I appreciate the wave of comments on my recent post, and the tsunami generated by the post by @liotes. It seems that many Hiveans don’t think much about matters that may be considered the elementary governance of this network. I don’t blame anybody but ourselves – we, a self-governed community, are responsible for sharing knowledge and raising awareness of such topics. Nobody would do that on our behalf, so we shall not suffer from the bystander effect. On the bright side, the extensive discussion inspired me to write this post. I share my point of view and would be happy for any insights and arguments, especially those proving me wrong. I am still for lowering the $HBD interest rate. In addition to the four reasons from my previous post, here are more thoughts inspired by the discussion.
Where Does the Interest Come From?
Like it or not, we have shared history with Steem. And getting back to the basics – browsing its Whitepaper – cannot harm, except for evoking memories. The idea introduced there is rooted in the good old Metcalfe's law – the value of a network grows proportionally to the number of its active users. Metcalf went as far as claiming it was the square number of the users. Anyways, the Whitepaper suggests that the additional value should be distributed among those who created that value through their participation. Namely content creators, curators, and witnesses who confirm blocks and make that possible. A Reward Pool with a stable, predefined inflation of Steem arose to fund this giveaway. As it was a common cryptocurrency tradable at exchanges, the market tells the actual value, or at least the price, as price does not necessarily always relate to value.
With the creation of Hive, the DHF fund was introduced to fund further development based on community support, and a part of the Rewards Pool was redirected there. I am more than okay with that; it’s hard to imagine a better principle of funding decentralized community development, regardless of the type of the projects – be it structural funding helping to cover running costs of our favorite front-ends, projects aimed at developing new tools and functionalities, or marketing and onboarding projects that would bring attention and new users. According to the Hive Whitepaper, the newly minted $HIVE distribution should be:
- 65% is used to fill the reward pool (which is split into equal portions between content producers and curators);
- 15% goes to HP stakeholders;
- 10% goes to the witnesses for block signing;
- 10% goes to the Decentralized Hive Fund.
Can you spot the HBD interest there? Nope. It is not a part of the 15% distributed among the HP stakeholders. Yet anyway, it’s emitted as a debt “in exchange” for a portion of Hive. I believe it is important to realize that.
Feeding a Monster
Debt is not necessarily a bad thing. It is a tool that can help you develop your skills faster (student loans to fund university studies) or businesses. For many, a loan may be the last option to get through a difficult period. Or it could be the stupidest option, like lending money to afford fancy Christmas gifts or an expensive vacation in a tropical paradise. Yes, people borrow money for all those reasons and various other purposes. Now, why do we, the Hive community, borrow money at such an interest? To feed a monster!
One of the reasons for keeping the current interest rate was that if we lowered it, some of the Savers would dump their HBD, which would effectively dump Hive. Yes, it's a perfectly rational prediction. However, we are not working on a solution (protecting Hive from such a dump). On the contrary. A monster wanders around, a threat that could slaughter us. And we feed it day by day, making it stronger. Currently, there’s nearly $8 million in Savings. If the interest rate remains (and nobody deposits more), it will make us feed the monster with an additional $1.5 million in one year. Yes, the monster gets 20% stronger each year, and I don’t count on the extra deposits.
But let’s say that feeding a monster is fine because somewhere out there, a hero is coming to slay it and save us all. We keep feeding it to protect ourselves in the meantime. Who (what) is this heroic savior? And even if there’s one, does paying the interest out really make sense? Are we just waiting for a mythological Bull? And when it finally arrives, then what? The predicted dump wouldn’t suddenly matter?
Or Rather Becoming a Country?
Our current debt ratio hovers around 7%. That’s amazing compared to any country. However, countries may not be the best to compare with. It was their rigged fiat economies, where high mandatory spending must end with generating debts and printing more money, that brought many people into crypto. Unlike most countries, we have a threshold that should protect us from over-indebting – at the debt ratio of 30%, the network would cease emitting HBD as rewards, and replace it with liquid Hive instead. But that is an emergency brake.
Let’s simplify the HBD interest issue to the very core – this year, we will pay $1.5 million. Consider it a public spending of a virtual country, the Users Federation of Hive, which consists of a semi-autonomous and self-governed Republic of Lions, Neoxian Polis, the Realms of Splinterlands, and dozens of other places. Anyways, $1.5 million is quite a lot of money we’ll have to give away. The question is: What do we get in return? Is there a profit for any of the communities or the network itself? And if it is paid out just to keep the monster calm, how about cutting it by bits every week or month, so it would starve to death rather than slaughter us in rage?
I would happily offer this money to anybody who could onboard active users for, say, $200 per person. That is 7,500 newbies, of which about 2,000 could stand the test of time and survive for at least a year. Does it sound too little for too much money? Those 2,000 authors would easily add more value than we spend on their acquisition, unlike people who only stake HBD.
