HOPE, born out of the CeFi crisis: the vision of a "distributed stablecoin" moving from DeFi to CeFi and TradFi.

Original Title: "HOPE, born from the CeFi crisis: the vision of a "distributed stablecoin" from DeFi to CeFi and TradFi"

Original Source: Foresight News

As one of the "Holy Grails" sought after in the world of cryptocurrency, stablecoins have always been one of the most imaginative tracks in the industry. However, since 2022, various stablecoin solutions have encountered continuous setbacks, whether it is UST's stability collapse or USDC's reserve crisis. Instead, only the constantly criticized USDT has been expanding while ensuring the stability of its currency value.

"Everything in the past is just a prologue." On April 19th, the new challenger HOPE officially launched on the Ethereum mainnet. As a distributed stablecoin project launched by Flex Yang, the founder of former PayPal Finance, what are the innovative mechanisms of HOPE compared to others? And what kind of answer does it plan to give in the stablecoin competition?

Stability of the Stablecoin Market: "Change and Unchange"

As we all know, the solutions for stablecoin in the industry can be roughly divided into three categories:

Stablecoins anchored to fiat currencies, with USDT as the representative, appeared earliest and currently hold the largest market share. However, they sacrifice centralization in issuance and have always been questioned for their 100% asset reserve support.

Stablecoins backed by asset collateral, represented by DAI, have achieved a certain degree of decentralization, but they cannot avoid the problems of over-collateralization and low capital utilization rates that come with it;

UST, represented by algorithmic stablecoins, establishes a currency system through market supply and demand, achieving maximum decentralization and freeing up the upper limit of capital utilization. However, its own volatility of "spiral deflation and inflation" is too great, making it difficult to escape the fate of Pareto distribution;

Since 2022, the stablecoin market has undergone earth-shattering changes, but the development pattern can be described as a mix of "change and constancy".

First, UST rose rapidly and brought the possibility of stablecoin algorithm breaking out of the circle into the center of the encryption stage. However, the seemingly indestructible Terra blockchain ecosystem and UST algorithmic stability empire quickly collapsed within a week, and algorithmic stability has since declined.

The centralized stablecoin representing USDC, which has always been known for "compliance", was also deeply involved in the successive failures of CeFi institutions last year. The heavy blow of the Silicon Valley Bank crisis at the beginning of this year further interrupted its active pursuit of catching up with USDT.

According to CoinGecko data, since the US regulatory agency closed Silicon Valley Bank on March 10th, the net outflow of USDC tokens has exceeded $12 billion, and the total circulation has dropped to around $32 billion, a decrease of about 30%; BUSD has also been affected by regulatory pressure and continues to be destroyed, with circulation decreasing by nearly $2 billion in the past 30 days.

As the "decentralized stablecoin" DAI and FRAX, which use USDC as their main reserve, are also affected and their market share has declined significantly.

At the same time, the market value of USDT increased by about 11 billion US dollars, exceeding 81 billion US dollars, and its market share exceeded half again, reaching 61% of the total market value of stablecoins on the entire network. It can be said that the market share advantage of USDT has continued to expand after the market turbulence in the first quarter of this year, and the throne of the first stablecoin has become even more stable.

The strong wind rises from the end of the green pond. Against this backdrop, after the turbulent years of 2022 and 2023, stablecoins have undoubtedly entered a new stage of development.

HOPE: From DeFi to CeFi and TradFi

Just as the global credit tsunami triggered by the 2008 financial crisis gave birth to Bitcoin, unexpected changes often give rise to seeds that may have far-reaching effects. The birth of the distributed stablecoin Hope is due to the CeFi upheaval in the cryptocurrency industry since 2022.

I believe that the vast majority of cryptocurrency users and Web3 practitioners are familiar with "Babel Finance". As a leading cryptocurrency financial institution in the industry, Babel Finance, along with other top CeFi institutions such as Three Arrows Capital, found themselves caught in a vortex in 2022.

It is precisely because of this that Flex Yang, the main founder of PayPal Financial who had already left the company at that time, realized the importance of DeFi to the next generation of financial infrastructure and services in the collapse of the CeFi ecosystem, and launched HOPE, a distributed stablecoin that is native to the crypto industry.

