HZN is the native token of Horizon Protocol. To understand the role of HZN on the network, it is worth understanding the basic features of the Horizon Protocol.
What is the Horizon Protocol? – Horizon Protocol is a decentralized finance ecosystem that allows users to trade synthetic assets. These assets are tethered to real-world economic assets using Oracles such as Chainlink, Band, and Phoenix Oracle, and the risk/return ratio is the same. Furthermore, the platform is implemented on the Binance Smart Chain to facilitate smart contracts’ speedy and dependable processing. You can expect to find a high liquidity derivatives platform with optimum scalability and interoperability.
Essential features and benefits of the platform include synthetic asset creation, trading derivatives, yield farming, staking, lending, borrowing, and community-based governance (DAO).
The Horizon Protocol Token (HZN) functions as the ecosystem’s collateral and foundation to enable its features and benefits. To trade synthetic assets, users must first stake HZN as collateral to receive synthetic USD (zUSD) that can then be exchanged for the range of synthetic assets representing the natural world and crypto economies, available on Horizon Protocol through the Oracles.
Other functions of HZN include facilitating DAO governance, rewarding, minting, and lending/borrowing.
What are the applications of the Horizon Token?
The beginning of this article mentioned that the Horizon Protocol facilitates the minting of synthetic assets. These assets are called zAssets. The zAssets are issued from a community-based liquidity pool in which the community stakes their HZN tokens. There is a front-loaded reward mechanism to reward community participants in the early stages of growth, depending on their HZN staking to the liquidity pool. Transaction fees on Horizon Exchange and Horizon Protocol’s inflation policy generate the value of community rewards.
HZN will serve as the rewarding token for community participants on Horizon Protocol. Note that Horizon Exchange will charge a transaction fee of up to 0.3%. The transaction fee is sent to the reward pool that is then redistributed to the community’s HZN stakers proportional to their stake size of the community liquidity pool.
Horizon Protocol’s inflation policy is designed to stimulate growth in the early stages, where transaction fees are predicted to be insufficient incentives for users to perform a critical action needed. Users can find out more details here.
The Function of HZN as Collateral
HZN forms the foundation of Horizon Protocol. To enable the trading of synthetic assets (zAssets), HZN is designed to back and collateralized synthetic assets within its system. The current collateralization ratio is set at 800% in the early stages of product development to adequately protect the system against large price shocks. This ratio is subject to change based on community voting and further testing. Users must first stake HZN to mint zUSD (synthetic USD of Horizon Protocol) to exchange for synthetic assets that utilize Oracles to get accurate price feeds. The transaction mentioned above fees and inflation policy support the incentive for HZN stakers to continue to perform and maintain their collateralization ratio.
Facilitating DAO governance
Horizon Protocol is a 100% community-driven protocol. For this to hold, community participants have to manage vital functions of Horizon Protocol. These functions could be overseeing staking and liquidity pool rewards, exchange fees, burns, minting, protocol improvements, deciding on the collateralization ratio, directing liquidity pool farms and achieving these demands the adoption of the decentralized autonomous organization (DAO) governance model. Participation in this governance is predicted to depend on the size of one’s HZN stake in Horizon Protocol.
Conclusion: Is HZN a transformational digital asset?
The fact that you can farm, lend/borrow, trade derivatives, govern, stake, and mint assets under one roof makes Horizon Protocol transformational and essential to the average digital finance consumer. Moreover, HZN issuance and distribution will be transparent and fair – with no need to worry about the rewards and bounties as long as you have staked an investment with the platform. The goal of the token is to involve as many community participants as possible and ensure they derive value from the ecosystem.
You can learn more about Horizon Protocol on Twitter and Telegram here.