of HBD becomes clear.  In this instance, it operates to create more of the derivative which is used within the financial network.

### Sophistication

This is another area we discussed although we did not point it out directly.  The concept of [Hive Bonds](https://leofinance.io/@taskmaster4450/hive-bonds-the-next-step-in-hbd-evolution) is one that plays into this.

When we start added layers of financial sophistication, the resiliency of the currency explodes.  

Again, using the bonding as an example, we can see how the layers simply mount. 

The main idea is to have [HBD](https://leofinance.io/@leoglossary/leoglossary-hive-backed-dollar-hbd) placed in a time vault (say 1 year).  This locks up the HBD, removing the threat to the ecosystem.  At the same time, liquidity is provided by creating a bond (a [NFT](https://leofinance.io/@leoglossary/leoglossary-non-fungible-token-nft) if you will) that can be traded.  Already, as with the wrapped token, we have the HBD in another form.  Then, we can move the bond to the state of [collateral](https://leofinance.io/@leoglossary/leoglossary-collateral), placing it at the center of a lending platform.  

The key here is to get the last feature built out.  If there are millions daily in lending taking place, what does that do to HBD?  Obviously, there is incentive for people to keep placing it in the time vaults.

It is a situation that can keep growing as more "exotic" financial layers are built.  Another example could be creating interest rate swaps based upon the prices of the Hive bonds on the open [market](https://leofinance.io/@leoglossary/leoglossary-market).  If this is robust enough, we can see how market prices will emerge.  Now we are tying another derivative to the system which only enhances the reach of HBD.

This is where defense comes in.

### Building

We are at a crucial junction.  [Cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency) excels at people trying to monkey around with tokenomics believing that will provide the answer.  They turn to burns, deflation, and an assortment of other variables to try to make the coin or token appeal to others.  They are stuck in the [price](https://leofinance.io/@leoglossary/leoglossary-price) go up mindset.

The true solution comes from building.  As we can see from these few examples, there are many things that can be implemented to provide defense to Hive.  It takes time and effort.  This is obviously something Terra overlooked.  They figured the correlation between LUNA and UST was enough.  There was no defense such as the [haircut rule](https://leofinance.io/@leoglossary/leoglossary-haircut-rule-hive).

We also did not see use cases for either coin.  Other than trying to create a return, either through [APR](https://leofinance.io/@leoglossary/leoglossary-annual-percentage-return-apr) or [speculation](https://leofinance.io/@leoglossary/leoglossary-speculation), what need did people have for either one?

We often discuss replacing the existing financial system yet few talk about actually building that out.  What are people going to use?  How are we going to meet the different needs of the crypto community if we do not create the [infrastructure](https://leofinance.io/@leoglossary/leoglossary-infrastructure-computer)?

Fortunately, in doing this, we build the resiliency that defends Hive.  


___
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