Hive Backed Dollar (HBD): Taking Things To The Next Level
Stablecoins are getting a lot of attention of late. It appears that, in the United States, those what are backed by companies (labs) will be regulated like banks. Thus companies such as Circle are facing a host of regulations it will have to adhere to.
One of the advantages to the Hive Backed Dollar (HBD) is that it is outside this. The token is backed by the code on the blockchain, with no single entity in control. It is an algorithm-driven stablecoin that is backed by $1 worth of Hive. Please note the one dollar is a unit of measure and not the backing asset. HBD is backed by HIVE, not USD.
In this article, we have a few major points to discuss:
- The HBD-HIVE relationship
- Interest paid/Haircut
- Lack of liquidity/Peg
HIVE and HBD are linked. This is a point that takes a bit of investigation to see. While most overlook HBD, it could play a vital role in the evolution of the Hive ecosystem.
HBD is a debt-based instrument that is meant to operate as a stablecoin. Unlike HIVE, which can have wide fluctuations in price, HBD is meant to be pegged near $1 worth of HIVE. This is much preferred for commerce since merchants will receive a payment mechanism sans the volatility associated with HIVE.
HIVE is a governance token. This is one of its main utilities. At the same time, we also have the Proof-of-Brain mechanism that is determined by the amount of Hive Power (HP) one has.
The Hive Backed Dollar, on the other hand, is designed to facilitate commercial transactions. Merchants require stability and HBD aims to deliver that.
Where we see the relationship enter the picture is in the conversion mechanism that is built into the Hive blockchain. Each token can be converted to the other, at any time. Thus, when HIVE is converted to HBD, more of the later is "printed". This will expand the amount of HBD that can be used for commercial purposes.
It also could have an impact on the price of HIVE. As more is converted and housed in HBD, there is less HIVE on the market. Of course, this can go both ways, which could unleash a great deal of HIVE being created.
For that reason, it is vital to build out the use cases, giving people incentive to keep value/utility in HBD.
@dalz put together a short post about raising the interest payment on HBD in savings to 20%.
Before we can get into that, we have to identify the fine line that we have to navigate. The goal of a stablecoin is for it to be used. In other words, we want commercial transactions taking place in HBD. This is the primary function, to exchange value.
Of course, savings is also part of the equation. In the world of DeFi, having an aggressive rate, especially on a stablecoin, could bring a great deal of interest.
Here is where some navigation is required. The rate paid at the core level must be high enough to garner attention and motivate people to hold the token. At the same time, it cannot be so high that people focus solely upon that and never want to part with their HBD. That is one of the problem in cryptocurrency. Because of the returns people get from HODLing, they refuse to utilize them for payments. Hence the explosion of stablecoins.
One of the features of the interest being paid on HBD is that it generates more HBD. Since we are dealing with a lack of liquidity, this is helpful. Raising the interest would help to facilitate this at a faster rate. Nevertheless, we need to be careful not to set it too high and sabotage the future use as a payment mechanism. As we know, while it is possible to lower it, that might not be the best course of action from an optics perspective.
Then we have the haircut rule. For those who are not familiar with this, the blockchain will stop producing HBD when the ratio of value gets to 10% of that to HIVE. What this means is that 50/50 payout will eliminate the HBD portion and payout in liquid HIVE. This continues until the rate drops below the threshold.
This point was brought up in the comment section of the above-linked post.
We do have some discussion of raising this level to 20% or even 30%. What this means is that a lot more HBD could be in existence. This is what is required if we are to have it operate as a true stablecoin. It cannot legitimately operate if there are only 25 million in existence (with a significant portion of locked in the DHF).
Lack of Liquidity
In short, this is creating a host of problems for HBD right now. Much of what ails it stems from this single point.
To be an effective stablecoin, a peg needs to be maintained. Since the introduction of the HBD Stabilizer, we see marked improvement. The wide swings on the token appear to be a thing of the past. Unfortunately, the range is still too wide.
Over the past couple months, we have been between .90-1.00 on the downside and 1.00-1.20 on the upside. For the most part, we held between .93 and 1.06. The range is tighter yet not tight enough.
One of the ways to resolve this is with liquidity. When any asset is scarce, it will tend to have a wide gap on the bid/ask. This creates more volatility than is desired. At the same time, people avoid arbitraging the situation due to the fact the lack of liquidity eats into their potential gains. That is what truly is needed to help keep the peg. In other words, HBD Stabilizer needs more help from the market.
This also shows up in the fact that one exchange can basically drive the price of HBD. Since few exchanges are carrying the token, it is difficult to acquire. Of course, without many in "print", it is hard to populate a ton of exchanges as it is.
It really becomes the chicken or the egg scenario.
Some Proposed Steps
- Raise the haircut level to at least 20% (30% will be better)
- After that, urge the witnesses to increase the interest to at least 15%, if not 20%
- Applications on Hive should start to integrate HBD as a payment option
- While HBD is scarce on exchanges, HIVE has a much better reach. Thus, people could focus upon buying HIVE, bringing it on-chain and using the internal exchange to turn it into HBD. There is no wait or conversion required.
- Start promoting HBD as part of the outside social media engagement. Relate how there is a low-risk, 10% return on a core layer, blockchain-based token.
Hive Backed Dollar is a hidden gem for the ecosystem. With all the attacks that are taking place from regulators, Hive already offers a solution. We also can see how the growth in use of HBD could have a great deal of impact upon the overall value of HIVE.
Like everything else on Hive, we all have a part to play in this. It starts with the conversation and putting some focus upon HBD. Each of us can place a minimal amount in savings. Perhaps consider taking a few of your Hive payouts as 50/50 each week. That will help the system to organically create more HBD.
If you are a trader, look to assist the HBD Stabilizer by trading this pair when you see opportunities. Increasing the number of transactions, even on the internal exchange is a help.
When we step back, Hive is developing a nice package of offerings. There is a lot to what we are creating. We are bearing the point where we can leverage different aspects of the ecosystem against each other.
Hive Backed Dollar is just another piece in the arsenal. When we look at complimentary features, this is certainly one of them. The key is to integrate it into all the other things we are doing.
Start the process by letting us know what you think in the comment section below.
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