If HIVE goes up after you convert, you will get more HIVE back after 3.5 days. Although you receive the HBD immediately after conversion, the actual conversion happens after 3.5 days.
It's a little bit confusing until you try it yourself.
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Yes, you get more hive because the median price is lower, but you still lose compared to hodling hive.
Replied to your other comment as well.
The price will be recalculated and you will get more HIVE at the end. The actual price would be the median of the next 3.5 days.
The price used at the beginning is different. It's the minimum of the last 3.5 days.
You missed my point here. The market price and median price can be very different. If the median price after 3.5 days is $0.5 and the market price of hive is $0.6. It would have been better to just hodl hive instead.
This means that the arbitrage is worth taking using stablecoins, by buying hive then initiating the trade.
But if you hold hive and wanted to use that hive for the arbitrage, you would have been better off just hodling.
Let's say you convert 1000 HIVE right now. You get 209 HBD. You sell HBD and buy HIVE.
After 3 days, you get the rest of your HIVE. If the price was higher, you get more HIVE. If the price stays stable, you pay exactly $1.05 per HBD.
So either way, you profit. i.e. you gain more HIVE than you had
I must be missing something here. What do you mean by "you get more hive"? The conversion is hive --> HBD, so do you mean to say "you get more HBD" ?
Sorry if I couldn't explain it better at first.
Your HIVE gets locked as collateral at the beginning and you get x amount of HBD. The actual conversion happens 3.5 days later and the price for x amount of HBD gets calculated. Then some of your HIVE is taken for the price of HBD and the rest is returned to you.
If the price for HIVE goes up, you end up paying less HIVE for x amount of HBD. So you get back more HIVE.
Also, Peakd is right, if the price of HIVE goes down significantly, you end up paying more HIVE for x amount of HBD, so you get less HIVE back at the end.
The conversion method results in more HIVE gain overall
IF (HBD > 1.05) and (HIVE stable or going up).
Alright, I now understand that I don't understand how it works :)
There are still unknowns in the algorithm.
At this point, does the initial amount of HBD given at the beginning get deducted from the total calculated after 3.5 days?
What if, as you said, hive goes down significantly? I presume the algo won't ask for additional hive to be deposited.
Again, how can you pay more hive then what you deposited in the conversion? The amount is fixed. So you should get less HBD, not the same amount x.
Ignore my previous comment, I now understood what you meant. Thanks for taking the time to explain, it was pretty confusing!
I have the same question.... ;)
From his words seems that you get instantly 209 HBD and then after 3 days you get the rest of your hive, so i suppose you get 500 hive if the price stays stable
It is like this because it is a loan?
Or i understand nothing? :)
I have to try
Replied to the comment above.
Here are the reason when not to use the conversion tool listed by Peakd in the conversion tab:
The second reason is the issue we are talking about.
The trade remains winning in dollar terms but it is losing in hive terms. A hodl is better, unless I'm missing something and peakd is wrong too.
It is possible to hedge this risk as follows.
Take the HBD you get and instead of selling it for HIVE, sell it for another stablecoin or fiat (one you trust to hold value for 3.5 days). Then use the stablecoin or fiat to buy back HIVE over the course of the 3.5 days. You will end up better off than you started with near certainty.
Great strategy. The only way to lose is if hive dumps on the last day, in which case the market price will be much lower than the median average price.