20% Interest Rate on HBD

Before we begin:

It's really nice to see that @deathwing is #15 and not at risk of being bounced out of the top 20. He does good work. I can also see that perhaps some of my witness votes need to be moved around a bit. I haven't even looked at my votes in a while, and with 210k HP at my disposal my vote is actually of minor significance within these rankings. I don't like that @anyx has been bounced as I use his full node like all the time in my scripts. Oh well, clearly the top 20 is being shaken up, and that's a good thing. A stagnant top 20 is a bad sign.

20% though

The ROI on savings accounts is determined by median value as signaled by the witnesses. Here's a refresher of the 3 main ways to average things, as the vast majority of the time we always use the mean average (sum all and divide by total elements).

• Mean Average: (10+4+3+2+1+1+1)/7 = 3 (standard)
• Median Average (10,4,3, 2 ,1,1,1) = 2 (in the middle)
• Mode Average (10,4,3,2, 1,1,1) = 1 (most common number)

We use median average to determine ROI on savings accounts because that's clearly the best one to avoid manipulation and corruption by a small group (or even one) of witnesses. Mean can't be used because a single block producer could signal 10000000000% and manipulate the average to whatever they wanted. Mode can't be used because if no one agrees on the exact number then two witness signaling the same number can set the value. Median is best for this purpose.

After @taskmaster4450 posted a video yesterday saying he was going to change all his witness votes to support the 20% change... today we see that 20% is activated (coincidence?). I know if I was a top 20 witness near the bottom I'd change it immediately when the top rewarded author says something like that. The politics game on Hive is just getting started. The next 5 years are going to be crazy. Maybe I'll write a post to that affect one day.

I was also going to say that clearly @blocktrades must approve of something like this for it to happen, but his node isn't even signaling 20%; it's still at 12%. I actually think that is great and it showcases our actual decentralization in action, whereas most other chains are pretending to be decentralized.

Is 20% ROI a good idea?

Yes and no. It's a pretty bad long-term strategy but a pretty good short-term one that requires zero effort, as the code to do it was already in place. 20% will be a good marketing ploy and garnering attention from the outside while staying competitive with the best algorithmic stable coins out there. This is especially true because we can likely outlast other algo-coins and HBD is more robust than a lot of the new stuff out there. Sure, HBD is one of the most volatile stable-coins out there, but it is also one of the least likely to suffer from systemic failure (like crashing to zero or being captured by regulators). There are also a lot of things we can do to stabilize this asset and become the top derivative algo-coin in the world.

Is 20% sustainable?

20% is very high and a liability to the network.

20% is significantly higher than curation on blog posts. It outstrips inflation on the reward pool, which is pretty insane when you think about it. That being said, I personally have zero intention to hold any HBD even with this change being implemented, as the change itself is almost guaranteed to make the price of Hive go up over the next 2-6 months. The reason being is that HBD lacks liquidity and the only way to "buy" it in mass is to create it out of thin air using the conversion feature, or buy it extremely slowly and patiently on exchanges (internal and external), something that no one wants to do (bad UX) unless they are operating market making bots.

Is 20% sustainable?

Look at it this way: do we think that Hive itself will have more than 20% growth year over year? I have to assume this will be the case, which means a 20% return on the stable-coin is totally sustainable, and it feeds into the growth-rate and makes it even stronger and more desirable to be here. Bitcoin has a 100% per year growth-rate on average. 20% is actually a pretty low target in crypto, even if it's a massive target in legacy finance.

Sure, but why is it a bad idea?

Like I said, the 20% interest rate is a TERRIBLE long-term play, and better for short/mid term marketing to get attention. Once we have said attention, it would be best to 'rug-pull' the interest rate back down to 10%-12%. There's no reason to have it that high unless we are trying to stay competitive with other networks, and other networks are dropping like flies when it comes to high ROI on stable coins.

But there's so much more to be said.

