On July 19, HOPE founder Flex was invited to participate in the Twitter Space event hosted by Odaily. He had a one-on-one conversation with Odaily CEO Mandy, starting with the launch of the lending protocol HopeLend, and introduced the planning and recent developments of the HOPE ecosystem. Here are the key points of our conversation.
Mandy: First, please introduce yourself, Flex, and the products and vision of HOPE.
Flex: Hello everyone, I am Flex, the founder of HOPE and also a former founder of PayPal. When I was still at PayPal, I was always thinking about how to create a better stablecoin and address some issues in the stablecoin ecosystem. During my time in university and after graduation, I worked in the traditional finance industry, gradually deepening my understanding of finance and realizing that there are indeed many problems within it. For example, without regulators, centralized finance cannot avoid human risks.
In 2017, I had the opportunity to meet some friends in the cryptocurrency industry, and together we discussed the bull market at that time, trying to understand cryptocurrency and the market. So personally, I went from knowing nothing about cryptocurrency, to being indifferent to it, and then becoming a loyal supporter and participant in the cryptocurrency world. This journey took me nearly 10 years. In 2022, global finance and cryptocurrency experienced severe volatility and collapse, which made us rethink why we must create distributed cryptocurrencies or stablecoins. Next, I will share why we started the HOPE project.
HOPE originated from a belief: we believe that this industry will become better. HOPE is a distributed stablecoin with distributed reserves, distributed issuers, and distributed cross-chain usage. We have learned many advantages from traditional finance, such as the Hong Kong dollar. The Hong Kong dollar is a stablecoin within the traditional financial system, pegged to the US dollar, and it has many distributed characteristics: firstly, distributed reserves to mitigate sovereign risks; secondly, distributed issuers to avoid regional risks.
HOPE wants to emulate its distributed application. We want to find a balance point to solve the "impossible triangle" problem of stablecoins, which is the impossibility of simultaneously achieving stability, capital efficiency, and decentralization. Initially, we want to make some concessions in terms of stability and decentralization, in exchange for a period of development, and then pick it up again in the next bull market cycle. HopeLend is an important part of HOPE's ecosystem. We not only learned from the mechanism of the Hong Kong dollar but also contemplated some issues with decentralized stablecoins in the past. For example, Maker started the decentralized stablecoin trend with reserves, but its capital efficiency was not high, and its ecosystem did not develop well. Terra and Luna have high capital efficiency and excellent ecosystem construction, but due to reserve problems, they became the starting point for the market collapse in 2022.
We want to adjust over time to solve the impossible triangle problem. Initially, HOPE will be pegged to BTC and ETH, but after the next bull market cycle, it will gradually be pegged to the US dollar. Through this period of change, we can convert the returns and potential energy brought by the volatility of the cryptocurrency market to traditional or cryptocurrency investors.
Mandy: As a stablecoin, HOPE's price is not anchored to the dollar but is related to the price of BTC and ETH. Please introduce the price generation mechanism of HOPE, especially how it differs from other stablecoins like DAI.
Flex: Like DAI and most stablecoins, we use the CDP mechanism, which is backed by reserves. HOPE also has reserves, but we want to grow rapidly in the early stages while improving capital utilization and seize the opportunity of the next bull market. So, initially, we will peg to BTC and ETH and scale through HopeSwap, HopeLend, and other clearing and settlement protocols. In the process of rapid increase during the subsequent bull market, we can enjoy the returns brought by the rapid rise.
We hope to have faster growth in the later stages of the transition from bear to bull over the next two years. We've traded time for space, which brings high returns. This is somewhat similar to the mechanism of the US dollar in traditional finance. From 1944 to the 1980s, during the process of decoupling from the gold standard, the yield of US government bonds was high. This is because the US dollar was actually backed by gold, and the volatility of gold naturally brought about yield. So, in the 1970s and 1980s, the yield of the US dollar was extremely high. In the case of HOPE, we've pegged it to BTC and ETH, providing volatility and bringing high yield to the community and ecosystem in the early stages, but also facing downside risks. This design will attract people to accumulate enough BTC and ETH during this period. However, for ordinary users, the price increase of BTC and ETH in the next bull market might not meet their expectations of hundreds, thousands, or tens of thousands of times, so we've introduced LT in the design mechanism.
