Hive Backed Dollars
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Hive Backed Dollars
It's no secret that Hive has its own stable coin which is called Hive Backed Dollars (HBD). It came across in the fork of Steem and for those who were on Steem would know that SBD never really was a good stable coin and would regularly break its peg.
Hive too had a similar issue especially when people would short it on exchanges. And if we look at the stats of HBD on coinmarketcap it shows us the instability of the token.
But one thing you will notice is over the past 5 months or so it has begun reaching and maintaining a close peg to $US1. This is because of the Hive Stabalizer account that undertakes arbitrage.
However, similarly to UST on Terra Network HBD allows users to perform arbitrage by converting HBD and Hive between itself to help maintain the peg.
The difference between HBD and UST is that USTs ability to do this is instant where HBD takes 3.5 days and converts based on the average over the 3.5 day period.
I'm not certain if the 3.5 day period is of any benefit to maintaining the peg but I thought I'd try it out to see how it works out. There was a stark difference between UST and HBD.
As the peg was below $1 I needed some HBD so I sold some Hive and I had a small amount of HBD in my wallet and ended up with 38 HBD. Only a small amount to play with just incase this didn't work out.
I commenced the conversion and then waited the 3.5 days. Over that period HBD did break its peg and went up to $US1.01 but the HBD stablizer did it's thing and brought it down. Hive also began dumping and I thought this would be a good thing surely I'd end up with more Hive than I started.
The day came for conversion to end and I got my payout of 29 Hive..... well it didn't seem right and didn't seem like I had made a profit on arbitrage so I decided to see if 29 Hive was worth 38 HBD.
Nope, I suffered a 3 HBD loss on arbitrage so it wasn't the most effective form of arbitrage. Much of that is to do with the 3.5 day conversion time in which crypto being highly volatile changes significantly.
The price volatility impacts ones ability to support maintaining the peg and in this scenario the best bet is to not get involved and wait for the HBD stablizer to do its job.
There are moments where users can support arbitrage when Hive is high and HBD significantly increases above the peg. But even in that scenario the 3.5 day wait period is not helpful and you won't out do the HBD Stablizer account.
At current with the HBD stablizer it seems to be working in maintaining the peg and it's doing a decent job so there is probably no point to the feature of conversion for people wanting to participate in arbitrage.
Improvements could be made to be more inline with UST where arbitrage is instant this would probably have flow on effects for the price of Hive also and help further secure the Hive price.
But for the meantime I'm glad I only attempted this with a small amount of HBD and nothing substantial otherwise, it could have been costly.
Do you have any tips on how and when to use the HBD conversion? Let me know in the comments section below.
Image sources provided. Supplemented with screen grabs of my blog. This is not financial advice and readers are advised to undertake their own research or seek professional financial services
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I have been experimenting recently too. Mainly with the internal market option.
The 3.5 day conversion never really appealed to me.
The internal market works well but doesn't have huge liquidity. Have you tried that option?
Just buying and selling? I do that the most.
Ya, just seeing if it's a reasonable alternative to moving hive to exchanges and playing the market.
It needs more liquidity to be really a good option for a stable coin. It may get there. We will see.
Hard to have liquidity when there isnt much on the market. That is one of the main problems with HBD.
It truly is the chicken or the egg scenario. We need more HBD but need more people using HBD, hence more use cases.
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How about we convince @khaleelkhazi to build a White Whale for HBD?
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white what?
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I think he has some plans to integrate HBD into Cubfinance. I am not sure exactly what he is planning or one what scale.
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A great explanation of what is taking place.
I agree completely, if we want to get the HBD to peg, we need to do away with the 3.5 day conversion time. It needs to be immediate.
People who arbitrage are looking to make a half a percent off the trade. This will never happen with the 3.5 window. Those who are playing with big money, which is necessary to hold the peg, will never enter a deal like that.
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Bingo! And having instant arbitrage can also help stabilise the Hive price so we don't have this big drop we're experiencing now.
Yes that is where the peg will truly be effective. I am not sure how long the 3.5 days is going to stay in place. Is that a hard fork change or one that can be done outside of it? I guess a question for the development team.
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I asked Marky and he said it was implemented this way to prevent price manipulation. I don't know how effective that is but even so, it makes it hard to stabilise the peg perfectly as you need to account for the 5% loss. Which means HBD stabaliser is the only one going to suffer that loss which uses funding from the proposal taking away from dev income I guess.
I believe the HBD stabilizer operates on the internal market as opposed to using the conversion mechanism. It is out there buying and selling HBD depending upon where the price is. I do not believe it is altering the distribution of either.
That makes sense. We can see how a major player could do that through the conversion mechanism. Now it makes a great deal more sense.