The main reason why 20% ROI on savings accounts isn't great is that it doesn't provide any value to the network itself. We should be trying to incorporate features into the network that provide value to the network and to the users. 20% ROI on savings is a liability to the network (a debt that must be paid back later). It is a gamble for the network and depends on outside growth to be sustainable.

As I have already explained, manipulating yields has a delayed reaction. Say we enter a crypto winter and the witnesses realize that 20% is too high and we are bleeding value. Lowering interest rates at that moment (which is exactly what will happen in a reactive network like Hive) is actually going to make the problem worse. The reason for this is that the number (ROI%) can change instantly, but the results of the number changing take time to play out.

Take right now for example.

The number has been changed to 20% from 12%. That's a HUGE jump. Just massive. Enough to make the Federal Reserve blush. But how much extra HBD have we actually printed? Basically zero. The number just changed today, and it will take months and months before a significant amount of HBD has been printed.

The same is true in a crypto winter.

Being reactive isn't good enough. If the market is bleeding and we try to stem the bleeding by lowering interest rates, that makes it even less attractive to hold HBD and that would obviously accelerate the dumping and conversions of HBD back into Hive which creates more dumping. It's a vicious cycle. Again, the benefits of raising or lowering the rate don't kick in for months and months. This is one of the reasons why fiat itself has such a difficult time regulating the economy. There are just so many variables to consider all at once, and exponential unintended consequences can pop up.

But that's not even the worst part.

The worst part is that Hive needs more liquidity, and allocating yield to the savings accounts accomplishes the exact opposite of that. The savings accounts are time-locked for three days. We are paying users to lock up their debt and take that debt off the market, while at the same time we are in dire need of that debt being on the market.

Tired of beating a dead horse here.

It is comically obvious how badly Hive needs an AMM internal atomic swap market between HIVE/HBD. This is how liquidity is achieved. This is how we create deep pools and stabilize risk. This is how we stabilize HBD. This is how we offer passive income while providing value to users and the network. This is how we give users a way to opt-out of downvotes without delegations. This is how we achieve entry and exit liquidity. This is how we get more HBD listings on centralized exchanges. This is how we vastly increase the demand to hold the network's debt in perpetuity. This is how we statistically 'force' token holders to share the burden of slippage with new users as the price goes up. This is how we scale up.

And as long as we were working towards this goal, I see no issue with setting the HBD ROI high and then bringing it back down to earth when we actually have an AMM to allocate yield to. But as far as I can tell we are not working toward this obvious inevitability. Like, it's going to happen; I just want it to happen ASAP instead of 5 years down the line. Waiting 5 years for something this obvious is just... embarrassing really. It makes us look like children that don't know what we are doing.

Look ma I made a crypto.

HBD sinks

With characters like @theycallmedan running around creating HBD sinks that send HBD to @null, it becomes even more clear that 20% yields on our debt will easily be sustainable. The Ragnarok game is going to burn a lot of HBD, and he's not going to stop there. I also personally have plans to destroy our debt with Magitek and whatnot. There are many applications that thrive on these kinds of deflationary measures, which is exactly why we need to be printing more tokens to counteract the bad results of deflation. The HIVE >> HBD conversions implemented in HF25 were a huge gain in this regard, but we can do better.

Conclusion

Increasing HBD to 20% is a bit of a gambit. I'm a bit of a glass-cannon myself so I actually approve of this move in the short-mid term (even though I'm personally not considering holding HBD at this point). It's not a good long-term solution but it took zero dev work to get us here so that's a big plus.

The only problem I see with this move is that the witnesses are playing with fire and they might not even realize it. Economies are not easy to regulate. This move can damage the economy like a sunburn, and we don't realize we're burned until it's too late, then when we try to fix the problem it will get even worse (we have to walk into even brighter light just to get into the shade). Economies are like that sometimes.

However, this is all a process and it will take time for the network to learn how to regulate itself. We just need to be aware of these pitfalls before they come around and everyone starts blaming the wrong reasons (like when everyone was saying we should lower inflation or remove the reward pool entirely to make the price go up at 10-20 cent Hive; no one makes this argument anymore because they were obviously wrong).

