I've been wanting to write a post about Hive-Engine. Unfortunately, the decision to raise the interest rate on HBD to 20% has completely undermined HIVE's side chain and I feel that promoting HE is actually morally wrong.
HIVE-Backed Dollars is a legacy coin that appeared in the original design of SteemIt. The basic idea was to create a coin that was loosely pegged to the US dollar so that developers and webhosts (aka witnesses) could host nodes could pay the fixed costs associated with their efforts.
The SBD peg never really worked. The coin history for SBD shows that its value has ranged from $0.23 to $19.03. The peg did not work well and SBD was not a popular coin. The SBD price fluctuates wildly because the coin was not very popular and has a low market value.
Just before the HIVE Hardfork, SteemIt released Steem-Engine which allowed users to create alt-coins. Justin Sun let Steem-Engine fall into disrepute. Although the exchange is still alive, it has almost no activity.
HIVE-Engine started as a hardfork of Steem-Engine. There have been several hundred ICOs on the platform. The created coins are used by HIVE Tribes to supplement HIVE rewards. The platform also has coins used for NFTs and HIVE games.
Since the public at large can create coins, I believe that HIVE Engine is the most likely source of the application that will push HIVE into the big leagues.
Many of the coins on HIVE-Engine are suffering. Quite frankly I believe that there are too many generic tribes on HE. Most of the tribes have generic interfaces and compete for the same traffic.
You will notice that HIVE whales tend to add a long list of tribal tags on each post so that they can get huge rewards from all of the TRIBES. The sad result of this tagspam is HIVE now has a large number of cookie cutter sites that show the same cookie cutter content.
This is terrible from both a design and SEO PoV; However, there is nothing we can do. Anyone foolish enough to downvote a whale will have their account destroyed.
A few tribes like LEO and WAIV have developed compelling interfaces for their Tribes. I applaud both efforts.
The most compelling use of HE has come in the form of Game Development. There is a growing number of games like Splinterlands and Actifit which attract new users to the platform.
I have been an enthusiastic supporter. For that matter, I had been trading all of my HBD earnings and depositing it in HIVE Engine. FWIW: Honey-Wwap is the primary mechansim for moving funds between HIVE and HE. You can follow them on Hive Blocks
The HBD Interest Fiasco
The decision to raise the interest rate of HBD to 20% set HBD as the primary alt-coin for the Hive-O-Sphere. Smart users began dumping their alt-coins on HE and using the proceeds to buy HBD.
HBD is guaranteed by HIVE and gives an interest rate substantially higher than most coins. Dumping your alt-coins and buying HBD is the smart move.
One can prove that people did this simply by following the transfer of funds through Honey-Swap.
Since HBD is now the primary focus of HIVE. I decided to join the crowd. I no longer transfer fund from HIVE to HE.
If I was smart; I would be dumping my alt-coins and putting it all into HBD.
Unfortunately, I suffer a mental deficiency which makes me question what is best for the community when I make my decision.
Despite the fact that HBD is the premiere coin of the Hive-O-Sphere, I've decided that I will continue to trade in the alt-coins. While I am no longer transferring any funds into HIVE Engine, I figure that I would just shuffle the coins around in my account.
My Hive-Engine Strategy
If you look at the Hive Engine Tokens you will see that many of the coins suffer from extremely low volume. I just looked. Only 32 coins had a daily volume over $100. The first page lists 100 coins. Several coins had only $2.00 a day volune.
The low volume means low liquidity. The low liquidity deters people from investing in HE coins.
So, what I've been doing is to place a large number of orders. I usually place SELL orders on the ASK price and BUY orders on the BID price. This increases the total number of coins on the market. That is it increases the liquidity of the coins.
When sales take place I simply put the coins up for auction again.
Since there is often a wide gap between the ASK and BID; I often make money. Of course, when there is a large transaction that moves the market, I lose money.
I am not sure if this is a winning strategy. Of course my goal here is simply to increase liquidity.
Since there seems to be a general downward pressure on HE coins, I usually end up holding more coins than I desire. So, I stake the excess coins.
To sum up my HE strategy: My goal is to increase liquidity. I place BUY orders on the BID price and SELL orders on the ASK price.
I usually only bid on coins that I would be happy to stake.
Since volumes on HE are low. I am keeping my orders small. They are usually between 0.10 and 1.00 HIVE. When I end up with with several HIVE worth of a coin, I end up staking the bulk of the coins.
The volume on HE is low. It can take several days, if not weeks, for a transaction to go through. The orders are providing liquidity.
Since time is valuable, I think it is best to look at HE once a day or less. I've been spending too much time watching transactions on HE. I think I might place a restriction on myself where I only look at HE once a day and take an occasional breaks where I don't look at it at all for a couple of days.
