This entry was automatically translated from Polish into English.
1. Introduction
This report presents a deep assessment of the economic stability of the Hive ecosystem. The purpose of the document is to analytically examine the key mechanisms and risk factors that determine its long-term condition. The analysis focuses on inflationary mechanisms, the structure of internal debt, and the efficiency of capital allocation within the Decentralized Fund (Decentralized @hive.fund, DHF). The report aims to provide an objective perspective on current challenges and identify potential paths for development that can strengthen the economic foundations of the Hive ecosystem.
📚 Previous articles in the HIVE and HBD Ecosystem series
Hive, czyli nowy wymiar Blogowania i Social media
Learn how Hive works — a decentralized alternative to traditional social media platforms.
Hive Backed Dollar (HBD) — prosty przewodnik dla początkujących
Learn what HBD is and how its stability mechanism works in the Hive network.
5 facts about HBD — Decentralized Stablecoin of the Future
Key facts about HBD that demonstrate its potential as a stable decentralized currency.
2. Key Economic Mechanisms of the Hive Ecosystem
Understanding the Hive dual-currency economic model is crucial for assessing its stability. The interaction between the native HIVE token and the algorithmic stablecoin Hive Backed Dollar (HBD), combined with the staking mechanism (Hive Power, HP), forms the foundation upon which both the growth potential and the network's resilience to market shocks are based.
2.1. Characteristics of Basic Assets: HIVE, Hive Power (HP) and HBD
The Hive ecosystem relies on three key assets, each serving a distinct but interconnected function.
HIVE Token: This is the main, liquid currency of the ecosystem. It can be freely transferred, traded on exchanges, and staked to gain influence over the network.
Hive Power (HP): Represents HIVE tokens that have been "staked" (frozen) on the network. Owning HP gives users voting power in governance processes, such as electing network witnesses and voting on DHF proposals. It also enables the allocation of rewards for content creation and curation. The process of unstaking HIVE (known as "power down") takes 13 weeks, ensuring stability and long-term commitment of holders.
- Hive Backed Dollar (HBD): This is an algorithmic stablecoin, designed to maintain a value close to one US dollar (USD). From the blockchain protocol's perspective, HBD is treated as a form of debt secured by the total value of the HIVE ecosystem. Conversion mechanisms between HIVE and HBD are intended to stabilize its value.
The relationship between the HBD supply and the HIVE market capitalization is measured using the debt ratio, which is a key metric for the network's economic health.
3. Analysis of the Debt Ratio and Inflationary Pressure
The debt ratio and inflation are the two most important indicators illustrating the economic condition of the Hive ecosystem. Systematic monitoring and a deep understanding of the mechanisms that affect them are crucial for assessing the long-term stability of the network and its resilience to dynamic fluctuations in the cryptocurrency market.
3.1. Debt Ratio
The debt ratio is a fundamental measure of Hive's economic security, designed to protect against excessive debt.
Definition and Formula: This ratio is calculated as the ratio of HBD supply in circulation to HIVE market capitalization, taking into account the "virtual supply" of HIVE. The simplified formula is: Debt = HBD Supply in Circulation / (Virtual HIVE Supply * Reference Rate). For example, in January 2025, the ratio was calculated as 3.61%.
Current Limit and Level: Since the hardfork in October 2022, the debt limit is set at 30%. Currently (October 26, 2025), this ratio is 11.22%, which represents a significant increase from the level of about 4% to 11.22% over the last 10 months!
Correlation with the Market: There is a clear inverse correlation between the debt ratio and HIVE market capitalization. A drop in the HIVE token price automatically leads to an increase in the debt ratio, even with a constant HBD supply.
Protection against Insolvency: The protocol has a two-stage defense mechanism. The soft limit linearly reduces the amount of newly created HBD in rewards for authors as the debt ratio increases. The hard limit, known as the "Haircut Rule," is the ultimate safeguard. Upon exceeding the 30% threshold, it fundamentally changes the on-chain conversion rate to protect the network against the debt spiral that led to the collapse of the Terra/UST ecosystem.
3.2. Controversies Regarding Calculation Methodology
The methodology for calculating the debt ratio has become a subject of criticism from parts of the community. The main accusation concerns the use of "double standards". An inflated "virtual supply," which includes HBD accumulated in the DHF, is used to calculate HIVE market capitalization (denominator), while the same funds are excluded from the HBD supply in circulation (numerator). This controversial calculation method, which artificially lowers the reported debt ratio, appears designed to hide the distorting economic effects of the massive DHF fund. As on-chain analysts note, "these large amounts of tokens, remaining from the previous company Steemit Inc, distort HIVE tokenomics".
