The Impact Of Hive Backed Dollars (HBD)

in LeoFinance26 days ago

With the completion of Hard Fork 25, things changed regarding the Hive Backed Dollar. This is something that garnered a great deal of attention of late, and for good reason. This token could provide a valuable service to the Hive community. For this reason, the attention is likely going to move things forward.

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Before going any further, it is good to look back. What exactly is HBD and what role does it serve? To do this, we refer to the Steem White Paper, last updated in August 2017. Obviously, we can swap the word "Hive" where "Steem" is.

Stability is an important feature of successful global economies. Without stability, individuals across the world could not have low cognitive costs while engaging in commerce and savings. Because stability is an important feature of successful economies, Steem Dollars were designed as an attempt to bring stability to the world of cryptocurrency and to the individuals who use the Steem network.

Steem Dollars are created by a mechanism similar to convertible notes, which are often used to fund startups. In the startup world, convertible notes are short-term debt instruments that can be converted to ownership at a rate determined in the future, typically during a future funding round. A blockchain based token can be viewed as ownership in the community whereas a convertible note can be viewed as a debt
denominated in any other commodity or currency. The terms of the convertible note allow the holder to convert to the backing token with a minimum notice at the fair market price of the token. Creating token-convertible-dollars enables blockchains to grow their network effect while maximizing the return for token holders.

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This gives is a good overview of what the role of the token truly is. Notice how the main focuses is stability. This is something that we will refer to in a bit.

Let us start by looking at some of the changes.

HBD In Savings

A short time ago, the Witnesses decided to pay interest on HBD. This was something that was referred to in the White Paper but never implemented. What started at 3% moved to 5% and now sits at 7%. In fact, if we look at the Witness page, we see a few of the consensus Witnesses already moved their node to 10%.

One of the biggest changes from the hard fork as it relates to HBD is that the interest is no longer on non-saved HBD. To earn the interest rate, the HBD has to be moved into one's savings. This prevents exchanges from earning interest for HBD on their platform as well as incentivizing people to hold HBD on chain.

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The interest paid is an incentive to attract people to utilize HBD as an asset that will provide a return while trying to stabilize the network. The second part is crucial as we, ultimately, want this to be used for commerce and other transactional purposes.

Hive-to-HBD Conversion

The second feature that was added is the ability to create HBD. Now, anyone in the community can use the conversion tool to swap Hive for HBD (this is different than trading on the internal exchange). What this does is allows people to increase the amount of HBD by using this tool. Previously, one could reduce HBD by converting it into Hive but the reverse did not exist.

While this could possibly open up the door to manipulation, it does place control in the hands of the community. There are certain parameters in place if the ratio of HBD to Hive in dollar terms gets too high. In addition to this, markets can now arbitrage the situation in an effort to keep the peg in place.

For example, if the price of HBD moved to $1.20, then more sellers are brought into the market to take advantage of the profit situation, understanding that the price will end up drifting down. We also see the reverse happening, which will bring more buyers of HBD into the market as the price moves below the peg. Those looking to arbitrage bring a valuable service to the community and provide one leg of holding the peg.

Through the two-way conversion, the community can now control the amount of HBD that is out there. If it is to low, more can be "printed" by converting Hive while the previous tool allows for the lowering of the total. The HBD Stabilizer that is funded through the DAO can be programmed to work both sides as needed.

This puts one aspect of the monetary policy in the hands of the community.

Interest Rate

The natural inclination is for people to want the best interest rate possible. After all, this is the "age of yield farming". However, that is not sound principle.

Interest rates are established to reflect economic conditions as they present themselves. They are meant to be fluid as monetary and economic variables are always in place.

In this instance, the Witnesses have the ability to help the peg by adjusting the interest rates. We already see that the blockchain offers another leg in aiding this by cutting the production of HBD if the ratio crosses 10%.

Here again, if the rate starts to lose the peg on the high side, the Witnesses simply can lower the interest rate to make the holding of HBD less attractive. This will produce selling pressure, pushing the price down. The flipside also should be undertaken. If the peg is lost on the downside, increasing the rate of interest will stimulate buying, which will raise the price.

What is the proper rate? That will have to be experimented with. Either way, a range of where the token trades will likely be established and the Witnesses can simply adapt the rate of interest as both ends of the range are hit.

The idea behind the interest rate in this situation is to help keep the peg in place. It is not to provide the greatest rewards and incentivize people to swap their holdings to HBD. At times, that is the aim while others, the need is for people to dump some of their holdings.

Of course, this is only referring to the blockchain level. There is nothing preventing someone establishing an application that utilizes HBD and pays whatever percentage to have people staking. If one can set up a DeFi application that accepts HBD and can match or surpass the yield that other DeFi projects pay, then go for it. That would likely be a great business model and a major help to the ecosystem. Yet this is paid out in existing HBD (or whatever other token is used), not creating it like it does at the blockchain level.

