APR for HBD in Savings Dropped to 19% for a Short While. Want to know why?
The APR on HBD savings will always stir passions on Hive, but I hope this article won't go in that direction, but be more instructional instead. I just want to say before I get into the main topic, that if everyone would sell HIVE for HBD thinking of protecting themselves against a short-term downtrend, and earning an interest too, that would put pressure on HIVE and accentuate the drop. Of course, others think long-term and buy HIVE at these prices.
To understand what happened with the APR for a short while (and might happen again), we need to understand how a median is calculated.
How Is the Median Calculated?
If you don't remember from math how a median is calculated, it's pretty simple. Here it is:
When you have a set of data points, to calculate the median you do this:
- you order the data set from the lowest to the highest
- you pick the middle number from the ordered data set, and that gives you the median; if there are two numbers in the middle (when the data set contains an even number of elements), the median is given by the mean ("average") of the two elements in the middle
Examples:
- The median of 1, 7, 4 is 4. We can easily see that after we order them: (1, 4, 7).
- The median of 2, 7, 3, 8 is 5 (the mean of 3 and 7, because they are in the middle of the ordered (2,3,7,8) data set)
Median is Used in Different Places on Hive
One place where the median is used is when calculating the median price over the 3.5 days it takes to make a conversion from HIVE to HBD or vice versa. I think the data set is composed of hourly price points taken throughout the interval, but I'm not sure. Also, the end formula takes into consideration the price of HIVE at the end of the interval, but we are not here to talk about that.
Another place where the median is used is when calculating the APR for HBD in savings.
In this case, the data points are given by the APR settings of the consensus witnesses plus the backup witness that enters the rotation.
What Happened with the APR Today?
To be honest, I didn't notice anything until I saw a thread that it changed to 19%. I checked it and that was what PeakD said. Don't have a screenshot, unfortunately, because it soon after changed back to 20%.
So, what do I think happened? Here are the top witness APR settings:
If we take the APRs and form a data set with only the consensus witnesses, and we order them, we have this:
(7%, 12%, 12%, 15%, 15%, 15%, 15%, 15%, 17%, 19%, 20%, 20%, 20%, 20%, 20%, 20%, 20%, 20%, 20%, 20%)
Considering only the consensus witnesses, the elements that would give the median would be the mean of 19% and 20%.
To this data set, we need to add the backup witness in rotation every time. This means we will always have a single element that determines the median, and not a mean of two. If the backup witness we add has an APR of 19% (or lower), then the APR for HBD in savings, given these APRs, would be 19%. If the APR is higher than 19% but lower than 20%, that will be the new APR, if it is 20% or higher, then 20% is the APR.
Of course, this is a changing situation, and I analyzed a static one. But in this case, I believe given the equilibrium at the consensus witnesses level, the APR was given by a backup witness, and fluctuated as the backup witness changed and the new one had a new APR setting.
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Yea its up to the backup witness now ... quite an interesting situation :)
Yep, lower-ranked witnesses might receive some spotlight for a while. 😀
There are talks about removing backup witnesses from the equation, that way it isn't so volatile. But honestly, the APR % only matters when you collect interest. It can be 0% all month, and 20% when you claim and you get 20%.
Its calculated on claiming .... More news to me :)
99% sure that's the case, I haven't looked at the code for that part, but I am 99% sure that's how it works. I know how it is all acrewed and so on, but never looked at the op code.
Yep, you nailed it. The chain takes into account the elapsed time since the interest was last claimed and the ongoing interest rate at the moment of claiming to calculate the resultant interest.
Meaning I could time it to claim the %20 interest
That's correct, that's how it works now. Long story short we measure the number of seconds since the last claim operation and calculate the value on the fly when the claim happens.
That's interesting! Good to know. So, basically, the "Estimated interest since last payment" shown by an interface like PeakD is based on the current interest, and if the interest varies, so does this estimation. It only matters the interest at the time when you claim it.
Maybe keeping it volatile in a short range gets people used to the idea it's not fixed at 20%.
It also keeps track of your interest regardless of when you claim. You will get your full amount if you do it every 30 days or come back a year later.
Absolutely! It has happened to me to claim after more than 30 days, and every day is counted.
