As they say, the world is going to hell.

The most recent bit of news has [Argentina's economy in collapse](https://www.fxstreet.com/analysis/argentina-falling-deeper-into-crisis-part-ii-202207291740) (for the umpteenth time).  This follows in the footsteps of Sri Lanka.  Unfortunately, the story is not likely to end here.  We are going to see more situations like this as economic conditions get tighter.

What is at the root of all this is a convoluted story.  However, we can take some things away that can be applied in our creation of [decentralized networked-states](https://leofinance.io/@taskmaster4450/networked-states-the-transition-away-from-the-nation-state).  

[Web 3.0](https://leofinance.io/@leoglossary/leoglossary-web-3-0) offers potential like few imagined.  The path laid by the likes of Facebook give us some insight into what can be created.  Of course, the challenge with the way things are is the lack of inclusion in the monetary rewards.

This is what Web 3.0 is meant to alter.  Nevertheless, there are some lessons we should take from the events of the world.  This will help us to navigate some of the pitfalls.


![image.png](https://files.peakd.com/file/peakd-hive/taskmaster4450/EoiPVihA5BV4UmjAYEtvvwFYZYfJntCnLH2rPfFwaKyfxtVdW9qzGxojwHGp3W5MCFm.jpg)
<center>[Source](http://www.adlittle.co.uk/sites/default/files/reports/GettyImages-1150199386.jpg)</center>

# Build The Economy

We live in a world of financialization.  The power of [Wall Street](https://leofinance.io/@leoglossary/leoglossary-wall-street) and its cohorts is immense.  For this reason, we see many who believe we can operate outside the business cycle.  After all, advancement in mathematics and financial products allows us to overcome this ancient concept.

Unfortunately, it never seems to work.  The boom-bust cycles are still with us, only seemingly worse.  

One of the problems appears to be the notion that [money](https://leofinance.io/@leoglossary/leoglossary-money) is wealth.  This is where some of the trouble starts.  When financial matters consume a society, then the real economy gets overlooked.  Wealth is business.  When economies has strong economic output, they are more stable and resilient.

Certainly finance and banking plays a role.  Yet, that was grossly distorted in the last few decades.

The role here is to provide the resources for wealth generation.  This means providing the mechanisms to allow commercial engagement.  

We see this being played out in the [cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency) world.  How many projects are focused on this, utilizing proven business building techniques?  Instead, we see many toying around with the tokenomics in an effort to make price go up.  While rising markets can be helpful in resource generation, if it is the sole end, when the [bear](https://leofinance.io/@leoglossary/leoglossary-bear-market) comes out, things get bad.

This is another thing we are witnessing.  Those projects that have a plan are expanding and growing.  It is something that comes from development.  Over the last few months, we saw a lot of the highly leveraged, Wall Street-type companies and funds enter [bankruptcy](https://leofinance.io/@leoglossary/leoglossary-bankruptcy).  Once a [liquidity](https://leofinance.io/@leoglossary/leoglossary-liquidity) crisis hit, they were cooked.

Of course, we saw the same behavior as [banks](https://leofinance.io/@leoglossary/leoglossary-bank).  Stop withdrawals to try and avoid collapse.  It doesn't work.

The key to any successful Decentralized Network-State is the economy that is built.

# Why Pegs Do Not Work

Money, finance, and economics is a confidence game.  This is why when people lose faith in the [government](https://leofinance.io/@leoglossary/leoglossary-government), the economies go right along with it.  This collapse ends up leading to hyperinflations because the governments and [central banks](https://leofinance.io/@leoglossary/leoglossary-central-bank) always follow the same playbook.

Pegs are meant to instill confidence.  Naturally, there is a practical application in terms of exchanging, swapping, and trading.  However, most times a peg is put in place to give confidence in the [currency](https://leofinance.io/@leoglossary/leoglossary-currency).

We see this with stablecoins.  They are being pegged, mostly to the USD, for a couple reasons.  One is to provide a unit of account that is understandable as well as consistent.  The second reason is to provide confidence in the [stablecoin](https://leofinance.io/@leoglossary/leoglossary-stablecoin) by tying it to something that people know.

