The problem with HBD is that it helps burn hive in good times, but then prints more hive in bad times. It burns hive at high prices (burns little amounts of Hive per HBD printed) and prints at low hive prices (prints lots of hive per HBD burned).
If the liquidity gets too bad in a bear market, hive can dump a lot on hbd conversions, causing even more conversions. Raising the debt ceiling for HBD only delays the problem and make it worse when it comes.
It is not guaranteed that HBD is good for the hive supply over the long term. It is definitely good for the people who arbitrage though, including the DAO.
I personally don't like it. When I stake Hive Power, I'd like to know what percentage of governance I will own forever. Unfortunately HBD can simply make that irrelevant and double the quantity of hive in a single bad year.
This makes hive governance worse, and holding hive is more risky because of it. Right now everyone is happy because it's burning hive. Everyone forgets in the end it's just debt and leverage, and it can blow you up simply because of bad timing, even if it is fundamentally good.
It only prints more Hive when conversions happen. Prior to the hbdstabilizer and the recent convert function, I would have agreed with you, but by expanding the supply of HBD more rapidly, while it is a bull market, it forces HBD conversions to happen sooner after the market turns. In the past HBD conversions only happened substantially after the peak of Hive price - because the price would lag above $1 for some time, and conversions only became profitable only once a substantial amount of Hive was added to the Hive virtual supply in this way.
Overall, with the stabilizer and the new convert function making the expansion and contraction of HBD much more dynamic - and a mechanism for Hive stakeholders to profit on both overpriced and underpriced HBD via the DAO and hbdstabilizer, I expect it to be good for Hive inflation.
It does increase the risk to Hive stakeholders overall, I agree with that. However in my view it is a well compensated risk. Essentially the network is taking some risk but generally profits at the expense of speculators, exploiting market inefficiency.
My expectation is that Hive inflation will be substantially reduced compared to prior years of Hive/Steem going forward. With a few years we will have the empirical data to determine if that is correct, until then there is a lot of money to be made or lost placing our bets :-P
This is a great point, it instantly made me feel better about HBD.
I fully agree with this view. As long as speculators are throwing so much money at it, it seems obvious to exploit it. Maybe if people trade it correctly one day then I might change my mind, but by that time, Hive won't be that volatile and there won't be a risk of blowup.
The next bear market will be the biggest risk, after that, I think it will be okay.
Another critic of HBD is that governments usually do dumb shit with debt. And hive governance is a kind of government. Everyone likes free money. 10% rates for locking it 3 days. Sounds very nice of course. At some point it can degenerate, but I trust that the current group of witnesses and stakeholders aren't going to take massive risk. Very long term, when the distribution changes hands and hive is much bigger, I don't know. It can always bite us. We will probably need to move to a system similar to Maker and DAI, which doesn't involve HIVE the token for governance and RCs.
All the other merits/demerits of Hive aside, I want to see it get big merely for the experiment in stakeholder governance. Can stakeholder governance be better than for example representative democracy? Hive, and all the other stakeholder governance networks, will be interesting case studies.
I think that now, with the price of HBD turning below $1 immediately with Bitcoin, while Hive price still relatively high, it supports this theory. It will only be proven with longer term data though.
@marki99
Data showing my point:
Source: @penguinpablo reports
Source: @coingecko
The Steem price peaked in January 2018. SBD conversions didn't get going until long after - July 2018 for the first surge.
Is this so bad? Presumably, the people who convert HBD to Hive in a bear market are those who believe in the long-term success of Hive, that's why they may take the risk of converting their stable-ish HBD to Hive during a bear market. And they may stake it. The others who don't believe in the long-term success of Hive that much (but enough to keep HBD for preserving their wealth and getting an interest) will probably not want to convert to Hive and stake it.
The motive to convert is to make profit from the mispricing of HBD compared to the value that can be extracted from the conversion contract, and you don't need to believe in long term success of Hive to make profit doing conversions. The issue with conversions during a bear market is that the network pays in the form of a high rate of Hive per HBD. In combination with the bias for conversions during a bear market, as existed in the past, the result is substantially higher inflation than the intended schedule.
I've written about it in old posts, though today the dynamics have substantially changed with the hbdstabilizer and collateralised convert contract, so I don't think we will see the same problem again.