If you claim the interest every 30 days, you will get the compound interest rate, while you wait for 1 year, you will not get the compound rate for the whole year.
That is true. At 20%, if you compound monthly, it's roughly 22% APY. If you leave it for a year, it's still 20% (if the rate doesn't drop in between).
This is good information to have. I will have to remember this, the next time I go to claim. Thank you for providing it to us!
20% was an attractive amount. Reduction in savings APR may be caused a negative impact on the savings. Although 20% APR is too much as I did not see this to much interest anywhere. Have you seen?
I imagine the APR will bounce between 19 and 20% for a while unless more consensus witnesses decide to lower it.
I haven't, but I haven't looked either. I don't know if the APR itself is a problem or the way we act, which is often detrimental to HIVE. Of course, the APR can be an incentive when the price of HIVE goes down or sideways, and the bigger it is the bigger the incentive. Unfortunately, this shows how short-term our investment outlooks are in crypto.
That's the main issue! People roar into 20% APR in HBD like there is no tomorrow... 😞
Yeah, man! It's almost sad sometimes to watch the spectacle, which is generalized in crypto.
Thank you for bringing this up on Hive :) I spoke with a couple witnesses on Discord yesterday regarding this, and its really interesting to see the deciding mechanism behind the APR in action.
Yep, it's even more interesting when the decision is left to the backup witnesses. That increases their influence at the blockchain level temporarily.
Yes, it was very interesting how it happened! We might get some traction on this soon.
Personally, I'd like to see this bouncing for a while as the backup witnesses rotate in and out, rather than consensus witnesses deciding it by switching one setting.
Hmm
I think people will not like this. They should have found a way to manage the 20% APR
I'm not sure someone slated a drop in the APR this way. It just happened, and it can just as well be back at 20%, depending on what backup witness is in rotation and their APR (but as the APRs of the consensus witnesses are distributed now, the APR on HBD in savings can only vary between 19% and 20%).
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Let's just hope there will be more usage of HBD in transactions
Yeah, that should be a more prevalent use case of HBD than keeping HBD in savings. But for that, HBD use cases need to be created - like Leo Premium, or what happens in Sucre.
Wow I didn't know it was based on a median! Nice sharing!
I just checked - it's 19% now.
Hmm how do the witnesses decide what to indicate as the APR though?
They have a setting and each of them sets the APR at whatever value they want. And I expect the bouncing between 19 and 20 to continue if the equilibrium at the consensus witnesses continues. I hear there are talks to ignore the backup witness from the median, in which case only the settings of the consensus witnesses would count. Personally, I don't prefer this option, I'd rather have the backup witnesses have their say in this median, even if that opens up the possibility of a temporary minor volatility of the APR.
I see - thanks for sharing! I guess at the moment, 19% and 20% are relatively insignificant. Let's see what happens.
If I were a top witness, I wouldn't change a thing for a while. Fluctuating between 19% and 20% is very good, precisely because it fluctuates and is not fixed.
Very informative post, @gadrian. In my own writings, I refer to HBD as a ... "stablish" ... token and you have provided a succinct statement on why:
In the broader crypto (digital) asset class, the fluctuations we routinely experience in the price of HBD would not help make the case for investing in it ... That said, I am sure those watching over the price of HBD are keeping it as stable as they can reasonably manage.
On top of that, it was very useful to be refamiliarized with how the APR is determined. I wonder what is going on "behind the curtain" to address this. If anything ... A lively topic, I would imagine ...
I like that HBD is not tightly pegged to $1. That makes it more flexible. But I agree with you, not everyone would want to invest in a stablecoin that isn't tightly pegged.
Marky Mark described the discussions going on right now in a reply higher up.
Okay, thank you for pointing that out. I will go read up on it!
Things are getting complicated now I just guess
Things can easily get simplified. But I kind of like the situation, for a while at least. 😀
I guess it must have been a temporary error. It will likely bounce back to 20% it has been
It's not an error. It's working as it was supposed to.
I appreciate your post explanation because a lot of people may find it funny
Why funny? :)
Because they have not seen it drop like that
We can call it the "yo-yo" APR if it keeps bouncing between 19 and 20%. 😀
Interesting
Wow, thank you for sharing this very informative post.