LT is our governance token. When you buy HOPE, you also sell call options of BTC and ETH while simultaneously receiving call options of LT itself for the entire reserve. LT represents long-term call options with high leverage on the rising price of BTC and ETH in this ecosystem without the risk of being liquidated. In short, volatility brings initial returns, allowing us to accumulate a certain scale in the next year and explode in the bull market.
Mandy: What safeguards has HOPE implemented in terms of transparency to ensure the security of the asset reserve of HOPE stablecoin?
Flex: HOPE adopts a distributed reserve. HOPE is not only for Web 3 users. Our vision is broader, hoping that it can become an important tool to reconnect the world in the face of deteriorating international conditions in the future. Therefore, it must be relatively trustworthy and independent, so we did not choose fiat currency for the reserve but chose BTC and ETH.
In the early stages of these distributed reserves, there were Coinbase and some European custodians. We chose these centralized custodians to make compromises in the "impossible triangle" of decentralization to attract funds. We all chose custodial segregated accounts to ensure security, where the assets are independent of the institutions' bankruptcy and are disconnected from counterpart and credit risks. The core is to use independent addresses for custody and publicly disclose the addresses and the coins inside, so the reserve coins cannot be moved. In the medium term, we will launch a self-custody mechanism, such as tBTC, in the next one to two quarters. It will use decentralized Bitcoin and decentralized custody. This not only allows traditional institutions to participate through traditional audits, but also enables participants in the crypto-native industry to participate, while mitigating risk through decentralized custody, consistent with the handling of Hong Kong dollars.
The mid-term goal of HOPE is to enable both traditional and Web 3 funds to participate freely. In the longer term, to comply with regulatory requirements in different regions, we do not compromise on the protocol, but we compromise on distribution: local funds are managed by local managers and held in local custodians, which allows many traditional funds to participate and aims to achieve scale.
Mandy: As a decentralized stablecoin, market growth can only be driven by finding effective use cases and scenarios. Can you tell us about the explorations that HOPE has done in this regard?
Flex: We see that Maker, Curve, DAI, and other ecosystems are constantly expanding their horizontal applications and coincidentally choose stablecoins as intermediaries. Everyone is moving towards stablecoins from different directions. For stablecoins to truly succeed, a good ecosystem must be built. We have to mention Terra, which has done a great job in growing a diversified ecosystem. We should learn from them.
The growth of the ecosystem relies on the application of stablecoins. In the HOPE ecosystem, there are protocols like HopeSwap, HopeLend, and HopeConnect. Speaking of which, I would like to quote a sentence from traditional Chinese culture: "The Dao gives rise to one, one gives rise to two, two gives rise to three, and three gives rise to all things." The Dao represents our company organization, and the one represents the stablecoin HOPE. "One gives rise to two" refers to the need for two protocols because of the existence of HOPE: HopeSwap and HopeLend. HopeSwap is an exchange market that facilitates the transfer of spatial value through trading, primarily serving HOPE and LT coins. HopeLend, on the other hand, is a lending protocol that operates in the interest rate market and brings returns, promoting the growth of the exchange protocol, HopeSwap.
These two protocols gradually establish the liquidity of HOPE, allowing us to move on to "two gives rise to three." Three refers to the settlement protocol HopeConnect, which functions similarly to Alipay. Around 2005, to resolve the lack of trust between buyers and sellers, Alipay introduced the functionality of an escrow account. The transaction funds would be held in the escrow account until the buyer confirmed the completion of the transaction, at which point the funds would be transferred to the seller's account. This mechanism has yet to be well-established in the cryptocurrency industry. Currently, there is a lack of trust between different protocols, as well as between DeFi and traditional finance. Completing a complex transaction is challenging. For example, if you have BTC and ETH and want to buy Maotai stocks, you must settle the transaction using traditional methods. You would need to sell BTC for fiat currency, deposit the fiat currency into a brokerage account, which might cause you to miss the buying opportunity you desire. Our goal is to build a centralized custodial account that combines the centralized and decentralized worlds. Once decentralized assets are placed in the custodial account, users can utilize them in the traditional world, such as credit card payments, centralized derivatives trading, and real-world asset transactions. HopeConnect serves as an escrow account, similar to Alipay, enabling near-settlement in a way that reduces friction costs and usage costs for users. This is how we can promote the widespread use of stablecoins.
