The Endless Possibilities of Hive Bonds

in LeoFinance9 days ago


Yesterday I had the pleasure of speaking at the CTT Community Token Talk.

Was a good chat. We kept it civil, which is always nice with so many diverse opinions on such an important topic.


If I'm being honest...

The title of the CTT itself was a little triggering due to the debates on Twitter that occurred earlier in the day. "How to expand the HBD supply without using APR." When put into context with the previous discussion this very much feels like a strawman argument. That's because the main discussion is rooted in the idea that the 20% interest rate on HBD should be lowered. No one is worried about expanding the HBD supply. Hive >> HBD conversions will do just fine in combination with the stabilizer on that front.

Long story short the idea is that a 3 day locking period for 20% yield is "not fair".
It's too little risk for too big of a reward.
We need to increase the timelocks to a more "reasonable" level.

Of course I don't agree with any of that.

I remain quite unconvinced that the locking period matters at all when it comes to long term sustainability. Is a 1 year locking period really more sustainable than 3 days? What about 5 years? Aren't we just delaying the inevitable with that strategy? Engaging in the same Ponzinomics that governments employ to keep printing more and more debt to pay off the old debt? I'm not interested in that kind of "solution".


I've already discussed this topic at length so I'll try to move past it, but that's hard to do when all the data tells us that 20% yields on Hive are perfectly sustainable in this moment. Hive is not creating extra inflation to pay off this debt. The numbers don't lie. We are actually printing less inflation than expected. Creating Hive >> HBD conversions and offering 20% yields is a big part of that.

Three reasons why 20% is totally fine:

  1. USD is losing purchasing power every year.
    This decreases the amount we owe back to HBD holders.
  2. The demand for HBD is increasing and 20% bolsters that demand.
  3. The Hive market cap is 20 times the HBD market cap.
    This reduces the cost to Hive to 1% even in the worst case zero-growth scenario.

The assumption that a 3-day locking period is the only risk of farming 20% yield is patently false. HBD absorbs the risks of both Hive and USD at the same time. If Hive fails, HBD fails. If USD fails, HBD fails. If USD loses 20% of its purchasing power in a year then the Hive network loses nothing by printing 20% yields to offset that dilution. If Hive's debt ratio ascends to 30% then the haircut gets activated and HBD holders are trapped within the system without the ability to exit for the $1 peg they were originally owed. Many of these talking points were parroted in the CTT.


The HBD breakdown

If a 20% yield on HBD is so unsustainable then how is it possible that interest on HBD only accounts for 18% of the total emission rate? Make it make sense. @dalz was very good to generate this data the day after CTT, and from what I can tell pretty much all the analysis he generates points to the thesis that there are zero on-chain red-flags at the moment. Emissions are low and tinkering with the system without any kind of safety net will almost certainly result in a backfire. If it aint broke don't fix it.

But what about bonds though?

All good things must come to an end! If I had to guess I'd say that my opinion on the matter at this point is perhaps a bit irrelevant. Hive is moving in this direction of longer timelocks and potential bonding systems, and that's actually pretty exciting.

What is a bond?

A bond is just a loan. Usually it's just a loan to a "trusted" centralized agent. A government might issue bonds to fund a war, while a corporation might issue bonds to scale up operations (or buy Bitcoin). At the end of the term the institution that took out the loans is obligated to pay them back with interest. Because the issuers of bonds are often highly-regarded institutions that don't default on their debt this is considered a "safe investment".

With Hive it's a bit different.

This is because Hive is decentralized. That makes the issue very tricky. Why should Hive offer bonds if there isn't a centralized agent that can capitalize on the loan and make it profitable?

Locking HBD creates a "liquidity event".

Basically it makes number go up. Hive has to be taken off the market in order to get the HBD into the bond. So Hive price will increase, but if we create too much volatility by taking aggressive loans that would not be a great situation to find oneself in. Rather the best case scenario would be utilizing bonds to make Hive more stabile with a higher elasticity level during the market cycles we find ourselves in.

This creates a double-edged sword.

As is always the case with taking out a loan. If we don't leverage the loan into even more value than we have to pay back then the entire situation becomes a boondoggle. But how do we ensure we can capitalize on a loan when literally anyone can Hive can extract value from the spot price on the open market? This is why the situation is much more confusing than just issuing a normal bond from a regular centralized agent. The lack of centralized leadership makes it very tricky.


