Why I set my witness HBD interest rate parameter to 7%

in #hbd6 months ago (edited)

Approximately three months ago I undertook an initiative to bring back interest to HBD (which as SBD had interest back in 2016, but for various good and bad reasons, did not offer any interest for several years). Witness voting then established an initial interest rate of 3%. At that time, HBD remained somewhat overvalued, and the interest wasn't immediately needed to boost demand for HBD, but the purpose was helping to re-establish HBD as a interest-paying asset to lay the groundwork for stabilizing it and increasing demand for both HBD and HIVE going forward.

This was simultaneous with several proposals to initially fund the HBD stabilizer and then later provide added funding as the DAO fund increased.

Since that time:

  1. HIVE has increased substantially in value.
  2. The HBD stabilizer has generated a profit for the DAO and Hive stakeholders of millions of HBD (millions of USD), transmitting excess demand for HBD into demand for HIVE, and removing several million HIVE from circulation.
  3. HBD has stabilized, albeit for a limited period so far, at around $1.
  4. The upcoming hard fork is nearing release, which includes a HIVE-to-HBD conversion feature that should further stabilize HBD even in the face of higher demand, and also transmit demand for HBD into demand for HIVE to the extent such demand even exceeds the capacity of the now-substantial DAO and stabilizer budgets.
  5. Although we can't know for sure, it is likely that some of the demand for HBD is now coming from people who desire a reasonable rate of interest and price stability, rather than unstable "pumping" (this further helps stabilize HBD because such holders are more likely sell if HBD substantially appreciates, and then reenter back near $1).
  6. The upcoming hard fork will focus the HBD interest function onto "savings", making HBD interest into a form of staking reward.

At his stage, I believe we should now seek to make HBD interest compellingly attractive, and not merely minimally sufficient. The more demand for HBD we can attract, the more HIVE can be removed from circulation, and the more exposure we can bring to the entire Hive ecosystem.

I believe a 7% rate is compelling, while remaining sustainable in the sense that a Hive that succeeds long term will grow its value by much more than 7%/year. If Hive is not successful despite our best efforts, then the added interest doesn't really matter. It becomes dilution of what will be a nearly-valueless token anyway. Suggestions of 10% or even a bit higher are likely okay as well. Since witness voting takes the median value, a range of votes if there are slightly different opinions will work fine.

Once the interest is focused on savings (post-hard fork) we can reasonably increase it even more, because it will no longer be paid on liquid balances, reducing the total cost.

I encourage all witnesses to increase the HBD APR, making HBD into a compelling vehicle for yield-seekers. After the hard fork, this will make HBD savings into a compelling staking opportunity, while unstaked HBD will remain highly liquid, and seek to further stabilize its value and utility for decentralized finance and commerce.

We should also make sure this yield opportunity is widely publicized by the marketing team to attract participation from outside the existing Hive ecosystem.

100% beneficiary to @hbdstabilizer

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It kind of amuses me that we've had this great feature set for many years, but we've had to have the rest of the crypto market catch up to us and cause a DEFI boom before we really start using these kind of features.

So yeh, better late than never and I applaud. I am looking forward to having a stable and relatively safe place to park crypto funds with a yield to boot. Next challenge - Attract commerce!

This is true to an extent, certainly in terms of the boom increasing the interest level (meaning "interest" by people here, not what is paid out). But we also have evolved in terms of features. The ability to use the DAO to reverse convert and increase supply didn't exist until it was added, and couldn't have been done until the DAO was created somewhat earlier. Demonstrating that in practice probably increased interest in an actual conversion feature (upcoming). Both of those made paying interest more practical because the effect of boosting demand previously without an upper pegging mechanism generally meant a de-peg. This in turn made the interest feature largely useless.

All of the pieces needed to fall into place which happened over time.

I acknowledge that recent advances have certainly improved things, but there have been times when the HBD (or SBD before it) sagged below the $1 peg and could have been defended with an increased interest rate. This is fairly basic currency defense, much like many nation-states have been doing for decades.

Anyway, I'm not here to piss on your parade. I'm happy to see some common sense now prevailing and sensible development taking the platform forward. Keep it up.

Up next: will the HIVE --> HBD conversion stop the ruthless pumps of Upbit?

Find out next time on HBD: The Quest for Stable Coins.

😂

Arbitrage bots can profit, I'll be creating one so that should help even a little bit. Free money from pumps.

Show us your profits in the future.

Or knowing me, losses 🤣

We don't account for hbd inflation in the reward pool inflation, do we?

I've been told that we don't.
What do you think about a new split?