Due to the immaturity of previous information systems, global trade still mostly relies on full settlement. We hope to utilize the technology inherent to cryptocurrencies to achieve near-settlement functionality at specified moments, saving friction costs, simplifying KYC processes and tax issues, while also bridging the gap between crypto finance and traditional finance. In doing so, the potential use cases are limitless, as indicated by the phrase "and three gives rise to all things." HOPE can be used in any transaction scenario and any trading system.
Mandy: HOPE's ecology has another product, the DeFi lending platform HopeLend, which will be launched on July 20th. What is the position of Hopelend in the HOPE ecosystem, and what impact will its emergence have on the entire HOPE ecosystem?
Flex: As mentioned earlier, "the Tao gives birth to one, one gives birth to two, two gives birth to three, and three gives birth to all things." HopeLend is one of the twos, and it is the first important protocol in the ecosystem that generates native income. The reason why the HopeSwap protocol cannot generate too much native income is that the transaction fee rate is low and our trading volume is high. But HopeLend can provide native income functionality for this ecosystem, and support the direction of things such as interest rate determination for the HopeConnect protocol. It is the foundation of the HopeConnect protocol. HopeLend is similar to the Aave protocol, and it forks Aave V3, which is basically the model of the more mainstream lending protocols in the current market.
Mandy: What is the specific operation process of HopeLend? Can you introduce it to everyone? For example, which currencies are supported for deposits and loans, and what are the interest rates?
Flex: In the initial stage, the types of currencies we list include HOPE, stHOPE, USDT, ETH, WETH, WBTC, SETH, and we will gradually add other currencies that everyone needs. The interest rate system of HopeLend is basically the same as that of AAVE, and the interest rate is related to the utilization rate of the pool. The higher the utilization rate, the higher the interest rate. HOPE plays an important role in this protocol: HOPE's current price is around $0.5. When HOPE approaches $1, it is somewhat like a bearish option for BTC and ETH. You can think of it as buying options in the market at a higher price, and then selling them in the HOPE protocol. After that, the interest rate of the options in the market can be converted to HOPE through the role of a market maker, which is the basis for achieving high ROE that we hope to achieve. The interest rate of HOPE may inherently be higher, and as the price changes from the current price to $1, its interest rate will gradually increase. This will bring higher returns to participants and liquidity providers in the ecosystem.
Mandy: One of the key features of Hopelend is providing LT liquidity mining rewards. Can you introduce the details of this part?
Flex: Our entire ecosystem's underlying mining model is similar to Curve's Gauge model, a liquidity pool model. When users deposit into the pool, it's a Gauge where you receive LT distribution. When the capital utilization is low, the protocol reduces the incentives for depositors and increases the incentives for borrowers in LT, reducing the motivation to deposit and increasing the motivation to borrow. When the capital utilization is high, it increases the incentives for depositors in LT and decreases the incentives for borrowers in LT to promote timely repayment. Our design mechanism is similar to traditional lending protocols, with no significant innovations, but more incentives through mining rewards. In addition to receiving these rewards when providing liquidity and borrowing, a large portion of the price difference goes to those who pledge LT.
Mandy: In fact, many protocols have currently stopped liquidity mining due to concerns about selling pressure on token prices. What measures has HOPE taken to avoid drastic impacts on the LT price?
Flex: When designing this ecosystem, LT is not just a governance token. It includes the bullish value of the entire reserve pool, making it essentially a comprehensive option with intrinsic value. The higher the prices of BTC and ETH, nearing 50k and 3000 respectively, the higher the value of the option.