There's a ton more to cover on this topic so this post will basically just serve as an introduction to the issue at hand. It seems as though this is the path that Hive is destined to take. Three day locks for an interest rates are perhaps just a stepping stone to something much more interesting. I'll likely continue this discussion tomorrow as I attempt to organize my thoughts into a more coherent analysis.


I think changing the numbers on what we have is trivial, what isn't trivial is that bt said that 'what happens on the second layer can't affect the first'.
I'm guessing that 'bonds' at the first layer suffer what smteees!™ does, maintaining all that data at layer one slows the chain.
He also said layer two's can be just as secure as layer one's, if it is built to be.
So, we are just waiting for somebody to do the coding work.
With public wallets any rogue behaviors should be quickly found.

I just wish one of our math people would show some curves on how much hive could be purchased to convert to how much hbd, and vice versa.
I know the numbers are contingent on people finding their sell price, but a ballpark number would put some parameters on our speculations.
We may be spitting into the wind when expecting 100m usd to suddenly find us.
Ten percent of that would be a shock to the system.
When the inevitable fall back occurs, how does that play out?
Our new hbd owner isn't benefited by firesaling it all back to us.

Lots of moving parts to the math of hive.

So I can imagine locking HBD for a time ensures some part of converted HIVE will not be dumped on the market in the given time. It makes sense from the point of value of the network. Like a HIVE freezer.

In that case locking periods should be somehow corelated with market cycles and reward should be correlated with the phase of the market. I can imagine that it'd be much more valuable for Hive to have it secured that HIVE won't be dumped during bear market. Does it make sense?

Yes this makes perfect sense and is what I would like to see.

However why do we need timelocks for this?
On a statistical level we could just increase rates during the bear market to ensure debt isn't dumped.
Then we lower rates when we want to pay the debt back.
This gives us more control over when we pay back the debt.
If the debt is locked and then unlocked at a random time we have no control.
Also if yield is static rather than dynamic we lose even more control.

The interest on the HBD is cool but don’t we think it might have to affect Hive coin later on?
Maybe in one way or the other

Too much info to process ..

Isn't that the truth

Yea i'm just learning tbh

Hi @edicted. I am happy to be a part of this community and hope to make many friends here. Now I start my new life after prison. I will be grateful for your support.

I agree the 20% is great but I get it it's going to make it hard to establish the bonds without lowering it but at the same time If HBD offers similar Apr to the other bigger stables it's not going to be as attractive

It's intriguing to explore the evolving dynamics of Hive's financial mechanisms, particularly in the context of debates around expanding the HBD supply and adjusting interest rates. Your perspective on the sustainability of the current 20% yield on Hive and the potential risks and benefits of longer timelocks is well-articulated.

What you've said here makes great sense, and I expect the video to repeat that sense.

"...literally anyone can Hive can extract value..."

That does not make sense to me. I am sure it's just a typo, but I am unable to ascertain what you did mean to write.

I keep a little HBD in savings, specifically for the 20% return. The three day timelock is a risk, and a lot can happen in three days that might make my assumption of that risk a losing proposition. However, if the timelock on HBD savings increases substantially, I will not keep HBD in savings, because much greater risk than three days isn't tolerable to me. Three days is already a lot, because so much can happen in three days, particularly in crypto.

As far as bonds go, I will have to assess the risks and timelocks as they are presented and make determinations based on specifics. I used to buy my kids savings bonds to help pay for their college, but they decided they preferred teaching themselves what they needed to know and spent their savings bonds on hookers and blow, for all I know, so I'm not buying them anymore bonds. I'm not a bond investor as a rule, because such investments require confidence in the underlying financial system, and I have very little.

Rice I believe in.


When the decentralized Hive network takes a loan in the form of a bond it creates demand for our debt. This liquidity event only does one thing: increase the price of Hive. Meaning anyone can sell Hive at the higher price and extract value from the loan we all collectively just took.

My brain was mush when I wrote this so should say

literally anyone with Hive can extract value

The point I was getting at is that if the bonding system is consistent and not intelligent then it may not help the network as much as it could. For example, Hive doesn't need to take out loans after the price has gone 10x, but a bonding system might just pump them out automatically on a schedule.