You're welcome!
this is informative.. thanks for sharing
You are welcome! Thanks for dropping by!
The APR is still not bad just a 1% decrease. It's still very profitable. Thanks for the info and have a nice day.
And likely that's the range we will see for now, between 19% and 20%, unless some consensus witnesses change their minds. Have a nice day!
Well, I appreciate the explanation... I must confess I haven't been keeping much of an eye on it.
If memory serves me right, there was some discussion among some witnesses a while back about slowly tweaking the rate down mostly as an experiment to see how the community would respond... I wonder if this is related, or just totally random?
=^..^=
It doesn't seem to be related because as things stand right now, the backup witness in rotation influences what the current APR is (between 19% and 20%).
An organized reduction of the APR would likely look differently, with more consensus witnesses switching to a lower APR, or a change in the composition of consensus witnesses.
I wouldn't have noticed this if you didn't post it. I checked as soon as I started reading the headline and it was 19. I refreshed a few minutes after, and it was 20. So it seems to be very volatile right now. It's a good thing I read the comments though. If themarkymark is correct that the APR only matters when you collect interest, then one should time it right.
If it's just bouncing between 19 and 20, yeah, it's a matter of timing. But what happens if the consensus witnesses decide to drop it from 20 to, let's say, 15%? Then you might lose 5%, if you wait for the perfect time.
As the situation is now, with the APR bouncing between 19% and 20%, I won't change a thing, and will still have it on auto-compounding. However, for people with lots of HBD in savings, 1% might not be negligible, so they might try to wait until it's 20%.
Since it is just the median, there will have to be a lot of witnesses that need to change for that to happen. With more people aware of this because of posts like yours, more will be monitoring it. I don't have a lot of HBD, but I'll probably still time it if I can.
That is true, but if a few of the 20% category get convinced, the situation can easily change, even with a median.
That is also true. And I hope that doesn't happen haha
It's an interesting situation. I guess it might be time for people to check their own witness votes, but I hope the 20% lasts.
It's always good to check your witness votes. But this situation in particular, I wouldn't call it very special, other than seeing the HBD APR bouncing between 19 and 20, which may be fun.
I wish I could upvote this post twice. Thanks for the lesson. I've been wondering how the APR is set for the HBD savings account. This makes a lot of sense.
Thanks! I admit I did a little research too before publishing it. 😀 I'm glad it makes sense.
Research always helps to make it a better post. :-)
That is true! 😉
Thank you @gadrian. I sort of get it with the median. I don't understand this though. There is no 5 in the set.
"The median of 2, 7, 3, 8 is 5 (the mean of 3 and 7, because they are in the middle of the ordered (2,3,7,8) data set)"
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There are two dataset points in the middle: 3 and 7. In this case, the median is their mean ("average"), which is (3+7)/2=5.
Oh, OK @gadrian Thank you so much for the explanation. I did know this at one time years ago 😂 !BBH !CTP
from what i get it will only vary for now between 19%-20% which is something i can live with but still, i consider a 20% APR to be freaking awesome and should stay that way. I heard some complaints that this % is not sustainable and such or that people will think it's a scam or something, i highly doubt that.
Well, it stayed at 20% throughout a very tough bear market, when it's the hardest, so I imagine the track record will be on our side, just as it is for Hive. That doesn't mean the APR won't be changed at some point or that it shouldn't. I believe being flexible to match market conditions is important.
totally agree and also wanna highlight that you said we've made it in one of the toughest years. If this or next one are better years and i see posts saying to limit it to 10% or such by some other witnesses without an actual explanation i will be frustrated :p
Where HBD's APR may pose some issues is in the way we act on it. If it's a short-term downtrend like it was and maybe it will continue to be because the uptrend is not guaranteed in the short-term despite BTC reaching almost as high as the point after the ETF approvals, then people are likely to sell HIVE into HBD for the interest and protection against the downtrend. That puts pressure on the price of HIVE, which is already in a downtrend because of the general market conditions. So, the move down is accelerated. I'm not sure if a lower APR would make people think twice about doing that. It's just a matter of mentality and trying to ride every wave, no matter how small. But a higher incentive to swap and hold the stablecoin for the short term probably doesn't help.
Very good explanation, it is good that we have also backup witnesses on the chain.