Let me know what you think of my formula? I believe that, if a large number of people followed a similar strategy of periodically putting all of their coins on sale on the ASK price and used their SWAP.HIVE for orders on the BID price; then we would increase the liquidity of HIVE's side chain.
Unfortunately, the daily volume for most coins on HE is less than the daily volune. Trading on HE is likely a losing proposition.
Since the alt-coin market is saturated, I fear that many of the alt-coins are doomed to fail. Some already have: For example PAY, which triggers on the tag politics, is trading at 0.00000033; BLOG, which triggers on #blogtoken, is trading at 0.00000002 and TIX, which triggers on #trafficinsider , is trading at 0.00000082. The Traffic Insider site still works.
It is sad. One has to use scientific notation to trade PAY. 3.4e-7 = 0.00000034 .
NOTE: I've been collecting failed coins. I think the collapsed coins are a great initial investment for newbies. One can buy thousands of coins for a pennies. Buying the alt-coins show how the reward system works.
Trading the failed coins brings up the possiblity that most of the alt-coins are doomed to fail.
The decision to raise the interest on HBD to 20% just accelerated the rate of failure.
How Stable Coins Undermine Blockchains
HBD is similar to other stable coins. The system uses the market value of HIVE to guarantee the price of HBD.
The formula is fairly simple. The "Convert HBD" button will burn the given amount of HBD and generate HIVE in its place. This process takes 3.5 days and charges a 5% fee. This means that investors will get at least $0.95 for every HBD invested.
NOTE, people can actually make money by converting HBD to HIVE whenever the price of HBD is lower than $0.95.
HIVE recently added a Convert HIVE program. This program will destroy HIVE and return HBD in its place. Again it takes 3.5 days and charges a 5% fee. One can make money by converting HIVE to HBD when HBD costs more than $1.05.
HIVE and HBD usually go up and down in sync. So, when HIVE is rising HBD rises in unison.
The conversion process amplifies price fluctuations in HIVE. When HIVE is rising, HBD will rise. When people convert their HIVE to HBD, they reduce the HIVE on the market which further increases the price of HIVE.
When HIVE falls (ie there is too much HIVE on the market), people will start converting their HBD into HIVE. This magnifies the depth of the dip.
The HBD conversion process amplifies the volatility of HIVE.
This problem exists for all algorithmically enforced stable coins. The stable coins increase volatility and have even been known to swamp the base currency.
The current dip in crypto saw the collapse to two stable coins. The UST stable coin took out LUNA and DEI took out DEUS.
HBD probably would have taken out HIVE except for the fact that HBD never really was a popular coin. The HBD market value was around 1% when the witnesses raised the interest rate. The HBD tracker on Ausbit showed that HBD market value jumped to over 4.5% of HIVE before settling back to 4%.
Had the market value of HBD been higher at the start of the correction, then it would have jumped to over 10%.
We are very luck. HBD has always been an unpopular coin on this platform. Most users were simply converting it to HIVE.
While there are a few users like witnesses who need a stable coin to pay fixed costs. Most users don't really want it. Seriously, I suspect that if someone queried the database, they would find that less than 5% of users had transferred HBD to savings before the interest rate boosts.
The HBD Interest Only Benefits a Few Users
A corollary to the observation that HBD is an intrinsically unpopular coin in the observative that the HBD interest disproportionally benefits just a few accounts. My last post pointed out that just a few accounts received over half of the HBD interest in April.
The decision to raise interest to 20% is heaping an outsized benefit on just a few accounts while saddling the community at large with great risk.
BTW, it is likely that the high HBD interest rate has actually taken a few points off the price of HIVE. This can be seen by comparing the dip in the price of HIVE to BTC. The dip in the dollar price of the alt-coins on HE are substantially higher than the dip in the price of HIVE.
There is a direct cause and effect between the HBD interest rate and HBD which can be proven by looking at Honey-Swap ... which I did!
I don't want to write this post because a bunch of half wits who do not understand the mathematics of pegs will start attacking me for standing against the group think that drives the platform.
Currency Pegs and Currency Manipulation
I've studied monetary theory for several decades and became an proponent of free market money reform long before bitcoin. I used to write programs for insurance companies and got to know the regulatory world quite well. I hate the insurance industry and decided against getting the actuarial license.
I think the actuarial world is sick. Actuaries create disgusting derivatives which are supposed to generate high yield passive income. The derivatives end up increasing prices and crashing markets. For example, a company called Enron created a pile of derivatives for the California energy market. This derivatives ended up increasing gas prices and crashed the company.