A 10% "debt" to equity ratio with "debt" that self-extinguishes in the case of distress is not something anyone should be concerned about. There are a number of issues conflated here, but the root cause of your concern is that you bought the wrong coin:
Neither Steem nor Hive ever worked that way.
Of course not, but without HBD or SBD you can assume the hardcoded inflation rate to be the max dilution.
And since you earn returns on powered up coin, you usually are able to offset the inflation.
HBD and SBD have always been there, so neither Hive nor Steem have ever worked this way
You are pointing out another way that you don't know your future share of the percentage of the governance. Even if you "usually" can offset inflation, you can't be sure that will always be the case. Apart from the possibilty that the earning mechanism might change (as it has multiple times), earnings might become more competitive in some way and you find that you are no longer able to keep up, or don't want to continue to invest the effort to do so.
The only way you could know your share would be with a fixed supply of governance tokens and Steem and Hive have never been anything like that.
I agree with everything you said. I never said that we could have a fixed percentage of governance.
I just said I would like it to be so. HBD does not help that case.
I know, but it's not as significant as the change in supply caused by HBD. Not going to argue over a few percentage change over years, but when we burn 3% of the Hive supply in two weeks, this is not insignificant. That burned tokens could be back and then more at any time too.
To be completely clear, right now, HBD is great for hive given what speculators are doing, the Hardfork changes, and the hbdstabilizer proposal.
It's the next 1-2 years that worry me as we don't know how far down hive can go. The very long term also worries me, if governance somehow becomes irresponsible with its use of HBD, but with the current group of people, I am not worried about that at all.
I can't say I disagree with you about long term governance, but I don't agree that HBD is a major issue. Poor governance can, and likely would, run the system into the ground with or without HBD.
Good point. HBD is just a tool to do that.
In theory if the converting is high, the demand for hive is high.
So the price should become higher. I think ( no math behind) with faster scaling in users, it would become stable by nature. The only thing we need to remove are the 5% for converting. 0,05% would be enough.
Payment mobile app (keychain) with QR code scanner and so on would build a stable usecase, as long HBD can scale.
I would be in favor to make the stablecoin to a "on demand one".
With our beautiful no transaction fee chain, it could be really revolutionary. ( RC delegators could earn a fee for Rcs for example).
On-demand means, I need HBD, I can generate HBD as much I need (up to millions). To make it secure a DAI lock up mechanic could make sense.
Yes this makes a lot of sense, I would prefer this to the current model
it could also turn out hive will become at some point Gas/gov token :)
This could make HBD more stable, useless or unstable (theory should be stable with collaterals and no convert) :D
What would be your longterm dream for HBD ( in terms of usecase?)?
I think it is probable that HIVE is a gas (sort of, if RC persists) and governance token. In fact, that's 99% of what it is now.
The main use case for HBD is most everything else people want to do on the chain in terms of base level transactions and fees as well as being a sink for capital people want to stash for yield. Currently account creation fees are denominated in HIVE, for example, but that's kind of dumb since that jumps all over the place for no good reason. When SMTs were a thing, the fee to create was originally going to be SBD for similar reasons. The promoted page worked that way, way back in the early days. We're using it for DHF, where longer-term project funding works well with the stability and contractors using and holding the token themselves is fine since most expenses are fiat-denominated or regardless of denomination are usually tied to purchasing power in some manner.
I remember that discussion. IMO we should go 1 step ahead. Combination of Social media and payments in a stablecoin.
No hive needed for it ( could be a transaction fee that's super little for RC delegators).
Super easy to use and for anons. IMO it would generate demand by nature. The only thing it needs must be cheap to generate as much we need of HBD.
If HBD should be only for transactions ( like SMTs), I would prefer a time token.
Hive into HBD ( Token is for the transaction/ some time) for transactions and back into hive.
the mechanic would be only to value it in USD. For simple onchain payments it would be enough.
Everything else should be in the manner " think big" Imo :)
What is a time token? I'm not familiar with the term.
The debt ceiling really doesn't matter in the case of HBD. It could be set at 1%, and the problem would be the same, if not worse.