This is not enough.  It is a beginning but requires a great deal more.  Eventually, the peg will fail because the economy supporting the currency does not warrant it.  In the case of countries like Argentina, they can peg to the USD all they want.  When their economy returned to shambles, the peg was snapped.  There is no way to maintain it without a solid economic basis.

Over the last few months we discussed the idea of adding value to the [Hive Backed Dollar (HBD)](https://leofinance.io/@crypto-guides/what-are-hive-backed-dollars-hbd).  This is what needs to be done with a currency.  While pegging is a good option, and markets can handle it for a while, the long game necessitates doing those things which will provided the ultimate in confidence: **strong economic output tied to the currency**.

# Digital Nations Offer A New Structure

Is it possible that the [digital](https://leofinance.io/@leoglossary/leoglossary-digital) world becomes the starting point and all flows out from there?  Could we see digital nations that are the root for the physical world we live in?

The answer appears to be in the affirmative.  We know the power of companies such as Facebook, Amazon, and Google.  Their revenues exceed the GDPs of many nations.  Decentralized Network-States are the next evolution from there.

We have the opportunity to, due to [tokenization](https://leofinance.io/@leoglossary/leoglossary-tokenization), create actually economies surrounding the money we create.  This means looking at what needs to be done in the area of currency value.

In the past we covered 4 areas where focus is required:

* lending/collateralization
* derivatives
* payment systems
* [investing and funding](https://leofinance.io/@taskmaster4450/what-gives-hbd-value-investing-and-funding)

The last one on the list is how we develop a powerful economy.  When financial matters are undertaken, not for the sake of simply making money, but to have the resources to expand the economy, this is where a transition is made.

Cryptocurrency can offer the resources to provide real services that are required for economic expansion.  Right now, since we are housed mainly in the digital realm, we see developers paid in exchange for the work they do.  This is allowing vital infrastructure and basic applications to be built.  

We can then start the process of constructing shops along with other commercial use cases.  This is another standard of digital economics.  Of course, since it is the [Internet](https://leofinance.io/@leoglossary/leoglossary-internet), advertising of some sort will come into play.  This all adds to the utility of a [token](https://leofinance.io/@leoglossary/leoglossary-token).

Finally, we have to apply the value in other areas.  Consider all we can provide utilizing cryptocurrency.  [The Hive Borehole Project](https://leofinance.io/@collinz/hive-begins-a-third-hive) is a prime example.  Here we see this funded through the use of cryptocurrency.  The payment from [Hive](https://leofinance.io/@crypto-guides/what-is-hive-crypto-hive) is made in HBD.  The end result is a physical system that was created from the value of a digital asset.

# A Game Of Confidence

Many believe in Hive.  This is another word for "having confidence".  [Blockchain](https://leofinance.io/@leoglossary/blockchain) by design helps to provide this.  Through the transparency, we can have faith in what is taking place.  It is in the open for all to see.

At the same time, success stories like Hive Borehole help in the "resume" of the system.  What did the ecosystem accomplish?  This is an answer that most anyone can relate to.

A lot of what was done is serving as a foundation of the **Decentralized Network-State** we are creating.  There are tools being developed to provide online marketers with what they need to connect with people.  Rewards are being distributed for providing information to Hive's [database](https://leofinance.io/@leoglossary/leoglossary-database).  An application like [Podping](https://leofinance.io/@podping) is feeding half a dozen applications with updates of new podcast episodes released.  Games are being built, an industry that is worth over $20 billion per year in the United States alone.

We know valuations in the digital world can increase rapidly.  The [network effect](https://leofinance.io/@leoglossary/leoglossary-network-effect) is such that expansion is radically different in the bits and bytes realm.  They are easier to deal with than atoms.

For this reason, the Decentralized Network-State of Hive simply needs to keep growing the economy.  We can place with monetary matters all we want.  Fortunately, the lessons are all around showcasing how that turns out.

It is best to learn from the failure around us.

___
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