Using HBD as a country-issued bond is a retreat to the very basics. Consider it spending money we don’t have yet. It is fine as long as the risk/reward ratio is in our favor. I am sure that currently, the risk/reward ratio is in favor of those who Save HBD, not in favor of the community. Let’s discuss that matter openly and come up with better ways to invest these bonds smarter!
Posted Using InLeo Alpha
Posted Using InLeo Alpha
Compared to what?
$1.5M is a very small amount.
At the current level that's only 1% of the Hive market cap.
Tiny tiny tiny number.
The smallest of numbers.
The fact that you're trying to twist it and claim this is a big number is very suspect.
Do you have any idea how many senior blockchain devs $1.5M would pay for in 1 year?
Yeah they make like $500k a year so 3 devs.
It's an absolutely nothing amount.
You also misrepresent the issue by assuming that Hive even has to pay back this debt in the first place. We don't. The demand for HBD is growing. 20% yields help it grow. If HBD grows 20% a year then we NEVER have to pay back the debt. Ever. You also haven't calculated how much true value USD declines every year due to inflation and the CPI. USD going down in value means the debt is worth less, meaning we have to pay back less.
Also bringing the whitepaper into this is ridiculous. Not only does it not matter what the whitepaper says (it's a document designed for bootstrapping the network at day 1) but also savings account yields have existed forever. We didn't add them after the fact. They are in the whitepaper and you've just ignored it. So shady.
The only one thing you got right here is to point out that our debt ratio is 7%. Yep, that's the only thing that matters: making sure the debt ratio isn't volatile. Which is isn't. 7% is low.
Here's the problem:
The bull market is going to roll around and number is going to go up, and then all the people like you who were talking about reducing the HBD yield are going to go away because that's the real reason you're making the argument: greed. Number go up. This is ironic because the bull market is the EXACT TIME we need to be reducing the APR to pop the debt bubble before it gets too big. There is no bubble to pop right now. Stop pretending like there is. It's tedious.
Thanks for the response. I would have upvoted it if you already haven't done so.
I see the $1.5 million as paid out for nothing. The three senior developers would most likely deliver something within the year.
Where can I see that the HBD demand is growing? Is there any data for that?
Yes, the USD loses a bit of value day by day. However, stablecoins are designed to reflect that - you have to count in that 1 HBD in 2025 would worth less than today, just like you do so with fiat.
Could you please explain why there's no payback if HBD grows by 20% per year? We can create more HBD anytime simply by converting Hive.
Regarding the interest mentions in the Whitepaper, you're right. I am sorry for that, here it goes:
However, I still believe the money could be used better way. I don't see the point in assuming I would or would not do - and that's not a valid argument in any fair discussion. I also did not suggest that there's a bubble.
A high interest rate doesn’t seem to benefit the blockchain a lot. It surely does benefit huge savers. I consider the high interest rate an extremely attractive feature of the Hive blockchain, but if it is not helping us grow exponentially maybe it is an investment that is not worth it, because the interest will make the debt grow exponentially.
Yep, I feel it the same way :)
I always read your articles with great attention. But I still don't understand where the HBD interest comes from?
I thought that interest on HBD is essentially created "ex nihilo" (out of nothing) by the blockchain network. And that basically, the Hive network creates new HBDs to pay interest on savings accounts.
I think I'll stop commenting on your posts related to this. I'm not participating in the debate at all and wasting everyone's time. But I just wanted a clarification on this.
Well, yes, it is created out of nothing just like new Hive tokens. However, the emission of new Hive happens according to the code and the rate is known. HBD created to cover interest are then backed with some of that Hive from the Reward Pool - instead of giving the new coins away to authors and curators, they are given away to the stakers, if I put that very simply.
I believe we all shlould be aware of those things, if we want Hive to succeed in the long term. It's important to realize that even in the world of crypto, you cannot create something sustainable out of nothing. True, you definitely can generate some buzz and sell nothing for billions, but that's something completely different than what Hive should be.
Okay yes I understand better. Basically, instead of better remunerating creators and curators, we're giving too much income to stakers? Is that it?
In that case, indeed, lowering the HBD interest a bit would allow people to focus on value creation and curation instead, because that would then be the most remunerative.
I'm saying this in simple terms, but it's to help me better understand this economy.
Yes. There is one huge bag of minted coins, and we opted for this commitment - paying some of it out for HBD staking.
Great overview and I certainly concur. It would be far healthier if we reverted back to the white paper.
Thanks for the opinion :)
Tvůj článek jsem si prohnal překladačem stejně jako ten Tvůj první na tohle téma. Stejně si proženu překladačem i všechny reakce, které se mi na zádkladě mé znalosti angličtiny budou zdát na první pohled relevantní, jako jsem to udělal i u minulého článku.
A jsem zvědavý...
It is good that people are getting some profit in case of APR so people will surely stack it here.
Nepochybuji, že sis toho článku také všiml.
https://ecency.com/hive/@pharesim/hbd-stabilized-at-20percent-again-for-now
I já mam teď čas a chuť sledovat, co se tu děje.
Všiml jsem si toho. Článek jsem nezaregistroval.