Raising it just buys more time, but in the end the problem is the same. It's just about market timing, not the quantity of debt. If speculators were to sell HBD when hive is at the top, HBD to hive conversions would create very small amounts of additional hive. But that never happens sadly.
The timing of changing the debt ceiling is important though. If we decide to raise the debt ceiling now, it would be a great time, as we will just use that to burn more hive. However, deciding to raise the debt ceiling in a bear market will just make the hive printing occur at even lower prices and result in more inflation.
As demotruk pointed out, we need the HBD to hive conversions to occur as soon as possible in a downturn.
Saying "over time Hive will go up" so HBD will be beneficial long term completely ignores what happens empirically. Hive will probably see 95% dumps (it needs to go up a lot quickly first).
Anyway, as I said in another comment, I feel better about HBD now that conversions will occur much sooner in downturn.
No, it would be completely different because no matter how far the price dropped and how much HBD were created at the top, only an additional 1% HIVE would be created even if 100% were converted entirely after the dump. This would be better, in a way, but it would be worse since there would be less deflationary effect in a rising market too (and also less ability to benefit from natural demand for the HBD "product").
Hive doesn't have a floor, so the ceiling could be breached infinitely many times, causing more inflation every time.
This is only true for a single point in time. But inflation can be infinite with any percentage as long as hive's marketcap keeps dropping.
In which case, it won't be worth anything. This is silly. The effect is to slightly increase the effect of any decline through inflation/leverage (and conversely for increases), but it doesn't change anything qualitatively at all.
You're overly concerned with the proportion of your slice of the pie and not the size of the pie and even more directly, the size of your slice.
No, because HBD inflation helps it go down. So a bad price action + hbd printing lead to more hive supply 3 days later, so bad price action and more HBD printing 3 days later. This feedback loop finds no end. We already had a 99% correction in 2018-2019, that's pretty much infinite downside...
Absolutely, because I believe the size of the pie will grow massively long term without additional leverage, and I don't want to trade faster gains for more blow up risk.
Of course there is an end. In your scenario all the HBD gets converted and that increases HIVE supply by 10% (or only 1% in the hypothetical alternative which you claimed makes no difference, but of course it would).
For the cycle to repeat, the price has to stabilize or increase substantially enough (which absorbs at least some of the inflation as deflation) to rebuild the HBD supply and then start going down again for some reason. The reason for it to go down again is people not seeing value in the blockchain.
You're entitled to believe what you like, but I don't believe the pie will grow massively from the failed social platform. We need to build additional value to the platform which includes a stable value component IMO.
The leverage is minimal and the blow up risk is entirely nonexistent because of the cap. What you're describing with repeated declines is not a "blow up" at all, it is just a small amplification of what would already be a catastrophic decline anyway.
The 99% decline was simply because the extreme speculative demand driving the price to $10 or whatever it was during a brief crypto boom based on thin air and went away, and was replaced by nothing (Steemit essentially abandoning the project and treating it as a naked cash grab, which happened long before the sale to Tron, for sure didn't help). The decline would be very similar (and was similar for many other cryptos, many of which didn't survive at all) without SBD/HBD.
what if 30 days MA converting price? sucks on spikes but would it make it close to impossible to manipulate the market in one direction. Even in a bear market. With a security feature in time, we could get rid of the 5% fee.
my solution for it was an onchain liquidity pool for Hive/HBD.
10% interest for liquidity provider.
Why this would make sense? Own stablecoin with high liquidity = useful.
Exchanges and other pool could use it for transfers and so on. For bullruns this would be unbelievably useful. (5% fee hurts this)
For the bear market, it should help to stabilize hive in price indirect like DAI for ETH. Depending on pools and defi building on it. But in general, as long as enough money is there, they should be no panic.
I don't know if this eliminates the risk, because people could remove liquidity.
Yes, but if its build right, it could be used for DEFI. They can build on top on that. So it would become the last thing in a longer row.
HBD can only become stable with enough people using it. And in the end, it's like the gold standard ( a security feature).
It needs only people that trade it 1USD to 1HBD. And I'm also not a fan of the converting mechanic. I like stablecoins without fees and collaterals behind.
Lock up Hive = generate HBD. Pay HBD back, you get Hive liquid again. with 500% + for example.
Would also remove sell pressure, because we can lock up right?