Why I set my witness HBD interest rate parameter to 3%

in #hbdlast month (edited)

If you are reading my blog, you are aware that I recently submitted the HBD stabilizer proposal to the DAO, both the original proposal as well as supplemental funding have been approved, and for much of the last week, the stabilizer has been buying nearly 10K USD worth of HIVE (almost 30000 HIVE) per day, taking it out of the liquid market, and sending it to the DAO. In the process the HBD stabilizer also performs its namesake function, helping to stabilize the price of HBD by selling HBD when it is trading for more than the 1 USD worth of HIVE that it costs the DAO to create it, and not selling (or occasionally buying) HBD when it is trading for less. Both of which result in an immediate profit to HIVE stakeholders.

In addition, I am encouraging witnesses to set their HBD interest rate parameter higher than zero for the first time since shortly after Steem (Hive's predecessor chain) launched in 2016. The goal is to encourage some additional holding of HBD, which will reduce the potential for HBD to drop below $1, in turn keeping the HBD stabilizer operating in a mode where it continually buys HIVE and sequesters it in the DAO. This, in effect, transmits demand from investors looking for yield (of which there is ample and widespread demand in the world today) into buy pressure for HIVE. This interest is sustainable, and indeed profitable for Hive stakeholders, to the extent that HIVE appreciates, over time, at a higher rate than the interest. To the extent that Hive is successful, this should be self-evident, and in some sense may also be self-fulfilling.

I have set the HBD interest rate on my (backup) witness to 3% and I encourage other witnesses to do similarly. A moderately lower rate, of say 2% might also be appropriate, it is hard to know for sure (and market conditions are sure to change, meaning the best rate will change as well). But, in general terms, the rate should be high enough to encourage holding HBD which means offsetting the costs of USD inflation, as well being attractive to investors given the risks of holding an investment in any blockchain (all of which are properly viewed as experimental in some sense). At the same time, it should not be excessive beyond what is needed to create robust demand for the entire, currently limited, supply of HBD, which would be an unnecessary cost. I believe 2-3% is appropriate at this time.

100% beneficiary to @hbdstabilizer (which in turn donates 100% to the DAO)

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At 3% with hextech. Nowhere near the top but maybe someday :)

cheers to you !BEER


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I've updated my rate to 3% to start with - great work with @hbdstabilizer :)

You are everywhere om HIVE at the moment, awsome

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I have some disagreement with the change in monetary policy under the current market value of HBD. It should be self evident that any measure that increases the buying pressure of hive dollars when it is overvalued doesn't help bring the price down to the target of 1 USD.

However it might help bring it down closer to the peg for one counterintuitive reason: The main receipients of the benefit of having interest paid for holding HBD are the exchanges since they hold the majority of the supply (I think). They might decide to cash in on the interest paid on a regular basis.

Although the increase in supply that comes with having a positive interest rate is minuscule so I doubt that it makes any diference especially with such a low APR.

If by "current market value" you mean this instant, then yes it is a bit overvalued, but mostly it just isn't that stable. On several occasions in the past week and even in the past 24 hours, the price has dropped to $1 and the stabilizer has stopped selling (and has even done a tiny bit of buying).

Realistically we can't make changes like the interest rate on an instantaneous basis and need to make a longer term assessment.

Also, when HBD is overvalued I don't believe the interest rate serves as much of an incentive to hold it (of course it does somewhat) for the simple reason that anyone buying or holding at more than a 5-10% premium is clearly speculating, and stands to make or lose a lot more than the interest. In that case, paying it is probably a little wasteful but likely not all that effective or harmful in terms of price action. It's more effective as an incentive to hold when the price is at or near $1 (interest serves as upside and downside is limited).

That is why I said that I have "some disagreement". Overall I don't think that it makes much of a difference in terms of price action. I would even go as far as to say that having a much higher APR (10% to 20%) is not a bad idea in the long term. Well...maybe 20% is too high (or maybe not).

Agree on all points

Wait, I thought your HBD would have to be in your savings account to receive interest?

Savings is just a security feature, about allowing you to have time to deal with your account if it gets hacked. SBD/HBD has had an interest rate since launch, before the savings feature was created. Witnesses set it to 0 after SBD became overvalued, and most of them never touched it again after.

Savings is just a security feature...