Commerce

Which brings us to the end goal of all this peg stuff: commerce.

It is vital that the Hive economy start to build out its commercial purposes. That is where we can see the entire ecosystem flourish. In the age of networked economies, it is vital to get the velocity of money going. To do this, commercial applications have to be build and utilized. As more money is flowing through the system, the greater the value it will command.

HBD is essential for this since it can offer a consistent value of payment. One of the challenges within cryptocurrency is the fact that prices jump all over the place. This is not great for merchants who rely on the consistency that come from a stable currency. This is what was mentioned earlier.

The attraction to HBD is what is backing it. Many are question some of the stablecoins like Tether and is it really backed by a dollar. This is not even considered with HBD. What backs HBD? Simply it is $1 worth of Hive. There is no USD associated with it. That is just a numerical consideration that provides a basis people understand. How much Hive that is worth at each interval will vary since the price of Hive fluctuates. The greater the value, obviously, the less Hive per HBD.

Just keep in mind the two ways things can now go:

  • 1 HBD can be converted for $1 worth of Hive
  • $1 worth of Hive can be converted for 1 HBD

This is important because it shows the pair is not tied to USD but each other. Thus, if we get more commerce going using HBD, there is incentive to pull more Hive off the exchanges and have it on chain. Why? Because it is going to be needed to create more HBD. This should reduce the selling pressure on the open market, which will increase the price.

The key here is transparency. Anyone can look up the ratios of HBD to total market cap of Hive. At the same time, the actions of the Witnesses pertaining to the interest rates is available for all to see. We can also delve into the conversions that the community is doing. Finally, the price of Hive is set by the market, hence we know exactly how much Hive is equal to 1 HBD on conversion.

With the additional tools the community has to help peg HBD, this could be a major step forward. We could see the economy propelled forward by a stablecoin that is tied to the blockchain, avoiding many of the mishaps or questions that are associated with other stablecoins.

All of this is opening up many possibilities. We will see what the community does with this but the impact of HBD on the ecosystem could be great.


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Good write up. I think with the HBD we have just taken 2 big steps forward. Reverse Conversions and Interest on HBD Savings....really positive. I'm glad I invested heavily in HIVE.

I think stability for HBD means people can save HBD in hope that they value wouldn't really fluctuate, it provides more use case for HBD because being pegged to 1$ means one can just chose it as their basic savings and the incentive to do so is even better. This is probably the smoothest and most viable HF, in my opinion

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That is very true. Having a stable HBD does allow for easier planning when saving and getting a steady return. It also would make it viable to be included in yield farming applications.

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Things are going in the right direction, the future is brighter now

Some nice things done on the hard fork in my opinion. Nothing truly earthshattering but features that people, users and developers, can utilize.

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i convert all my hbd after hardfork
right now is time to recover because the 7% is good and razonable investment return.,

I thought there was a tax on converting HIVE to HBD so isn't $1.05 of HIVE equal to 1 HBD? Or is that only inside the open marketplace?

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You are correct. There is a 5% fee for the Hive -> HBD conversion. The reason for this fee is to disincentive conversions compared to market trades, because conversions need price discovery to happen on the market.

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I am not sure about that. I will have to look into it. You could be correct. But then, if one HBD on the open market is 1.20, it would still be used to add supply since one could still make a profit.

But you bring up a point I was not aware of. That could change the numbers slightly.

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I just moved some HBD into savings for the first time every today. I am going to try and start tucking a little away in there each week. It seems like a smart move to generate some additional income.

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Not the greatest return in crypto but steady at this point. We will see where the witnesses go with it. I will not be surprised to see it paying 10% by the end of July. I think the Witnesses will make that move.

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That would be pretty awesome. I agree, not the highest around but it is another source of passive income to add to my portfolio.

10% isn’t great if it’s a risk we see it dump as the peg is nonexistent. I’ll keep savings hive instead. If we can’t trust hive dollars to even remain in a range what’s the point.

I cannot wait for the future, I got a feeling that this is going to be great.

!BBH

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I loved the HIVE to HBD conversion, now I will focus on another way to save.

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It is a great addition for many of us. Set some HBD aside and let it grow. If it remains in a range, you know what it is worth. Wild swings will not be great for the token.

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Very very informative post and you have discussed many of the issues from the core point of view. it was unknown to me that there is no interest if it is not in savings wallet. the impact or speculators rushing for the conversion is the key and that is creating value to the chain is now clear to me and thank you very much for your valuable content.

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If does give people a place, if nothing else, to park their money while they are awaiting the speculation game to take off again.

Think of that as a money market account.

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Hope hbd actually remains pegged to the dollar as I'd remain love to keep some savings there. It will be really great if it remains as a stable coin for hive


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That is the hope. We will see how it works out.

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So if at some point we see a couple witnesses holding massive stacks of HBD, all while signaling/advocating for a higher interest rate, could that be considered a possible...