3.3. Inflationary Pressure in the Ecosystem
Inflation in the Hive ecosystem is a complex phenomenon.
Real vs. Projected Inflation: In 2024, the projected annual inflation was 6%, however, the actual, realized inflation reached 9.5%.
Main Sources of Inflation: The main factor responsible for higher-than-expected inflation was HBD to HIVE conversions, which added over 17.5 million HIVE to circulation in 2024. Other fixed sources of new supply are rewards for curation and content creation.
- The Role of Virtual Supply: Inflation is calculated based on the virtual supply of HIVE. Since the virtual supply increases as the token price falls, this creates pro-cyclical inflationary pressure – inflation accelerates during bear markets, deepening pressure on the price.
4. Debate around the HBD Interest Rate (APR)
The interest rate (APR) offered for HBD stored in the savings account is one of the most debated instruments of Hive's monetary policy. Initially introduced as a powerful marketing tool, it has become the focal point of the debate about the balance between short-term incentives for investors and the long-term economic health of the entire ecosystem.
4.1. Analysis of Arguments
| Arguments for Lowering APR (Against High APR) | Arguments Against Lowering APR (For High APR) |
|---|---|
| Unsustainable Incentives: High, low-risk HBD interest (previously 20%, currently 15%) constitutes a direct disincentive to stake the riskier HIVE (HP). HP offers a lower return (~3.37 - 13%) and requires a 13-week unstaking period. | Marketing Tool: High, stable profit is a powerful tool for attracting new capital and users to the ecosystem, especially in conditions of market uncertainty. |
| Perception Risk: An interest rate of 15% raises concerns about the sustainability of the model and generates perception risk, evoking associations with failed DeFi projects in the post-Terra/UST collapse era, which may deter serious investors. | Increased Demand for HIVE: Theoretically, demand for HBD to obtain high APR should generate secondary demand for HIVE (the "flywheel" effect). Note: On-chain data does not confirm this theory in practice, pointing to a decrease in HIVE capitalization despite the increase in HBD supply. |
| Inflationary Pressure: Interest on HBD is "printed out of thin air" and constitutes an additional, unplanned source of inflation that burdens the value of the HIVE token. | Market Competitiveness: The 15% interest rate is competitive compared to other offers in the stablecoin and DeFi market, which allows Hive to maintain investor interest. |
| Marketing Ineffectiveness: Analysis of the largest HBD wallets suggests that the main beneficiaries are existing ecosystem users, not new capital flowing in from outside. | Stability for Users: During bear markets, high APR on HBD gives users a sense of stability and motivation to remain in the ecosystem, instead of withdrawing capital. |
4.2. Impact on the Ecosystem
The intensive community debate eventually led to the network witnesses making the decision to lower the interest rate from 20% to 15%. This step was intended to restore economic balance and reduce inflationary pressure. However, it also triggered negative reactions from part of the community, which fears losing a key marketing tool.
5. Assessment of the Efficiency of the Decentralized Hive Fund (DHF)
The Decentralized Hive Fund (DHF), financed by 10% of the total HIVE inflation, is a key DAO tool for supporting ecosystem development. Despite its strategic importance, its efficiency, transparency, and return on investment have become the subject of intense criticism, which directly impacts the perception of the value and credibility of the entire Hive project.
5.1. Main Areas of Criticism
Analysis of DHF discussions and proposals points to four main areas of systemic criticism:
Lack of Transparency and Accountability: Many funded proposals lack detailed financial accounts, clearly defined goals, implementation schedules, and measurable success indicators (KPIs), which prevents objective assessment of the return on investment.
Lack of Self-Sufficiency Plan: A significant portion of projects is continuously funded, without a defined end date or strategy for achieving financial independence. This leads to the perception of DHF as a permanent source of a "steady salary," rather than seed capital.
Low Level of "Skin in the Game": The accusation is raised that some recipients of DHF funds do not possess significant holdings in the ecosystem (in the form of staked HIVE). This raises doubts about their long-term commitment.
Questionable Return on Investment (ROI): Within the community, DHF is sometimes perceived as a "money incinerator," funding initiatives with low impact. Payouts generate immediate selling pressure on the HIVE token, as beneficiaries sell the received rewards to cover costs.
5.2. Impact of DHF on Economic Stability
DHF payouts, estimated at about 4,000 HBD daily (~1.4 million HBD annually), constitute a significant and constant source of inflationary pressure. The annual operating cost of DHF is comparable to, and even exceeds, the cost of HBD interest at 15% APR (~1.1 million HBD annually). This means that DHF is at least as important an inflationary lever as HBD interest. Furthermore, the vast resources of HIVE and HBD accumulated in the fund (remnants of the so-called "ninja mine") significantly distort key economic indicators, such as the virtual supply.