I think the ecosystem model of Curve is very good, pledge CRV to reduce selling pressure. We will also follow this approach and will introduce a similar function to CVX in the future to increase the liquidity of LT. Another aspect we have been exploring is how to increase the yield of native veLT and encourage locking LT. In addition to the protocol revenue mentioned earlier, there will be many other layout aspects in the treasury for HOPE in the future. We will buy some special tokens that are important in the entire ecosystem, and these tokens will bring native revenue. A portion of the revenue will be distributed to users of veLT from a locking perspective. In terms of increasing buying demand, LT will play a very important role in the entire ecosystem in the future. It is somewhat similar to BNB, where different levels correspond to different fees. We will have this mechanism in the future as well. Especially in the upcoming "Three Lives and All Things" stage, such as credit card payments, centralized derivative trading, and real-world asset trading. People will also need LT to pay for some fees, not a completely selling pressure situation, so we are actually increasing its buying demand.
Why has liquidity mining been doubted in recent years? I think it is because of the change in market cycles. In 2020, it was a bear to bull cycle, and it played a very positive role in that process, promoting the ecosystem. But during the bull to bear process, it gradually became burdensome. We are in a good position now, in the process of a bear to bull cycle, and at the same time, we have reduced its selling pressure and increased buying demand, allowing us to better cope with selling pressure. This is a long-term thing, and our applications need to be gradually launched one by one. I think it will play a very positive role in a bull market again, demonstrating the advantages that liquidity mining brings to protocol liquidity.
Mandy: In addition to the interest rates for borrowing and lending, as well as the yield from liquidity mining, we understand that users can also earn income from liquidation. Can you also introduce the liquidation process and whether there are any differences in the role or mechanism of liquidators compared to other lending protocols?
Flex: Basically, our process is very similar to Aave, except that if a user becomes undercollateralized and the funds after liquidation cannot cover the loan, the treasury funds will be used to fill this part. What if the protocol's income cannot completely cover these losses? We will initiate ecosystem-level proposals to utilize other related funds in the ecosystem to provide risk subsidies and protect the rights of depositors.
I feel that all current loan agreements are very similar, the only difference may be some parameter settings. Our team has many talents from traditional finance, CeFi, and DeFi. In terms of parameter settings, we have a lot of thinking and design. I have more confidence in our protocol because it references past real data and real experiences, and we will have some advantages in parameter settings. These parameter settings can be seen by everyone, but there are many models behind them. These models can greatly reduce the possibility of liquidation and provide coverage for loans in the event of liquidation. This is one of the key points because risk control is the core of loan agreements.
Mandy: We have mentioned several times before that the initial version of HopeLend is actually a fork of Aave V3. What can we expect in terms of further iterations and new features, and what will be the direction of governance in the end?
Flex: We often say that Aave and Compound are high net worth user products in DeFi because they are both on Ethereum and their interest rates are slightly lower after considering risks. But in the HopeLend protocol, in the future iterations, I believe we will consider more whether there are additional needs for HopeLend in the development process of the future ecosystem.
Our HopeConnect is somewhat similar to the first part of Maker, the so-called CDP. In the Maker protocol, it generates DAI in a standardized manner, but in our protocol, it is a specialized institution that generates credit based on its own risk assessment, similar to DAI, except that it is digitalized within a centralized system. Whether there is a need for standardized credit in the future depends on the development of HopeLend and needs to be considered in combination with the development direction of the HOPE ecosystem. This problem needs to be looked at in the future, and there is no clear answer at the moment. But for now, it can meet the needs of the ecosystem.
Mandy: I would like Flex to further introduce us to the situation of LT, including pledging, governance, and some upcoming scenarios and new actions we can expect from LT.
Flex: The introduction to LT just now may not be detailed enough. In the next period, I will write a lot more about the value of LT. Today, I will briefly express it with a few numbers. For example, in the next year, we will issue HOPE of about 10 billion and raise assets of about 5 billion US dollars, so the price of HOPE at this time is about 0.5 US dollars. In the next bull market, let's assume that BTC and ETH will increase tenfold. These assets will become 50 billion, corresponding to an issuance of 10 billion. At this time, we will have exceeded four times, and these reserves are highly volatile.
Looking back at the bull market in 2021, the risk-free arbitrage rate in the entire market was above 30% on an annual basis throughout the bull market cycle. In the next bull market cycle, we will gradually hedge the high-volatility reserves of BTC and ETH, similar to the process of launching a stablecoin backed by BTC that we mentioned before. When we enter the final stage of FOMO, the reserves of HOPE will become the largest short position in the market, while also receiving the largest long position income in the market, because long position holders have to pay short position holders. At that time, we will increase a large buffer. At this time, we have 40 billion excess stable reserves, and we can propose to issue an additional 35 billion HOPE, which will enter the treasury. Because this part of the value actually belongs to LT, the actual value of LT will definitely be more than 35 billion US dollars. LT determines the use of the treasury and reserves, so the funds that LT can use are around 85 billion US dollars, and the value that LT can be measured will far exceed this part.