Conflict of Interest?
See what I did there? That was a joke!

LOL Joke aside, it certainly could be. That is where distribution, growth, and others taking an active interest (no pun) in what is going on is crucial.

Like always, we need to do all we can to make sure the Witnesses arent continually doing things to enrich themselves at the expense of the ecosystem.

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These facetious comments of mine do serve a purpose at times. Funny, but true.

This community does a fine job of calling out bullshit when it sees it. That's our added layer of security right there. Gotta love it.

I had already thought about it friend, let's hope that everything is for the growth of the hive, as well as the economic stability of the members of the same, greetings.

Awesome writeup about HBD. We have been waiting for it get peg back near $1 so we can use it on the @hivelist store and be able to pay out vendors in HBD. We had to move to SWAP.USDT for a while for payouts because HBD didn't know what a peg was for a while, lol. So now with the new hardfork, we are looking hard at the peg and seeing if it can stay stable enough to work with in #hivecommerce

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It appears there are a lot more tools available, both for the Witnesses and the community. This looks like it could work with a collective effort. The Witnesses can keep adjusting the interest rate when things get out of line while the community can arbitrage. Add in the debt to Hive ratio and we can see a lot of things tossed at trying to keep the peg.

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One cannot but acknowledge the work that went into creating of the SBD, the idea behind it, simply genius at the base level. Now that the HBD has more or less perfected the idea, i hope we see more people embracing it than before and more pairings on exchanges. I don’t know how increasing the interest rate will affect it but it will make it more competitive to hold compared to holding other stable coins out there. Ultimately I think this is a big win for hive

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The interest rate gives inventive to hold. Is the rate too low or too high at this moment? Nobody knows. It seems like 7% is a level that can easily be absorbed. We will have to watch the price of HBD on the market.

However, I would say a 10% test makes sense. See if the market can support that. It would be a nice level if it could hold plus gives the Witnesses some room to maneuver if they have to.

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I will like to see a 10% as well

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How do I add my HBD to savings? I noticed this change a few minutes before I saw your post.

My initial plan was to save up my HBD until the price of Hive really drops and then I buy with my earned HBD, would sending my HBD to savings make that plan hard to achieve?

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You can still do that. With savings, the only drawback is there is a 3 day wait time for it to "unstake".

To move it to savings, use Peakd. It already has the feature in the wallet. If I recall, hit send and there will be an option to move it.

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Wow... it cool as the savings percentage went up but the issue of 1HBD to be $1 worth of hive is what i don't think is correct correct.


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I think we're 'getting there' with stabilising HBD - I am starting to consider using it as a Stable coin myself.

ATM I'm saving some as I'm buying something from someone whose going to take half the payment in crypto, but I'm not 'there yet' with wanting to use it as a place to stack my stables.

That's partly because I like to be diverisified and I've got quite a lot of Hive etc already!

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"What is the proper rate? That will have to be experimented with. Either way, a range of where the token trades will likely be established and the Witnesses can simply adapt the rate of interest as both ends of the range are hit."

I think the problem is 7% interest for crypto just isn't going to be enough. These people can easily make that in the stockmarket. I mean it's okay but i don't see this as a gamechanger. Also having a stable coin and factoring the interest rate depends alot on the growth of your economy.

So unfortunately we're still just using crypto for speculation so stability although very important as a currency i don't believe hive has done a good job setting up the structure to be used as a currency or payment system.

I know in bbd how we figured out the rate of interest is by using a simple formula of backing bbds by the intrinsic value of btcmyk. I did a video recently on the intrinsic value of btcmyk. So if there is a set market value that doesn't change then you can always set the inflation rate. if i know that several duckets will always get me 7 loaves of bread then the inflation rate is not a problem.

So the focus is certainly proper on the hbd however before the focus on teh hbd they should have first designed a system like i said several years ago that made a good case for the sbd or the hbd to be a viable free almost transactional payment system. That seemed like it could have worked as a good idea most cryptos aren't doing. if ethereum tried you'd of course get eaten up with fees and many other projects.

I think with us we decided to naturally let bbd float to whatever value the market allows until it finds it true value. The thing is though the bbd's always can redeem for btcmyk which has advertising intrinsic value which we believe will be a vast network because it runs on a freemium service model and not a miner inflation model where you have to pay electricity and people have to buy the token which means the value of your network will have to remain contained.

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Uhh ... my knowledge of these things is almost nil. I ask: If I have 20 HBD, can I take them to savings, with a rate that is currently 7% interest and can I have it at any time, only that when I withdraw it from savings, I must wait 3.5 days?
Do I pay a commission when making this withdrawal?
I have a small amount and it is for something planned that I have there and I have not moved it but if I can have it gaining some interest, the better.

Your look forward is cool. We aren't even close to the potential on this blockchain. With a stable coin that holds its peg... it really incentivizes business on the blockchain. With fast and (virtually) free transactions already in place, this could really stimulate growth.