HOPE, born from the CeFi crisis, aims to start from DeFi and become an important collateral in the DeFi world. In the future, it will further expand to become an important collateral for both CeFi and TradFi, and ultimately transform into a global payment-oriented decentralized cryptocurrency.

HOPE: A dynamic stablecoin anchored to mainstream cryptocurrencies

HOPE's economic model determines that it is not a conventional "fixed face value stablecoin", but a stablecoin that dynamically changes between "under-collateralized" and "fully collateralized".

Its design is based on the belief that "in the long run, the core mainstream encrypted assets will definitely have an upward trend", thus incorporating the future growth of mainstream encrypted assets into the future value change of HOPE:

HOPE's initial price was 0.5 USD, with Bitcoin and Ethereum as reserves, and subsequent real-time prices synchronized with the value changes of the reserves.

What does it mean? It means that when HOPE was first launched, the price was 0.5 US dollars. If 1 billion tokens were issued, which is equivalent to 500 million US dollars, then the reserve behind HOPE would be worth 500 million US dollars in Bitcoin and Ethereum.

From then on, the price of HOPE will dynamically change with the actual value of the reserve funds (Bitcoin and Ethereum).

If the value of the reserve fund rises to 600 million US dollars, the price of HOPE will instantly become 0.6 US dollars; if the value of the reserve fund rises to 1 billion US dollars, the price of HOPE will be 1 US dollar; if the value of the reserve fund rises to more than 1 billion US dollars, then HOPE will always be anchored at 1 US dollar;

In the third scenario, as the reserve value of HOPE increases, HOPE will transition from being an under-collateralized stablecoin to an over-collateralized stablecoin. The excess reserve funds can also be used to continue issuing HOPE through proposals.

According to the rules, the excess reserve issued by the industry will be returned to the community, and the official estimate is that the final HOPE mortgage rate will be maintained at around 110%.

Comprehensive "Distributed" HOPE

In addition, as a stablecoin, especially for stablecoins that want to be widely used as reserve assets in the TradFi, CeFi, and DeFi fields, how to ensure the stability of the coin value, especially during extreme market conditions, and still be safe and reliable without being unanchored at will, is the most fatal and critical issue.

To know that USDC sounded another alarm for the stablecoin track of the cryptocurrency market in the Silicon Valley Bank crisis, indicating that even centralized stablecoins backed by full reserve funds may face reserve redemption crises due to the single-point risk of traditional financial custody.

The official answer given by HOPE is "distributed", which is mainly reflected in three aspects:

Reserve distributed. The asset reserves related to HOPE will be entrusted to the world's most trusted institutions, including Coinbase, for custody, and will cooperate with local custodians in major regions around the world. This can meet local regulatory requirements while avoiding centralized risks caused by asset concentration; distribution system is distributed. HOPE has many distributors, just like Bank of China, HSBC, and Standard Chartered Bank can issue Hong Kong dollars. In the future, any eligible institution can open a whitelist in the HOPE system for casting; system is distributed (multi-chain system). HOPE will be on Ethereum in the early stage, but plans to expand to other blockchains in the future to avoid single point of failure;

Recently, HOPE announced that Coinbase Custody has been selected as the first custodian for the HOPE distributed reserve network, with a guarantee that the custodial account will remain independent and not be mixed. In the future, there may be more similar custodial service providers collaborating to achieve distributed custody.

Building On-Chain Native Combinations "Scenarios"

"One becomes two, two becomes three, and three becomes the myriad of things." Along with the launch of the Ethereum mainnet, HOPE has also released protocols and features such as HopeSwap, HOPE staking, and DAO governance. In the future, it will continue to introduce complementary products such as the lending protocol HopeLend and the on-chain custody and clearing protocol HopeConnect, which are the core drivers for building on-chain native HOPE use cases.

In fact, in the world of blockchain, the top players are often the best benchmarks. Even though UST is a "failure" example, how it quickly grew the stablecoin volume from zero to over 10 billion US dollars before its collapse is still highly informative.