The biggest real problem is complacency. This network needs more liquidity, and we are doing the opposite of that by issuing higher rewards for timelocking liquidity. This is a trap that many networks fall into and will continue to do so: trying to make number go up without realizing there's a debt to be paid later. The chickens will come home to roost eventually. Make sure they have a place to do their business. Nobody wants to shit where they eat... so don't. Stay frosty.

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I believe the 20% APR on HBD is pretty nice and this will make individuals turn up in storing HBD in savings with the benefits attached to it with more savings been done

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The only problem I see with this move is that the witnesses are playing with fire and they might not even realize it.

Then I hope that they will not burn themselves. If they get burned, then probably we also will get burned.

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The 20% is really interesting, and I am quite happy to see it.

You covered a lot in this post, a few other things that jumped out to me as well.

The changes in witness positions and I hope we do get some change from time to time, as we are seeing now, but hard to tell if it is just temporary as they signal or if the changes will be more long term.

In addition, I also noticed Blocktrades hadn't updated his to 20% and while I don't read into what it means I found it very interesting too!

Hive almost always has some very interesting developments lately.

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Blocktrades is very risk-averse and continuing to signal 12% showcases that fact.

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He is just relaxing on sunday ....

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A totally different perspective, good to see the other side of the coin.

Yes, liquidity is a key factor in any economy, in the first place, it's a red flag for any asset if low, it's basically the first thing an investor looks at.

That said, this raises some questions, how deep can the pHBD pool be? If it doesn't fall below \$1m, that could create some amount of demand, I personally believe it might bring in some amount of value...

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better for short/mid term marketing to get attention.

I think it is a nice action for marketing if it can be backed by another narrative that is very well known by crypto communities such as Bitcoin.

The uncertainty on UST by Terra is shaking the whole algorithmic stablecoin hodlers. Hive + partially BTC backed HBD may sound juicy if we add %20 APR rate as well.

Each HBD locks Hive -> Less Hive & More Demand increases the price -> more interest on Hive ecosystem + HBD investment by people (though it has a limit ^^).

We may give it a chance imho. However, as you mentioned, the long term returns are not likely to be as rewarding as it is today.

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(Edited)

yeah i responded to that tweet and concluded that backing HBD by BTC is essentially impossible in a decentralized manner. HBD/BTC liquidity pool would have be to an atomic-swap... and having that atomic-swap would be a ton of work and also be more valuable than the collateral itself.

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We need massive liquidity for HBD

Good thing PolyCub is about to solve this huge need. Can’t wait to roll it out

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HBD is now a hot cake. 20% interest on HBD is going to help the community stable. Is stability is what I want in the community.

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HBD rate is getting a high increase. Almost everyone is having their intake on this subject. Your opinions are so highly valued. You explained it like it is. I now understand a lot more of the substainable issue !

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Was so excited to see the APR for HBD increased to 20%. This would make store up in there which overall bring in more value to hive. For it been sustainable, I trust it will also in the mid term. Looking forward to seeing how it all plays out

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This will be amazing and I'm very sure that this will help little investors like me, 20% on stable with minimal risk is not common

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I feel like i am a bit of a child when it comes to knowing what is going on economically on Hive and with blockchain. I wish i could contribute more. My intuition says these amazing communities are a good place to be. Personally, am putting hbd into savings. It seems like a logical thing to do with fiat to me.

I always appreciate hearing your opinion. And, my intuition is cautioning me against this sunburn you speak of. Good way to put it really.

What an adventure, this crypto experience! Woo!! Lol

Go Hive et al. ❤❤❤

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I was also going to say that clearly @blocktrades must approve of something like this for it to happen, but his node isn't even signaling 20%; it's still at 12%

He could still change his witness votes though. As a huge stakeholder (and responsible for most of the development too, an important form of soft power), that's a lot of influence if he were to oppose it.

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Interesting take on the subject.