Newb attraction pool: 50%
Staking hbd/hive rewards 3day withdraw: 12%
Staking rewards 10 week withdraw: 20%
Witnesses: 15%
DAO: 3%

I up witness pay because I'd up consensus to 29+2, so that 5% is open to debate.
I'd up hp staking rewards and I'd shorten 13 weeks to 10 just as a bone to the passive investors.
50% to pob, 50% to folks with long term commitments sounds like an equitable split, atp.

I know it's a bit much, but if the code changes are minimal, the sooner the better, imo.

HBD interest is separate from the reward pool.

Various changes to reward pools would certainly have to wait for a future hard fork (not the next one) so there is plenty of time to consider it.

@ocd-witness increased ours to 7% and awaiting the HF to possibly increase to 10% as discussed by others as well.

Once HBD proves itself to be more stable, I'd love to see outside investors buying and "staking" HBD for the interest. With a higher percent APR(I'm personally advocating for 12% because thats what platforms like Nexo offer but we can be even better since you actually hold your keys + your crypto) that should be a lot easier. Thanks for taking the first step, which I hope others follow.

For your point 5, its definitely true. I've got bills to pay and I'm holding HBD to pay them for now since they should be worth close to $1.

I support the return of interest for HBD. Although I would prefer 10% over 7%. To support this I have removed my witness vote for all witnesses still signaling 0% and have moved the votes to witnesses with at least 3% with a preference for higher rates of interest. Hopefully others will do the same and send the message that we support this initiative.

This just adds to the hive inflation. As long as HBD is small it's not a problem. It can easily get out of hand though and we're playing with fire.

It could if the interest rate were "high" but at 7% takes about 10 years just to double the supply of HBD, which is already very small (HBD in the DAO doesn't count). The amounts here aren't significant.

In the wallet tab on peakd.com it now says interest rates are at 5%

Is it an average from the interest witnesses choose? Or did the consensus move to 5%?

Median of witness votes.

What are your thoughts on including some kind of a management fee (in a future hard/softfork, of course), such as a small annual percentage fee? The idea is that it could be charged for the HBD savings account service, similar to other DeFi platforms that charge fees, and it could be used to buy back Hive from the market and burn it in order to help maintain the Hive price, which again creates long-term stability for the investors. The fee could additionally be used to stabilize HBD as well (if need be).

So if there's a high interest rate, a little bit of the HBD payments (small enough so potential investors wouldn't really care) could be used to buy and burn Hive. Just a thought.

Maybe. Would have to see a specific proposal in the future.

OK, cool. By the way, unrelated to this, it would be great to see if you want to support this proposal to make Hive the database of choice for the Podcasting 2.0 industry: https://peakd.com/proposals/181

If we ever hope to have HBD be taken seriously we need a lot of supply. DAI has 4.5 billion usd of stablecoins.

Also on Gemini you can stake stablecoins for 7.1% apr.

This is becoming more of a thing on exchanges and defi rates are way higher.

If we want to attract people to using HBD we need billions of it printed and put into circulation.

This could be done by reducing Hive payouts or curation rewards amd paying out HBD more or almost exclusively instead, thus making Hive more scarce as well and that benefits long term holders due to reduced supply.

Thoughts?

liquidity pool not Interest for the only hold + increase it then up to 10%. Would IMO end up in higher prices and it would be harder to manipulate prices on exchanges.

More HBD is printed when Hive prices go up. Plus the DAO is generating HBD daily. HBD supply has doubled in the past few months, and as long as it can stay steady at $1, I'm sure more and more of it is going to just be held instead of converted into Hive.

Having anything less than 1 billion is too low
I think it's at 10 mil max now. After 5 years...

5 years of having no interest and therefore no particular reason to buy it or hold it. Mostly its been converted back down to HIVE (which in turn has likely resulted in more selling pressure on HIVE and a lower price)

Anyway, after the next hard fork it will be possible to convert HIVE into HBD. So as much as there is demand for can be created.

Do you think with upcoming changes we could see HBD grow to hundreds of millions in existence? Would get attention of exchanges and more people using it.

I'm not going to predict a number, as it depends on many factors including awareness and demand, but the mechanism to grow quickly is now there if needed.

Any increase to interest will mostly go to exchanges unless there is a massive movement off exchanges, which seems unlikely. Upbit and Bittrex together hold 4,554,613 HBD. That is 44% of the total before hive.fund is removed, and 73% if hive.fund is excluded from supply. They are not giving the interest to traders, and I don't think that will change. Only 16% of HBD is held in accounts other than those 3.

IMO the increases should wait until after the hard fork.

Edit: I suppose it could be worth having the increased yield as a marketing talking point alongside the hard fork. It's just that most of the interest generated before that fork date will end up as a freebie gift to exchanges.