And the key lies in a series of scenario building around the usage demand of UST from the very beginning, especially the closed-loop design of on-chain Mirror, Anchor, and several subsequent ecological projects, which are all aimed at creating a breakthrough path for the entire Terra ecosystem with "stablecoin + scenario".

HOPE is actually following a similar path to Terra's ecosystem by gradually building a series of on-chain application scenarios to establish a robust liquidity market and interest rate market for HOPE. It is gradually building its own composable ecosystem in various fields such as trading, staking, and custody, and ultimately converging the core scenes of the ecosystem to meet the needs of HOPE.

This kind of self-built chain ecology, if steadily promoted, can not only deepen the robustness of the HOPE ecology, but also avoid the risk that centralized stablecoins such as USDC may be affected by traditional financial problems - even "decentralized stablecoins" DAI and FRAX may follow suit due to their extreme dependence on USDC reserves and become unanchored.

On the other hand, if we can ultimately move towards a relatively healthy positive cycle, the portion of excess reserve issuance of HOPE can continue to flow into various internal DeFi protocols, continuously deepening the on-chain demand for HOPE scenarios, becoming a means of market promotion, and helping HOPE to influence external factors and move towards a positive cycle.

Attribute dividends under dual token design

HOPE "Dynamic Stability" + LT "Responsible Governance"

HOPE adopts a dual-token model design, in addition to the stablecoin HOPE, there is also a governance token LT (Light Token), of which 60% is allocated to the community, 30% belongs to the team, and 10% is released to the treasury and foundation.

HOPE ecosystem revolves around HOPE and provides a complete and rich set of application scenarios, including trading, lending, custody, and clearing and settlement, and incentivizes users to participate in the ecosystem and governance through LT.

As mentioned earlier, if 10 billion HOPE were initially issued and the total reserve value was $500 million, with the growth of reserve values such as Bitcoin to $1.5 billion, there would be an excess reserve of $500 million.

At this point, users holding LT can decide how to manage the excess reserve portion and participate in HOPE's currency policy, anchor maintenance, and other governance mechanism operations.

HOPE Possible Return Options

Actually, through the analysis of the specific dynamic stability mechanism of HOPE above, we will find that when participating in the HOPE protocol, users face two different options, but the specific benefits are slightly different:

1. HOPE: "Stablecoin Options" with Limited Returns

HOPE is essentially similar to a "stablecoin option" with a strike price of $1 under the background of insufficient reserve, with limited returns.

For example, when a user's HOPE is less than 1 US dollar, they can directly buy HOPE, which is equivalent to holding a "security" certificate mapped to the reserve fund, indirectly anchoring the future value fluctuations of mainstream cryptocurrencies such as Bitcoin and Ethereum.

However, due to the fact that HOPE can only rise to a maximum of 1 US dollar, even if the reserve fund soars, the excess returns cannot be directly reflected in the value of HOPE.

Therefore, HOPE can be understood as a "stablecoin option" that users purchase with real-time prices as the premium. The maximum possible return is the difference between the exercise price (1 USD) and the premium.

2、LT: Governance token that hooks the overflow value of reserve funds

LT is essentially a "governance token" that locks in future excess reserve earnings, benefiting from the overflow value of reserves.

Especially during bear markets, the value of reserve funds is low, holding LT is equivalent to locking in the overflow value brought by the continuous rise of reserves in advance.

As the value of Bitcoin and Ethereum continues to rise, the price of HOPE will achieve a 1:1 anchor to the US dollar. The overflow value brought by the continuous increase in reserves will be reflected in the value of LT - LT will grow as the reserves, issuance, and ecosystem of HOPE grow. As long as the stablecoin ecosystem of HOPE is established, the dividend of scale growth will directly benefit LT holders.

Overall, under such a mechanism:

Users holding HOPE can obtain judgmental income from the sales proceeds of bond exercise through option mechanism; users holding LT can obtain the surplus value of reserve funds and collective dividends from the growth of the entire ecosystem;

In short, this means that users have the potential to benefit in two ways - either through option exercise profits or through overflow value + distribution rights of ecological income (50% of the transaction fee income generated by various protocols in the HOPE ecosystem will be distributed to liquidity providers, and the other 50% will be distributed to community members who hold LT in custody).

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