I think it's a good move but I was only thinking short term. I agree with your long term view on this and I hope we can figure out the liquidity issue before it is an even bigger issue

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The shift to 20% interest on Hive Backed Dollars is exciting... but I couldn't scroll by without leaving my 2c on this:

I know if I was a top 20 witness near the bottom I'd change it immediately when the top rewarded author says something like that. The politics game on Hive is just getting started. The next 5 years are going to be crazy. Maybe I'll write a post to that affect one day.

The politics game on Hive is super interesting.

With the blogging/social side of Hive meaning that accounts have added social value on top of their holdings, there are dynamics at play here that we don't see elsewhere.

For example, the highly respected @taskmaster4450 saying that he intends to change his witness voting strategy has a bigger impact than just his stake.

Others will and do listen.

And as we saw during the hostile takeover, a shitload of little accounts listening and putting their stake together has REAL power.

So many books are going to be written about Hive in the future haha!

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Seems there’s nothing with an advantage that doesn’t come with a disadvantage I guess . With this insightful and enlightening post one is able to see the possible adverse effects this increase in hbd savings apr possesses even though everyone seems to be excited about the new development. This calls for some dose of caution I presume.It is a good thing it is capable of achieving uttermost sustainability anyway ..

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Do you think the PolyCUB vault for pHBD will be the solution? At least it is AMM like the BUSD/HBD diesel pool. I guess we might have to wait to see how much liquidity that pool will actually get.

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Will you admit you were wrong when/if Hive price gets to \$10 within a year?

I think it’s a good time for everybody to stop selling Hive below \$10.

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For the moment, it's just making me feel a bit nervous... for more reasons than I can put in a reasonable comment.

For starters, 12% to 20% is a HUGE jump. Next, 20% suddenly places curation earnings in the 2nd row... de-incentivizing curation is just a step from de-incentivizing content creation... and unless this is part of a move towards removing Hive's original purpose, that seems rather ill advised. Will people start powering down their HP to buy HBD?

I won't even get into the attendant risk factors of increasing the emphasis on investing in Hive's "stablecoin" rather than its original content creation/dApp development emphasis... as a longer term risk of suddenly putting ourselves far more into "regulatory crosshairs."

Enticing, perhaps... but it's also making me feel very very nervous...

=^..^=

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The only flipside to this is:

1. Anchor offers about same APY, but is compounding every second while HBD savings is claiming rewards once 30 days which is too lengthy.
2. One can withdraw funds anytime, while HBD savings have 3 days cooldown period.
3. Terra/LUNA has used the same mechanics to value the Luna token. They have an instant burn mechanism instead of 3.5 days waiting + smart contracts which value to their success. HIVE is lagging in smart contracts, means no Defi protocols, hard to build dapps which lock value to make chain more valuable.
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I'm skeptical will all of it.

every HBD means 10 hive if hive hits 10 cents again.

I know it's impossible and we see 20\$ hive in web3 summer. And it will always stay above it! But just to mention it.

Bitcoin will also never fall under 30k ever.

Luna stablecoin will also be the hardest money on earth. I mean they buy bitcoin with it? What could be wrong?

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Such a useful strategic post!
I've learned a lot today, big thanks

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If the market is bleeding and we try to stem the bleeding by lowering interest rates, that makes it even less attractive to hold HBD and that would obviously accelerate the dumping and conversions of HBD back into Hive which creates more dumping. It's a vicious cycle.

Many refer to it as Death Spiral. I’ve been seeing a lot of conversations surrounding it lately especially as it relates to UST.

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Every time I read your post, I feel like wow that really sounds convincing but not exactly know why. Maybe it's due to my limited knowledge about markets or finance. Is there some links or even books (yeah, the oldest form of knowledge) you can recommend, something like course prerequisites for your posts. XD

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This is an additional issuance system, and the price will fall after a large number

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I really do agree with your thought process. It's laid pretty brilliantly and makes me think, but I want 20%. However, when I heard about it I thought of what a great marketing tool it would be to get eyeballs. I'm so glad I read in your post as well. Short term winner, longterm prob a loser, but i'm in because I need more hive assets. I feel to small around here to make an impact. And by impact I just mean a good curator.

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