Actuaries created instruments like credit default swaps and mortgage backed securities. These all were designed to create high-yeild passive income for groups of politically connected insiders.
They all have the effecty of rising prices of the consumer and causing economic havoc when the schemes invariably break. It is a disgusting industry led by arrogant fools.
High yield derivatives are but one financial instrument that leads people astray. Another common folly is the never ending attempts to create insurance pegs.
The most sensational story about the dangers of currency pegs is the story of the day that George Soros broke the Bank of England.
George Soros Broke the Bank of England
Back in 1990s there was an international effort to peg the English Pound to the Deutschmark as part of the European Monetary System. This was a precursor to the Euro.
Soros formed a cartel that took out a billion dollar short against the peg. On September 16, 1992 England withdrew from the EMS. The currencies corrected themselves and Soros became a multi billionaire in a single day.
This currency manipulation is one of the most storied and studied financial events of the modern world.
Soros used his billions to position himself as one of the most influential financial theorists. The world is full of Soros wannabes who study the various currency pegs in the cyrpto world hoping that they can become part of the next Soros style currency manipulation.
The breaking of the Bank of England was not the only currency manipulation in human history. There are legions of currency traders who watch markets and look for possible exploits.
The greatest defense against currency manipulation is to create an open system that allow currencies to fluctuate. We have nearly a thousand years of monetary history showing that free floating currencies provide the best path to prosperity.
I became interest in crypto because Bitcoin created a system of free floating currency.
The quest to create pegged currencies is undermining the market that bitcoin created.
In the last few years, crypto has become dominated by groups wanting to create pegged currencies. Crypto is now repeating the mistakes of the past.
The Meme
For this post I drew a picture of a witness carefully pruning the HIVE tree. See, he has a super sturdy ladder, is wearing a vest and a hard hat. I wish I drew a second witness holding the ladder to show how cautious they are while removing the branch. Anyway, I hope the picture qualifies the post for the prestigeous #MEME token.
Conclusion
I suffer a mental deficiency which makes we want to support the community. I think that Hive-Engine is the most likely source of the killer app that brings HIVE mainstream.
Unfortunately, HE is saturated with generic coins. So, the current offerings are a tad weak. I had been transferring all of my free HBD into HE. Along with many other people I stopped when the witnesses made HBD to primary focus of the HIVE eco system.
While I am no longer actively moving funds into HE, I am hoping to increase the liquidity on HE simply by shuffling coins around.
I think that HIVE users could improve HE by simply going to Hive Engine. There are three primary interfaces:
It would be beneficial to look at their their free coins. Power up those that they want to keep and sell those that they don't.
The smart move is to withdraw the proceeds, buy HBD and transfer to savings to get a part of that juicy 20% interest. The stupid move, ie the thing I recommend, is to use proceeds from the sales to drop some buy orders.
I like to pile my buy orders on the BID and the sale orders on the ASK.
Since the volume for most of the alt-coins is lower than the daily interest on the coins, this is probably a losing strategy.
Anyway, every time I log into HIVE I feel sick. I really think I need to write about happier subject than the HBD interest rate ... like maybe the War in Ukraine, COVID or maybe the abortion issue.
Anyway, feel free to ridicule me for standing against group think.
Posted Using LeoFinance Beta
We are trying to get away from fiat, so we peg hive to fiat! help me understaaaand!!
Besides the castles in the clouds, there is also reality. It's as simple as that, isn't it? 😁
I think that they originally just wanted a mechanism that could allow the witnesses pay the fixed costs associated with web hosting and administrative fees.
This current effort to develop HBD as a currency is really undermining the platform.
BTW, it should be possible, using smart contracts, to pay fixed costs in any currency. The HBD peg is insanity all around.
BTW: I am also puzzled as to why so few people are calling it out. It is like everyone is scared to argue policy with witnesses and whales. This fear turns HIVE into a dangerous echo chamber.
I agree and see this for sure. Promoting HBD instead of Hive is madness and totally unnecessary. The real kicker is the returns are higher than holding hive power which is supporting the higher rate of HBD.
Also, is the inflation rate high enough for 20%.. we for sure will see deflationary pressure on the Hive price although isn't the total amount of HBD actually declining?
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I'm fine with HBD. No second layer token can generate a fat margin on larger sums within days or weeks multiple times a year like the smart use of HBD can do. The HBD savings APR is lousy compared to that and means practically nothing. There's even no need to leave the hive ecosystem for it. I would be much further along with my profits if I had a little more courage to take risks.
And in my personal opinion all of the second layer tokens on hive-engine together represent nothing else than a marketplace of ideas. Some of the ideas are great, others are... not so great. It's up to you to filter out the pearls among them. 😁
Have a nice day. 🙂
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