Any increase to interest will mostly go to exchanges unless there is a massive movement off exchanges, which seems unlikely.

HF25 solves this with interest getting paid only on savings. The exchanges can put the assets in savings, but by doing so they need to wait 3.5 days to withdraw it and so most shouldn't. Exchanges could offer staking incentives to users and stake it themselves, and send users a % of what they get.

The fork honestly shouldn't be too far off. Raising it now might mean they get a month or two of payouts before the switch occurs, and from what I see, some witnesses want to go even higher, but only after the fork for reasons like this.

Why would people hold their HBD in an exchange when they can put it in an HBD savings account and get interest on it? Would they not care to get the interest themselves?

I expect this shift to happen over time, but not immediately, so @demotruk is likely correct that exchanges will get a windfall at first.

You could also view it as an incentive for exchanges to support HIVE/HBD.

Because the vast majority of crypto speculators generally don't know what they are buying, and passively hold on exchanges in ignorance.

Higher interest is likely to result in a large amount of HBD moving off exchanges, at least unless exchanges pay interest to customers, which they probably won't for HBD (due to it being too small to justify the effort on their part).

Right now there is no meaningful incentive to move your HBD off the exchange. But compare with HIVE where there is a lot on exchanges, but nowhere near 70%. That's because there actually is a reason to take your HIVE off the exchange and stake it.

True, any movement won't happen immediately so the first effect is a windfall to exchanges, but you have to start somewhere, in a chicken-and-egg fashion. You can't wait for people to move their HBD off exchanges to start paying interest, because they won't.

My point being that the gift doesn't happen if we wait for the hard fork. Assuming the hard fork goes ahead at the end of June, the exchanges will get about $25,000 in interest this month with this increase.

I do see a benefit in getting ahead of the hard fork for the sake of marketing - it would be better to generate some attention towards Hive Dollars alongside the upcoming hard fork so that the point of the savings interest is not lost (if 3% interest is mentioned in articles about the hard fork crypto speculators will see it as a joke).

I like it because liquid funds should have some reason to be here.

HBD Interest rates mean on the other side, holding a liquid hive to buy some "cheap" HBD is always a good thing, and vise versa.

Good use case. I would say 8% would be even better IMO :)

@smooth Some question,

How much work would it be to add a liquid pool for Hive/HBD onchain for swaps? In addition to the onchain marketplace.

Because it would be better IMO to pay the 8% for stacking there. Because it would make Hive overall more liquid. It could be in this case also 10%.

And more liquidity is a key factor for higher prices :)

This could be the best and most decentralized defi protocol ( without transaction fees) out there in crypto.

I think the answer most would give to adding this sort of higher level functionality would be to wait to build it with level two smart contracts, which I perceive to be on an informal roadmap after modular hivemind.

It's certainly doable as part of layer one, but apart from development I would see getting consensus as being a barrier.

Layer 2 would not be able to get % out of inflation right?

Do you think the consensus would be really a barrier? I think if a liquidity pool hits some millions in value locked, everyone that hold hive benefits out of it. Investors that don't want to play the curation game, but like have an option to invest.

Also, it would be the most decentralized defi stable coin pool out there :) Witn nice returns :D

What would you expect how many Witnesses are against it?

I think "layer 2" is a bit of a misnomer, or a false dichotomy. There will likely be some small degree of layer 1 functionality that is part of the "layer 2" smart contracts. For example, account balances that are controllable by a contract. So inflation could pay to one of those accounts. This is worth bringing up when the framework is being defined later.

Hmmmm sounds good.

Any Info on a Timeframe? And besides the fact it is super cool to have at some point smart contracts on Hive, would it be not much secure to have the stable coin defi on layer 1?

I only ask because it would be sound so good for marketing.

HBD the ultimate stable coin :)

I don't know about timeframe.

In terms of security, there is always a tradeoff. Layer 1 is pretty secure in practice in large part because the functionality is relatively simple and relatively static. That has obvious limitations. The security and stability issues we've had have involved portions of the code and changes that aren't simple or static. So I would actually claim we're already building too much bespoke functionality into layer 1, but it is certainly debatable.

I'm not deep enough in the space. But if we could have a liquidity pool on layer1. It would need also a consensus to remove or change something.

Special in defi I think this would put hive in a unicorn position for stable coins. Special for larger amounts of $.

Security would be something that market really well for hive.

Edit: Thanks for the long answer. I only saw the first part of your comment.

I don't know about timeframe.

Now I see all :D

On the Top 20, I would expect many would like it :)

I like this change, there is more to win than to lose.

