It's no secret that HBD is a pretty poor store of stable value.
But that doesn't mean we should scrap it.
With a few modifications HBD would be the best stable coin out there.
Allow any account to create & destroy HBD.
Anyone can currently destroy HBD and receive Hive in return, but it is only profitable to do so when HBD is trading under the peg ($1) AND we aren't hair-cutting the conversion rate (happens when HBD market cap is > 10% Hive market cap). In addition, no one can create HBD when demand increases. The only HBD supply that enters the market is through our inflation with author rewards.
By turning the bank accounts into Collaterlized Debt Positions, we can allow anyone on the network to create HBD using Hive collateral in the bank accounts. I've also suggested that we move our 15% inflation given to vest holders and transfer this to the bank accounts to give users even more reason to hold there without leeching the author/curation reward pool. More information on this tactic can be found in my Can I Get A Witness post.
Consider increasing the conversion rate to account for inflation.
The main mechanic that pegs HBD to $1 is the fact that witnesses provide a price feed that tells us how much Hive is worth compared to $1. We trust these feeds and this logistically makes witnesses arbiters of the network that quite literally 'feed' us valid information from outside the consensus algorithm.
The problem with this entire model is assuming fiat currency is a stable form of value. Fiat is anything but stable, and is guaranteed to lose value every year and siphon value from hardworking citizens into the pockets of the central bankers.
USD has a long history of being stable enough to be a "good-enough" solution, so many people all around the world accept it as the world-reserve currency (that and it is the Petro-Dollar enforced by our military). Is it safe to assume this stability will continue into the future?
I would argue that now is the best time to start assuming that USD is no longer safe to depend on as a stable asset. The FED is printing trillions and giving all the banks the greenlight to hold 0% reserves. Bank runs are an inevitable outcome at some point. In addition, bail-outs for banks were made illegal in the wake of the 2008 housing crisis.
At the same time bailouts were made illegal, bail-INS were made legal. This means that likely sometime in the near future there is going to be a bank run and massive bank failures, while at the same time many bank accounts are going to be haircut, and the owners of those accounts will become FORCED INVESTORS OF A FAILED business.
That's right! A bail-in means you lose your money and now own shares in the bank. Not a lot of people know this exists, and when they finally do implement it, it's going to cause widespread panic and likely domino effect into even less trust of this broken system.
Get to the point!
The point is we can not rely on USD as a stable store of value, so we need to start adjusting the conversion rate of HBD to start accounting for inflation. Imagine if next year we voted to increase the conversion rate 3% to account for inflation. How HBD is worth $1.03 instead of $1.
Increasing the value of HBD will make a lot more people want to hold it. In fact, it would make HBD the all-time go-to stable coin, as it would be the only stable-coin that increases in value over time to account for inflation. It would be more stable than USD itself, and everyone would want to be a part of our network.
What are the drawbacks?
By raising the value of HBD, we further Tether our unholy alliance to fiat. Imagine demand for HBD goes way up because everyone wants it because it's the only stable coin increasing in value. Imagine we print 100M HBD or even 1B HBD.
Now imagine USD starts hyper-inflating and loses 90% of it's value. If Hive agreed to increase the value of HBD x10 to $10, all of a sudden our debt increased by x10 all at once. Now ten times as much Hive would get created from HBD liquidations as before. Obviously this is an extreme example to show the dangers, but also it is more likely that our network would vote to not allow this to happen.
Nothing stops us from putting a cap on how much we are willing to bump up the value of HBD during a given year.
Only works when combined with CPD loans.
Raising the conversion rate only works if anyone on the platform can create more HBD to make up for demand. If we vastly increase demand for HBD without creating a decentralized way of supplying that demand dynamically, the system will break.
Another dynamic of major note is the fact that if we increase demand by HBD substantially, we will also increase the value of Hive exponentially. Let's say a few whales with a few billion dollars in other stable assets decide to jump ship and come over to Hive. We do after all (at this point) offer a stable coin that is superior to all other stable coins and their value will be protected from inflation dilution.
Well, if a couple billion (or even 100M) dollars flow into HBD, that demand will increase the value of HBD. In response to this liquidity drain, Makers of HBD using CDP loans will be highly incentivized to create more HBD and sell it to the whales looking to hold HBD. Assuming a collateralization requirement of 300%, the 1 billion HBD that get's bought will end up being collateralized by 3 Billion dollars worth of Hive. Let that sink in for a bit.
Right now our market cap is $114M, so you can see where I'm going with this. Simply fixing HBD and making it more stable will more than x10 the value of the entire network. I guarantee™ it. In addition, exchanges would automatically start using HBD as a base-pair to other currencies because it would be so popular to use. It would be easy to get businesses to want to use it as well. Remember, it's literally better than USD because it's more stable over time.
More options to burn HBD for other benefits.
We can already burn HBD and other assets on our posts to get paid promotions on our content. I would argue that we could do a lot more on this front, but I'll save that for another time.
The real thing I wanted to talk about is creating tokens by burning HBD. My vision is to create hard assets on the blockchain by forcing users who want those assets to send HBD to @null. This would be a completely different kind of token and have nothing to do with SMT technology. Because the only way to create them would be to destroy HBD their likely would not be other SMT-like mechanics like creating inflation with upvotes and the like. This kind of token would end up using a lot less resource credits because it would be easier for the witnesses to manage with more basic rules of inflation and zero curation.
I think having both SMT and a system like this would show the cryptosphere that we have real diversity with two totally different types of tokenization systems. I've also thought of a model that would reward any node that generates these kinds of tokens. ANYONE (not just witnesses) would get a little reward for hosting these services. Someone uses your node and creates these assets, that node gets a little cut of the action. This would make running a node much more profitable for everyone and could stand to greatly decentralize the network, increase security, and give us a lot more options when choosing where to get our data from.
Again, the more HBD we destroy, the higher the value goes up from a lack of supply. The more that value goes up the more incentive CDP Makers have to mint more tokens and sell them. The more tokens get minted the more Hive gets locked up and increases the market cap of the entire network. These systems all work together in harmony and create a lot of synergy and value.
Obviously this is a lot of work but if more people get on board with these ideas I think they could get completed pretty quickly. From my point of view, CDP loans and interest rates to the bank account are a no-brainer. Ditto for tokenization via burning HBD.
The truly contentious thing I've talked about here is increasing the value of HBD to mitigate inflation dilution. This puts a little extra burden on the network as far as increasing our debt levels, but I believe the value it would bring far exceeds the price we'd have to pay. This is something we need to think about now more than ever due to the increasing chance of hyperinflation.
At the same time, let's assume that USD does hyperinflate and loses 90% of it's value. This same hyperinflation would make it look like Hive increased in value x10, so as we can see, increasing the value of HBD x10 in response isn't really a big deal. It's simply a metric we can use to have the most stable asset in the world as long as we are correctly estimating how much value USD lost.
The first thing I'll be working on as far as this list is concerned is creating assets based off burning HBD. This is the one thing I could do on a centralized database first without anyone else's approval. The rest are up to the community and witnesses to implement, should anyone else feel this is the direction we should head in.