We live in a world of credit, at least with the developed economies.   Everywhere we turn, when it comes to financial issues, we see how important our [credit Sscore](https://inleo.io/@leoglossary/leoglossary-credit-score) is.  Over time, it seems more is being tied to this.


In my view, this is a very [Web 2.0](https://inleo.io/@leoglossary/leoglossary-web-2-0) concept.  That is yesterday's news.  We can, instead, build out a system that is based upon something completely different.  Ironically, it is what the banks have used for decades.  As always, if you want to learn how things are done, watch the bankers.


[Credit](https://inleo.io/@leoglossary/leoglossary-credit) is nothing more than trying to determine who will repay a [loan](https://inleo.io/@leoglossary/leoglossary-loans) that is granted.  While this can be of assistance, it might not be the best approach.


Here is where we can develop a much larger system that diminishes the dependence upon credit.  In fact, it is one that is based upon assets, a completely different baseline.


In this article we will investigate this concept and how the Hive Financial Network can handle this.

 https://i.imgur.com/iqITtpu.jpg 

{Source](https://www.intentionet.com/case-studies/multinational-finance-apac/)


## Asset Accumulation


It is no secret that one of the major keys to [wealth](https://inleo.io/@leoglossary/leoglossary-wealth) is asset accumulation.  This is something that is discussed on Hive.  While [income](https://inleo.io/@leoglossary/leoglossary-income) is important, it is equally as crucial that people start to fill their wallets.  This is their future.


Very few people can amass a large sum of [money](https://inleo.io/@leoglossary/leoglossary-money) simply on their income.  The reason is rather clear: it is unlikely that one has a salary or some other form of [revenue](https://inleo.io/@leoglossary/leoglossary-revenue) stream that gets them ahead.  We can point to athletes or high paid [CEOs](https://inleo.io/@leoglossary/leoglossary-ceo), but they are the exception, not the rule.


In reality, wealth is built by owning businesses.  This can be broken down in many different ways.  One could say the setting up on a LLC to hold a piece of [investment](https://inleo.io/@leoglossary/leoglossary-investment) [real estate](https://inleo.io/@leoglossary/leoglossary-real-estate) is a business.  The same is true of [stocks](https://inleo.io/@leoglossary/leoglossary-stocks).  People's holdings can be looked at as potential for further wealth creation.


One of the most powerful financial tools is leverage.  Of course, this does come with risks.  However, if people approach it in a sensible manner, they find it will enhance their pursuits.


Probably the most common form of [leverage](https://inleo.io/@leoglossary/leoglossary-leverage) is buying real estate.  Few people who [purchase](https://inleo.io/@leoglossary/purchase) a home do so with cash.  Instead, they take out a mortgage.  This means the property is acquired for a miniscule sum of the total.  Here is where we see leverage in action.


Obviously, most are seeing shelter.  However, from a financial perspective, any increase in value of the property goes to the homeowner.  If the house goes up, say 10%, the [payment](https://inleo.io/@leoglossary/leoglossary-payment) stays the same.  If the person put 10% down, he or she effectively doubled the money (less any payments remitted).


For most, since real estate is not an investment as much as something to live in, the numbers end up rarely working out.  That is fine since people have to live somewhere.  The point is much clearer for those who [buy](https://inleo.io/@leoglossary/leoglossary-buy) real estate to rent.


Nevertheless, acquiring assets is key.  This is something that we have to use as a premise of our new financial system.


## Collateralization


When it comes to the [digital](https://inleo.io/@leoglossary/leoglossary-digital) realm, crypto-assets are something to consider.  Many on the outside will claim they are worthless but those who follow this closely realize it is not the case.  We are monetizing networks.  They can have extreme value as evidenced by the network systems many financial institutions have erected.  At the same time, when we consider what applications are worth, we can clearly see the value in crypto-assets.


Part of the discussion surrounding the Hive Financial Network was Hive Bonds. This was a key element from a [liquidity](https://inleo.io/@leoglossary/leoglossary-liquidity) standpoint.  It basically takes [HBD](https://inleo.io/@leoglossary/leoglossary-hive-backed-dollar-hbd) that is locked up in a time vault and provides the opportunity for liquidity.  One can go to the [market](https://inleo.io/@leoglossary/leoglossary-market) and [Sell](https://inleo.io/@leoglossary/leoglossary-sell) the asset.


This is, naturally, only one option.


What about the idea of lending?  Here is where things can start to change for the users very quickly.


By incorporating lending platforms into the Hive Financial Network, we can see how opportunities arise for many who are typically excluded.  By using Hive based assets, we can unleash the value locked away in them.


Let us go back to the real estate example.  


Under normal circumstance, one would go to a [Financial Institution](https://inleo.io/@leoglossary/leoglossary-financial-institution) to get a loan.  That would be secured with the property.  Fail to make the payments, resulting in default, and the home is taken.


With the Hive Financial Network, we can alter this.  By utilizing value that is held in wallets, we can flip the process.  Instead of our house at risk, we can put up coins or tokens.  This can be used to secure the loan to purchase the property.  If the person does default, the crypto-assets are taken, but the home is still possessed.


It is easy to see how [collateral](https://inleo.io/@leoglossary/leoglossary-collateral) replaced credit. 


## Makes No Sense To Pay Cash


Once we have something like this in place, it makes little sense to buy anything of this nature, especially if there is a long term horizon on it.


Let us say we have the option of paying [cash](https://inleo.io/@leoglossary/leoglossary-cash) for a property that costs $250K.  Instead, we take the HBD and place it in a 30 year time vault (if one exists).  The [APR](https://inleo.io/@leoglossary/leoglossary-annual-percentage-return-apr) on this is 20% for our purposes.


The individual deposits the HBD and gets a Hive Bond.  This is used as collateral on a $250K loan that purchases the property.  Once simply turned cash into an asset that can be used as collateral.


Under this scenario the [bond](https://inleo.io/@leoglossary/leoglossary-bond) would pay 50K HBD per year.  This comes from the HBD placed into the time vault.


Then we have the property.  What if that goes up 5% per year.  That is another $12,500 on average that is gained.  That means we would effectively be getting $62,500 each year on our $250K.


Of course, these numbers might not be totally accurate but they do emphasize the point.  


Another way of looking at this is to use HIVE.  We put $250K worth up as collateral on a loan.  The property makes the same move, going up 5% annually.  However, over the course of the loan, let us say the [coin](https://inleo.io/@leoglossary/leoglossary-coins) does a 10x.  Now we have $2.5 million plus a property that is worth a great deal more.


In other words, the individual is benefitting from using collateral as opposed to credit.  Under these scenarios, the difference is that using HIVE introduces the [price](https://inleo.io/@leoglossary/leoglossary-price) [volatility](https://inleo.io/@leoglossary/leoglossary-volatility) of the coin.  The [stablecoin](https://inleo.io/@leoglossary/leoglossary-stablecoin) does not have that means it is a better form of collateral.


Either way, hopefully the example is clear.  By unleashing the power of the value already contained in the assets residing in our wallets, we can start to expand our financial system.  Naturally, people have to be responsible when using this, something that banks tend not to do.


That said, we can see how credit, or a lack thereof, is a hindrance to billions.  Fail to meet the income requirement, sorry about your luck.  With this system, we can see how the value of assets can be accessed, providing a host of other opportunities.


All of this becomes possible once we start to develop the Hive Financial Network.

___

[What is Hive](https://inleo.io/@leoglossary/leoglossary-what-is-hive)


Posted Using [InLeo Alpha](https://inleo.io/@taskmaster4450/hive-financial-network-collateral-replacing-credit)