6. Development Scenarios and Risk Identification
Hive's economic stability is the result of a dynamic balance between innovative defense mechanisms and structural weaknesses in its tokenomics. The future trajectory of the ecosystem will depend on general market conditions and the ability of the decentralized community to collectively address the identified fundamental problems.
6.1. Bull Market Scenario
In bull market conditions, the rising price of the HIVE token would naturally lower the debt ratio and reduce the real cost of inflation. Such a scenario could temporarily mask fundamental problems, such as the low efficiency of DHF expenditures or unsustainable economic incentives. Positive market sentiment may postpone the necessity of introducing difficult but necessary structural reforms.
6.2. Bear Market Scenario
A bear market period would constitute a serious test for Hive's stability. A falling HIVE price would lead to a rapid increase in the debt ratio. Without decoupling inflation from the virtual supply, inflationary pressure would further increase, creating a negative feedback loop. In such a scenario, the risk of reaching the 30% debt threshold and activating the "Haircut Rule" becomes real, which could undermine confidence in the stability of HBD and the entire ecosystem.
6.3. Summary of Key Structural Risks
Regardless of the market cycle, Hive's stability is threatened by three key structural risks:
Unsustainable Economic Incentives: There is a fundamental tension between the high, passive, and low-risk income from HBD and the lower, riskier return from active participation in the network through staking HIVE (HP).
Inefficient Capital Allocation from DHF: Continuous selling pressure resulting from DHF payouts and the perceived low rate of return on investment systematically weaken the value of the HIVE token and undermine confidence in the governance mechanisms.
- Pro-cyclical Inflationary Mechanism: Linking the inflation rate to the virtual supply, which increases during price declines, creates a mechanism that automatically exacerbates problems in difficult market conditions.
The identified risks require a strategic and coordinated approach from the community to ensure the long-term and sustainable development of the ecosystem.
7. Conclusions
The Hive ecosystem has solid technological foundations and unique defense mechanisms, such as the "Haircut Rule," which have ensured its survival in situations where other projects, like Terra/UST, failed. Despite this resilience, long-term economic stability is threatened by internal contradictions in its tokenomic model.
Key challenges arise from the conflict between short-term growth strategies (e.g., high HBD interest) and the need to build long-term value for the native HIVE token. Additionally, the systemic problem with efficiency, transparency, and accountability within the Decentralized Hive Fund expenditures generates constant inflationary pressure and undermines confidence.
Hive's future success will depend on the ability of its decentralized community to implement reforms that strengthen the fundamental principles of tokenomics.
FAQ
What assets form the basis of the Hive economic ecosystem and what function does each perform?
The Hive ecosystem relies on three key assets:
HIVE: The main, liquid currency that can be freely traded and staked.
Hive Power (HP): Represents staked (frozen) HIVE tokens, providing voting power in governance processes and enabling reward allocation.
Hive Backed Dollar (HBD): An algorithmic stablecoin, treated as a form of debt secured by the value of HIVE, intended to maintain a value close to $1 USD.
What is the Debt Ratio and how does the Hive protocol protect itself against insolvency?
The Debt Ratio is a key safety metric calculated as the ratio of HBD supply in circulation to HIVE market capitalization. The hard debt limit is set at 30%. The ultimate safeguard against the debt spiral that led to the collapse of other projects (like Terra/UST) is a mechanism called the "Haircut Rule". Upon exceeding the 30% threshold, the Haircut Rule fundamentally changes the on-chain conversion rate, protecting the network.
Why is the Decentralized Hive Fund (DHF) criticized for inefficiency and what is its impact on inflation?
DHF is criticized for the lack of transparency and accountability (lack of KPIs) and funding projects continuously, leading to its perception as a source of a "steady salary". Criticism also concerns the questionable Return on Investment (ROI) and generating immediate selling pressure on the HIVE token. DHF payouts (estimated at ~1.4 million HBD annually) constitute a significant source of inflationary pressure, comparable to, and even exceeding, the cost of HBD interest (at 15% APR).
Congratulations @szymonwsieci! You have completed the following achievement on the Hive blockchain And have been rewarded with New badge(s)
You can view your badges on your board and compare yourself to others in the Ranking
If you no longer want to receive notifications, reply to this comment with the word
STOPHive price has almost touched its all time low level during this month. Let's see where would it go.