This feedback loop finds no end
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.
I believe the size of the pie will grow massively long term
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.
without additional leverage, and I don't want to trade faster gains for more blow up risk.
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.
The 1% or 10% doesn't matter because it doesn't get fully converted at once. It's all about constant sell pressure in an illiquid market because of timing. Market timing is everything, amplification on the downside is worse than amplification on the upside.
That said we can disagree about about HBD forever, so I'll stop arguing that point.
I definitely agree. I don't think hive will have a reward pool for many more years. I also think a stablecoin is a great asset, but backing it with the governance and resource credit token is not necessary and dangerous. We could have a completely different collateral system.
Oh no. That's a huge assumption. In a bubble things go up 100X and crash 99% for no reason other than humans are dumb and emotional. Fundamentals don't matter clearly, it's obvious with what is happening to HBD.
If bitcoin goes to 100k+ soon (which is very likely imo). We will see hive go above the 2017 all time high and then collapse again as bitcoin goes in a bear market too. It's impossible to predict price accurately but a massive pump and massive dump is a very high probability scenario.
Sure that happens, and in that case the maximum added inflation is 10%. But in practice it is much less than that because: 1) not all HBD will get converted, and 2) even in the bubble-crash scenario, there is still some benefit from the deflation on the pump side.
Will this happen a few times? Probably, in fact you could even say it is a certainty. But there still has to be a long term price increase due to people seeing value in the blockchain or you're just trading a speculative asset like the rest of the gamblers. If that's the game you want to play, fine. If not, then you can't disregard the long term benefit of reduced inflation from the long term price trend.
You might prefer not to have the leverage, that's a fair preference, but you can't dismiss the benefits of it in calculating the overall cost.
I still maintain that 10% (or any reasonable percent) maximum possible (in practice significantly lower) added inflation from a large boom bust cycle is not a "blow up" risk at all. It's, at worst, a bit of drag on the way to longer term success.
This is wrong.
This is very wrong.
I was writing a comment explaining the whole step by step process, then noticed I was writing a book and had a lot more things to say than anticipated.
I will organize my thoughts and write a post tomorrow, as I think I fully understood how HBD can cause inifinite inflation while writing that comment.
This discussion was very productive, and honestly thinking about HBD and its conversions never stops to hurt my brain. I am sure you know that feeling too.
The conclusion is inflation caused by HBD can be infinite and depends on market timing. In practice it is higher than 10% even though not all HBD get converted.
Will make a big post tomorrow.
Nope. You're assuming multiple cycles. For a single cycle of high supply due to overpriced HBD which then results in a surge of conversions at a low price until the oversupply is resolved, it can not be higher than 10% (and in practice will be lower).
This is really trivial, and I'm not sure why you are arguing it. Any time the haircut is invoked, the added supply is completely capped at 10% (but in practice is lower since at least some supply was consumed creating the HBD, albeit what could be a much smaller amount at much higher prices). Only by cycling in and out of haircut could that ever not be true.
If you assume the price goes up and down wildly on a regular basis but never makes any sustained progress higher, then yes it could be infinite. In practice there have not been so many swings, I'm not convinced there ever would be, and I'm not particularly interested in what happens if there is never sustained progress higher. It just means we all made a bad investment.
Ok, finally, you start making sense.
No. You are assuming that we go into haircut once per cycle. But we can go into haircut multiple times in the same downtrend. For example, price goes down, we go into haircut, HBD trades at $0.5 (assuming supply of HBD nominally = 20% of hive marketcap now). HBD conversions happen when HBD trades below $0.5 and Hive printing begins.
After half the HBD supply is converted to hive, HBD goes back to $1. However, the HBD marketcap remains the same. It doesn't get halfed. Supply halfed, but price doubled. So marketcap of HBD is still 10% of hive.
What happens if HBD trades below $1 now? More conversions and more hive printing. It can easily excede 10% this way. In fact, with this particular example, the maximum is 15%.
HOWEVER, what happens if hive goes down again, right after the peg was restored?
HBD trades at $0.5 again, half the supply is converted to hive again, HBD is back at $1.
This can repeat infinitely many times. The total inflation in terms of US dollars is less than 10% of the original hive marketcap before the downtred, yes. But inflation in terms of hive is definitely higher than 10% at some point.
You can even see the Steem supply Data, the inflation rate was higher than 20% for 2019 or 2020, if I recall correctly.
Given the base rate is less than 8%, it means at least 12% inflation from HBD. There wasn't multiple cycles.
In your example, if half the HBD supply were converted during haircut, that would only be 5% inflation. If the price falls and half is converted again, that would be another 5%. I do agree this could result in aggregate of more than 10%, because it would be 5% every time the HIVE price falls in half and then half of the supply is converted. On the other hand, if some were converted before reaching 0.50 backing, which is likely (and historically consistent, as often conversions start happening before reaching even 1.00 backing), then the total would be less, and it wouldn't add another 5% each time.
Do you know where I could find the historical inflation data? I found a few posts but nothing very helpful. One was based on coinmarketcap which I don't trust and another had a graph but no source for the actual numbers. (I estimated about 18% peak rate from the graph November 2018 to November 2019, but this is very rough.)
BTW, the above situation (dropping 50% in value adding 5% inflation) is exactly the leverage effect. As the price goes down, your holdings are diluted a bit more. As the price goes up, your holdings (share of supply) increase through deflation.
This also illustrates why a 10% cap and a 1% cap, as we were discussing earlier, are NOT the same. With the 10% cap, every time the price drops by 50%, the supply expands by 5% (1.1x leverage as has been discussed for years). But with a 1% cap, every time the price drops by 50%, the supply expands by only 0.5% (1.01x leverage).
Also, as I noted earlier, the haircut means that the debt is self extinguishing, so the effect on your holdings is actually a bit less than true debt leverage at the same ratio (equity doesn't ever get wiped out, only progressively diluted, regardless of the drop).
liqudity pool, people lock up Hive and HBD under the promise HBD it's worth 1$. 10% interest rate moves there.
If we have 10M HBD and in the pool are 5 Million HBD. It would need 10 Million Hive for current prices.
There could be additional to the 10% trading fee reward.
The point would be, Like fiat money, it would become trust-backed. As long someone trades for 1$, it's worth 1$.
If you can convert cheaper and buy back, you can make a profit.
If the pool would become deep enough, it would make HBD super stable. Important for that would be delete the 5% fee.