First of all, I would like to make a disclaimer that my statements do not constitute investment advice. That's why I am very optimistic about LT. It can control assets worth $85 billion in the later stages, which will increase its value and enable it to formulate monetary and fiscal policies. The addition of 35 billion HOPE tokens can provide liquidity to various agreements and can be used to purchase tokens from other agreements to support the industry in the next bear market. With the profits mentioned earlier, we can transition from being the biggest bear to the biggest bull in the market, which can decrease market volatility. We can make the market more stable during the best times and bring hope to the market during the worst times. This is the important role that LT can play in this process. Additionally, after staking LT, you can receive 5% of the protocol's income. Our goal is to ultimately become the decentralized central bank in this industry.
Mandy: LT holders also want to know if there are plans for token repurchase and burning in the future?
Flex: These proposals are made by the community. It might be more difficult to generate such proposals during the current bear-to-bull transition process, but they will definitely exist during the bear market. Imagine that we have 35 billion in cash, why not buy back tokens? It is definitely feasible. As the operational team of this project, we lock every new LT we receive, so we don't have a lot of LT on hand. Hence, we haven't conducted many airdrops before, but we will change this strategy in the future. Currently, we have relatively few users, so we will launch more LT airdrops and gradually hope that more people will hold LT, understand its role, and participate in our products.
I believe that the use of the treasury should be decided by the community. I hope it is not our own team proposing, but rather the community generating unexpected ideas. Currently, the conventional practices we see are token repurchase and burning, but could there be more innovative ways? For example, using treasury funds to purchase other assets with returns? Or are there more innovative solutions that I cannot currently think of? After all, this industry is developing rapidly, and perhaps we will have more choices in the future. It's an open-ended matter.
Mandy: Can you also tell us about the plans for HopeConnect? Including the overall roadmap for the future, any hints about the long-term strategic direction and other protocol products that may be launched in the future?
Flex: It all goes back to the concept of "The Dao gives birth to One, One gives birth to Two, Two gives birth to Three, and Three gives birth to all things." HopeSwap and HopeLend are commonly seen DeFi protocols. What matters most now is the HopeConnect protocol, which aims to connect crypto finance with traditional finance, making settlement on both sides more efficient, concise, and smooth, with fewer costs. With the launch of the HopeConnect protocol, we will also introduce the Credit card, which is very useful for users who earn tens of dollars in profits from these protocols and want to convert them into US dollars for spending. It can be quite troublesome, but with the connection to a credit card, you can spend directly, which is very convenient. In addition to credit cards, we also provide derivatives. What we care about is not just providing a tool for high leverage trading, but using this infrastructure to attract more excellent fund managers to participate through DeFi and derivatives, and launch some on-chain asset management products. For example, in the past, dual-currency wealth management was not trusted by users because it was centralized. But in the future, if it is transformed into a DeFi format and becomes an on-chain product, it will provide a better user experience. We also want to connect with traditional securities firms through HopeConnect, allowing users to quickly trade various stocks and access various exposures and financial products. There are many aspects that can be combined, such as the recent NFT downturn. I think another direction of NFT is the membership system and how to reflect it here, assisting users to grow faster and achieve more profits. This is also something we will consider.
Mandy: Currently, HopeSwap only supports 4 tokens: HOPE, stHOPE, LT, and USDT. Are there plans to list more tokens?
Flex: This requires more consideration of our risk control system and the community's voting. We will gradually list more tokens.
Mandy: In HopeLend, is it possible to generate HOPE tokens through over-collateralization, and then use these HOPE tokens for staking or other DeFi operations? Or is there a plan for this type of design in the future?
Flex: Currently, it is not possible to do so. Pledging generates HOPE and our design of HOPE involves Double Leverage, which could potentially lead to a situation similar to Terra Luna in the future. Therefore, we will not choose this approach. However, you can definitely pledge other stablecoins to borrow HOPE for use. HOPE cannot be generated through overpledging other coins, as it goes against the rules of the protocol.