7% is a pretty high hurdle rate not many platforms are offering that on stablecoins! Will be interesting to see if news gets out about it if people from outside want to take advantage of it

I have been selling HBD into Hive (always) but now with the intent to start buying HBD back for staking. Of course, it could be higher than 7% and was looking closer to 15. 12? That puts it on Par with something like Travala (AVA) staking rewards.

I'm sure with HF25 where interest is only paid out to HBD in savings, more witnesses will be willing to go higher. I am going to 12% personally.

12 I think is a nice number as like @pfunk said below, double digits looks more enticing but it isn't a 10, plus it fits nicely with the months of the year. I am looking forward to seeing if people will keep more of their earnings on here with this change.

My reasoning for 12% once we fork is because of nexo. They offer 12% in stable coins and we can match that.

I forgot that Travala has dropped theirs to 8% now (it was 24 at one point). I think the APR is a good lure, but at the end of the day, what will add long-term value is compelling utility.

Great initiative again! I have updated my interest rate to 7% also. As you say the rate will hopefully be even more stable after the upcoming hard fork. And if we get listed on https://www.stakingrewards.com/account/vote this will maybe attract even more people to come and consider HIVE as an instrument for investing.

I think double digits looks more enticing, if that's the goal. As a backup witness I've had mine set at 10% for a bit now.

Damn 10% lol you really want to take out USDT, how long could we sustain something like that?

Depends how much of a draw it turns out to be. If it is too attractive and we're flooded with capital, then we'll likely have to reduce it at some point, but that would be a good problem to have.

Cool I can't wait to see what happens here in the future with hbd and the price stabilization.

Thank you very much for your hard efforts and hopefully things will work out the way we are hoping they will.

One could think of offering a higher percentage to those who decide to block HBD for longer.

For example, those who block HBD for 12 months have a higher percentage than those who decide to keep it for less time.

In a normal year this would definitely be attractive. This year I suspect inflation is going to be significantly higher than 7%. That doesn't mean I think you should increase it. I wouldn't be able to tell you what to increase it to and doing so might not be sustainable.

Anyway, I only returned to posting a month and a half ago and saw the interest. That is a welcome thing.

I may begin putting some of mine aside to gain interest to help out. At the moment I've been using it because I fell for a stupid spear phishing attack (first one ever) and am trying to recover from that.

EDIT: Back in 2016 the interest was definitely a reason to power up and to hold onto the currency.

I support this idea and intend to increase my hodlings of HBD once the stabilization has set in.

Looking at the percentage I get for staking various other crypto's, 7ish % would certainly be a nice incentive to hold HBD in my savings.

A stable HBD with high interest is indeed a very compelling proposition. Apart from individual yield seekers, I think it really has the potential to attract institutional investors who can't afford the risk of typical DeFi platforms. Here, we're offering layer 1 DeFi on a stablecoin. I hope we can continue making tweaks and improvements to create the combination of high interest and long-term stability and predictability (and features like hardware wallet integration which are needed by big investors). I myself will be looking to bring institutional money out of the bank and in here if the HBD savings account really meets these requirements, and I'm sure the word will spread very quickly since it's also a very easy product to use and not much to learn besides buying Bitcoin, swapping it for HBD and then putting it into HBD savings.

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Congratulations @smooth! You have completed the following achievement on the Hive blockchain and have been rewarded with new badge(s) :

You received more than 354000 HP as payout for your posts and comments.
Your next payout target is 356000 HP.
The unit is Hive Power equivalent because your rewards can be split into HP and HBD

You can view your badges on your board and compare yourself to others in the Ranking
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hello let me know.
Why are you putting flags on me.
My posts are already flagged and I do not know the reasons and they give me no answers.
Thank you.

I disagree with how the rewards are being allocated. If they weren't already voted up so high, I wouldn't downvote them. I also don't generally downvote to reduce rewards that much, still likely high unless someone else downvotes too (I have no idea, didn't look).

Thanks for the answer.
But after yours I still lower and I go to zero. And this is every day.
Thank you.

I don't know why other voters do what they do, I can only speak for myself.

@smooth, I'm just curious...is there a specific reason you're downvoting my posts? I'm a long time member of this platform and have contributed quite a bit to it. I'm just wondering why you're doing this?

Disagreement on rewards, and FWIW I generally only downvote a small or moderate amount, often less than the amount by which I believe it believe is excessive. I don't know which post you're talking about but I would guess the actual payout is still high (i.e. higher than 99% of all the posts on the platform, many of which are quite good and get little or nothing). Downvoting these outlier payouts shifts reward funds to lots of other deserving posts instead of just concentrating them at the top because of a few large stakeholders too lazy or apathetic to vote any other way.