Do I have to read both?


Don't read either IMO!

It took me longer to write two comments than to read both.

DEFI protocols have been issuing bonds as smart contract or just "soft implementation" for years already. Maybe it's worth scrolling those. Their main purpose is to lock liquidity and the APR is a bait for that. It creates better price stability.

  1. We want to lock Hive
  2. We want liquid timelocked payouts
  3. APR should be locked in, but adapt to the market at the very moment

Would that be the best case?

It creates better price stability.

I don't believe that for a second.
I've never seen an example of devs trying to do anything but make number go up.
That is the opposite of stability.
Number go up always leads to pump and dumps.

How can we create stability when we take loans at random intervals and then have to pay them back at random intervals? What are we getting out of the loan? How are we leveraging that loan to create more value than we pay back? Bonds extract liquidity from Hive pairings rather than add liquidity to them.

It's a very tricky situation that needs to be flushed out more.

The goal generally is to be flexible with the amount of liquid assets under your thumb.

Trust + Liquidity + Business Model = Wealth Creation

Any of those can be worked on with different tools. One of those tools might be a loan increasing Liquidity against Trust to accelerate a constant Business Model into more momentum. Great stuff. Now trust is something we might actually be able to create without initial investment here on Hive.

Are you familiar with The Bank of Neoxian?

  1. Splinterlands NFTs will be send to account, that's collateral
  2. The keys will be given to the lender
  3. loan will be issued, in this case 9.22ETH
  4. SPL NFTs will be delegated back to the lendee, that he can still play them and earn ROI in the game

(Zaku) Lendee can now take the 9.22ETH and maybe even participate in an Pre-Sale event of Splinterlands? Get a nice amount of Bonus packs and has 3 months to sell them back into the market in order to pay back the loan - or give up on some of his assets eventually.

That's a use-case. Now we need the Blockchain to be the bank, HBD and Hive to become collateral, wallet behavior part of the risk assessment and a proper scaling to 6digits.

The Blockchain assets are not fixed in a big swapping pool. Buy and sell price is not just mathematical, perception can become reality. As long as confidence and trust is rising, it's not unlikely that the Hive price might rise even during considerable sale pressure. STEEM sometimes did and that coin never experience sustained buying pressure for at least a years prior to the last phase towards the fork.

I listened to CTT yesterday. Interesting discussion. What caught my attention was the counterparty risk.

Concerning bonds, though I could not follow the intricacy of the details, at least it is clear there is a difference between an HIVE bond and a traditional bond. Perhaps, as I keep reading about this topic, sooner everything will make sense.




bring it on!

@tipu curate

In my little hive economy, locking the HBD could be a way of fixed deposit or saving my HBD. But is there any profitability in it quite different from the saving of hive for 20%?

Not sure I understand the problem that is being solved. Is something wrong with 20% earning on locking up some HBD with a 3 day withdrawal. As-Is works and 3 day is relatively liquid to me. I am concern about the risks of making bonds available and creating a platform that is more or less a lending and investment institution.

I don't want to see this ecosystem evolving into a bank for capitalist.

Also, is there any consideration about how a change may impact an interpretaion from tax collectors? Obviously there are different interpretation depending on the country we live in. As-Is works for me as a business owner in Canada.

Adding financial complexity may just be a reason to stay away from a Hive community.

Honestly, i don't see any point in lowering the APR or increasing the "unstaking" period. It's like we focus on a tree and we miss the forest. Aren't we still just a few of us here? Isn't the goal to increase users, "builders" and investors here on Hive? Let's bring first the masses and then we can focus on HBD if there is an issue while currently THERE ISN'T.

At the same, a huge talk is taking place about DHF and whether there is a proper use of HBD that was given to each proposal. Isn't more important to check if we actually spend money on people and projects that either take advantage everyone here or have projects with no actual value? How much can we save and earn at the same time if somehow we manage to monitor these kinds of approvals?

Honestly there are times that feels like we are trying to find problems out of nowhere. Currently, the way the HBD APR is, only attracts people to either join Hive or invest in general. Let's focus on solving the 2 other issues i mentioned above and we can then focus on HBD.

Is an interesting idea, but I wouldn't roll it out until most of the community has an opinion how will it affect their daily Hive lives. We need to think more as a financial institution and costumers and less like a technological institution and users.