Open Mic Q&A Session
Question 1: I would like to ask a question that most retail investors are concerned about. Currently, I see that HOPE and LT are both listed on decentralized exchanges. Do you have any plans to list on centralized exchanges? Are there any suitable exchanges you want to cooperate with?
Flex: When we first started developing the DeFi protocol, we had a sense of fearless eagerness. Initially, I thought we didn't need to list on exchanges or do airdrops, as people would come naturally over time. However, during the process, I realized a significant problem: the number of participants in DeFi is very limited, so we need to do something to lower the barrier to entry. For example, when you use Gmail, Outlook, or WeChat, you don't really care about the protocols behind them. What matters more is the user experience on the front-end, whether it is convenient enough, if information is protected securely, and if privacy terms are reasonable.
For ordinary users, I was too idealistic at the beginning, but later I became more and more clear, to the point where the vision of our project began to change. From initially saying that we wanted to create a completely open and transparent DeFi protocol, we gradually adjusted to wanting to create the next generation of products with better user experience, similar to Apple's vision, where user experience is paramount. Why did we start launching credit cards and other centralized services? We are able to lower the barriers for users of Web 2 and Web 3 through these processes. Yesterday, Vitalik mentioned that abstract wallets will make wallets as easy to use as emails, but let's think about it, emails in the 80s and 90s were actually quite difficult to use and required coding. It took such a long time for emails to reach the level they are at today. I believe that if we want to attract ordinary Web 2 users, we must have better user experience and lower barriers. It is not realistic for Web 2 users to memorize 24 mnemonic words and 128-bit private keys. What we are considering now is how to combine these more advanced technologies with some trustworthy centralized services that are relatively comfortable. Next, there will definitely be plans for listings and airdrops. The specific airdrop method will be announced by the community. As for which exchanges to list on and the specific listing time, it is not convenient to reveal at the moment.
Question 2: When will HOPE choose to deploy on other multi-chains?
Flex: The entire ecosystem data of HOPE is distributed, and we also hope that the HOPE ecosystem can interact on multiple chains. In terms of L2, we are already in the process of selection, and once the selection is done, we will quickly arrange for formal development and release. Multi-chain deployment is definitely something we will do, and I think we will do it well.
Question 3: When will the redemption mechanism for veLT be launched?
Flex: When users choose to stake LT, LT will be locked and cannot be traded, similar to CRV. CRV didn't solve this problem by introducing a redemption mechanism, but rather the CVX protocol. Through this protocol, users can stake veCRV and generate a new token called CVS, which can be traded at a discount of about 10%, which is reasonable. We already have plans for a new mining pool, and some third parties will participate in the establishment of the mining pool. We will soon have such a protocol for users to stake, while also providing liquidity.
Question 4: I would like to know the specific contents included in a public beta?
Flex: The content of the public beta has already been published in several of our communities, and the content is relatively simple because it is similar to other lending agreements. Basically, it's just interacting with this agreement. We will have rewards in three stages. The first stage is a reward of 8000 HOPE, which is generated through interaction with the agreement. The second stage is a guessing game with different fun competitions. The third part is the public beta LT reward. We will need to look at the specific situation based on user interaction and then distribute LT rewards to everyone.
Question Five: Will HopeLend increase LT emissions?
Flex: First of all, the public beta will not. The public beta is more about testing this agreement on another network. When HopeLend is officially released, it will not increase LT emissions, but it will squeeze the emissions of other liquidity pools. Our current emissions are mainly targeted at HopeSwap, but with the launch of the HopeLend protocol and the subsequent HopeConnect protocol, users providing liquidity in these places will also receive LT rewards. The emission of LT is not a process that will increase. It is similar to CRV and is a linear deceleration process. Every year, its emission rate will decrease by one level. This emission can continue for more than ten years.
About HOPE
Official website: https://hope.money/
Twitter: https://twitter.com/hope_ecosystem
Discord: https://discord.com/invite/hope-ecosystem
Telegram: https://t.me/hopemoneyofficial
Medium: https://hope-money.medium.com/