For now tm... things might change ;)

Nope, you just have to hold it. The idea of using the savings account in order to accrue interest is just that...an idea that has been suggested by several people.

✅ Supporting with a 3% interest rate

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https://hiveblocks.com/tx/501b75d5d8d1f0c044fc5ca0a61fd47b60311eb0

Thanks to @emrebeyler for making and maintaining Transmitter, the tool I used to set the HBD interest rate.

I think 3% is too conservative a place to start. I don't believe the risk of the market overvaluing HBD is as big as you think it is, and the HBD stabilizer can mitigate that to an extent as well (while creating extra buy pressure for HIVE as well). I've set my rate (as a backup witness) to 5%.

Not disagreeing here. Even though it is different from my initial suggestion, I'm happy to see you setting a meaningful rate.

BTW, I'm not that concerned about interest causing a large overvaluation. Once HBD is overvalued at all, the interest is only a very weak incentive to continue to hold it, since you can easily lose much more than the rate by the price going back down to $1. The main reason I would see not to set a higher rate is simply that it is more than necessary to accomplish the goal of attracting enough demand for all of the HBD we are able to supply, given current blockchain rules, while keeping it at or above $1. Any more interest than that is in a sense wasted, but within reason (and 5% or even higher is still within reason), it's a small cost relatively speaking, not a huge concern.

It is certainly not possible to know the exact right number, and we shouldn't get stuck on trying to do so.

I was initially considering 2%, but 3% is probably better -- changed witness properties. 9 people in Top 40 using 3% at the moment. Nice.

In the long term, if we can get more projects popping up utilizing HBD and we basically successfully peg HBD to $1, no matter what... I am actually okay with increasing it all the way up to 7%.

Will be setting ours (ocd-witness) to 3%.

I fully support this great initiative and have set my interest rate to 3%.
Looking forward to seeing how it will evolve and adapt it if required.

3%. updated.

Long term, an interest rate should keep the HBD from getting too high in value because its supply must increase to account for USD inflation(Austrian definition) and actual demand for HBD as people join the platform. A SBD is 5 USD right now.

P.S.

Isn't it time you change your recovery account from @steem?

It's good to see this experimentation starting. Personally I doubt I'd look to hold it at 3%.

This all sounds great - just one question - if all HBD holders are going to be paid interest, where does the interest money come from?

It creates new Hive in the virtual supply. The initial inflation expected this, it started at 10% interest in 2016.

Whether or not it actually creates inflation depends on how it affects HBD conversion - which is by far the largest source of excess inflation in Hive. If it reduces HBD conversion at low Hive prices it may actually reduce inflation overall.

https://hive.blog/hive/@demotruk/inflation-in-hive-and-steem-why-it-is-higher-than-people-say-it-is

It also reduces inflation if it contributes to a long term increase in the HIVE price. HBD and conversions increase inflation when HIVE is declining in price (a situation all too common with Steem and Hive over the past five years) and decrease inflation when HIVE is increasing in price.

Of course this is all somewhat circular.

good idea

I'll do the same, I often look at the HBD interest parameter and think.. hmm this should probably be set above 0.

Hi smooth

A bit of a normie question with regards to the interest rate parameter.

Is it only the top 20 witnesses parameter that counts, and is the % then set to the average of the consensus witnesses?

Cheers.

My understanding is that it's the median value from the top 20 witnesses only (which is why it's still 0 until the majority update their setting).

I think that is about right (possibly exactly right). I'm not sure without looking at the code whether the scheduled backup is included in the median or not.

On the @hbdstabilizer topic, I guess we will find out more on how well the project has performed at the end of this bull cycle, possibly using the chain across the road as a comparison? (SBD currently around $5.7 and has been over 11$ recently)

Would success criteria be watching STEEM fall like a stone with a more gradual decline (and the bottom being not quite so low) for HIVE?

It's impossible to separate the other factors involved in the price of either tokens. It's not a controlled experiment so it's unlikely that you can draw direct conclusions at all.

What might be more measurable is the impact it has on inflation.

But since inflation is dependent on the price that is also hard to separate out.

We will at least be able to determine in retrospect if inflation from HBD conversions has reduced or increased.

True, however the biggest factor will likely be the price trajectory of HIVE

Thanks. Could be a while until we see this coming into effect then!

Precisely.