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Great analysis and I did also some math in multiple market conditions to see if the arbitrage through conversion is worth hit or not. Most of the time I had a small loss or I was somewhere the same and only in a bull market that might work. Thus, I simply do not use that feature, but rather make us of others like HBD Savings (12%), Hive Power curation and DeFi through LPs.
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Yup, imagine instant conversion as the Hive price starts dropping it would also help peg the Hive price. 3.5 days ment I lost out.
Clearly shows the HBD to HIVE conversion mechanism in action.
...and yeah, the results are pretty disappointing.
So what is the actual reason behind us using the 3.5 day conversion and them not?
And what would changing it to instant like UST, do to our system?
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Not sure why they chose 3.5 day wait but doing it instantly would create the ability to maintain both the peg and possibly stabilise Hive price alot higher.
You'll notice as Luna starts to dump it picks back up relatively quickly that is because people are minting my UST and then as UST peg breaks they convert back to Luna at a profit until the peg is maintained.
This constant back and forth creates a more stable token and stable coin.
Also if if was instant, I should have come out with a .38c profit not a 4 Hive loss. That's a huge disparity.
My guess is that it is a security issue.
Of course, the arbitrage can take place on the internal market. The issue is liquidity. We simply need a lot more HBD on the market.
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Conversion has a built-in 5% loss. The best option is the internal market. It's faster and you can set your price.
When I was doing core number compounding on the internal market, I noticed that often on the other side of the trade was the Hive Stabilizer. If more of us use the internal market, I believe we will help towards maintaining a more stable peg.
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This makes absolutely no sense why they would include a 5% fee. This would prevent people from maintaining the peg and lead to more of it breaking.
My best guess, they wanted to shunt HBD buyers to the internal market to trade for liquid HBD before creating any new HBD. New HBD gets us closer to the 10% limit that shifts rewards to HIVE/HP rather than HBD/HIVE. And, by shunting you to the internal market, they provide a market for the stabilizer, which is an active counterparty on the internal market.
A fun fact is that the 5% conversion fee is burned.
If you want to arbitrage, you would have to wait for HBD to be below $0.95
What others are doing is converting HIVE to HBD when it is below $0.95. Then, they take the HBD and buy HIVE on the internal market to convert again. Of course, because only half of your conversion is credited immediately, you can only do this so many times. Arbitrage is possible. But, HBD has to be at a big enough discount to overcome the 5% burn.
A great explanation. I agree arbitrate should take place on the internal market. That is where the focus needs to be for the moment.
The conversion doesnt work as well. Of course, the challenge with the internal market is liquidity..not enough HBD out there.
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We use the Hive-HBD conversion tool only to HBD and then keep adding to the Hive pool that keeps the payouts going. The HBD then goes into the savings wallet until needed to pay bills and at that point, we go into Hive-Engine and swap for BUSD and then out to Binance.us and then out to fiat to pay for bills and such. Obviously not on this account if you are interested in looking, lol. Great write up, will be reblogging for the https://coin-logic.com front page rotating feed!
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Thank this I appreciate that
https://twitter.com/ValloneSimon/status/1483665550270418948
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Yup, I have no idea why it takes so long or as I recently learned there is a 5% fee to help maintain the peg. That's a negative.
I agree that the 3.5 days thing needs to go. Way too much can happen in 3.5 days for that to be useful.
I will also throw in the need to remove the 5% for HIVE to HBD conversions. I have never quite understood that either.
That makes absolutely no sense at all. Who gets the 5%?
It's burned I believe.
Is conversion the best arbitrage mechanism is the question. Why not try to increase the liquidity on the internal market?
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Yes. Completely agree with this and would love if this could be addressed. Would changes to this require a hardfork is another question I have.
The price they change is based on the average price so if HIVE pumps, you get less HIVE in the end. I agree that this is a huge issue for anyone trying to arbitrage and it is probably one of the reasons why HBD is off the peg every now and then.
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Hive was dumping and I ended up with less :(
I was playing with the idea to get some gains playing with the HIVE/HBD conversion, but with the 12% APR on savings I think I can't do better than that. Unless HIVE price changes a lot in both direction.
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It's a great offer 12% definitely worth saving.
If you are try looking at it on the internal market. See what that does for you.
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I think if they lowered the conversion time to something instantaneous, it would be more effective and would be on par with Terra, which could also increase the price of HIVE to X10 or x100, as it happened with
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I agree to, I think it would he a benefit
One of the most important things to point out here is the 12% APR that can be earned. This is far higher than most other offerings in DeFi.
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And very low risk also. If we consider the fact that it is backed by HIVE and unless the price goes to zero, one will still get the Hive, that is a great backstop.
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Well, I still can't understand the reason behind the 3.5 days conversion period. I only used the conversion option once and since day, I haven't used it.
Conversion should be made instant considering the level of volatility in this space. 3.5 days is too much for a single transaction to be completed.
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