What Does the HBD Interest Rate Bring to the Hive Community?
I appreciate the wave of comments on my recent post, and the tsunami generated by the post by @liotes. It seems that many Hiveans don’t think much about matters that may be considered the elementary governance of this network. I don’t blame anybody but ourselves – we, a self-governed community, are responsible for sharing knowledge and raising awareness of such topics. Nobody would do that on our behalf, so we shall not suffer from the bystander effect. On the bright side, the extensive discussion inspired me to write this post. I share my point of view and would be happy for any insights and arguments, especially those proving me wrong. I am still for lowering the $HBD interest rate. In addition to the four reasons from my previous post, here are more thoughts inspired by the discussion.
Where Does the Interest Come From?
Like it or not, we have shared history with Steem. And getting back to the basics – browsing its Whitepaper – cannot harm, except for evoking memories. The idea introduced there is rooted in the good old Metcalfe's law – the value of a network grows proportionally to the number of its active users. Metcalf went as far as claiming it was the square number of the users. Anyways, the Whitepaper suggests that the additional value should be distributed among those who created that value through their participation. Namely content creators, curators, and witnesses who confirm blocks and make that possible. A Reward Pool with a stable, predefined inflation of Steem arose to fund this giveaway. As it was a common cryptocurrency tradable at exchanges, the market tells the actual value, or at least the price, as price does not necessarily always relate to value.
With the creation of Hive, the DHF fund was introduced to fund further development based on community support, and a part of the Rewards Pool was redirected there. I am more than okay with that; it’s hard to imagine a better principle of funding decentralized community development, regardless of the type of the projects – be it structural funding helping to cover running costs of our favorite front-ends, projects aimed at developing new tools and functionalities, or marketing and onboarding projects that would bring attention and new users. According to the Hive Whitepaper, the newly minted $HIVE distribution should be:
- 65% is used to fill the reward pool (which is split into equal portions between content producers and curators);
- 15% goes to HP stakeholders;
- 10% goes to the witnesses for block signing;
- 10% goes to the Decentralized Hive Fund.
Can you spot the HBD interest there? Nope. It is not a part of the 15% distributed among the HP stakeholders. Yet anyway, it’s emitted as a debt “in exchange” for a portion of Hive. I believe it is important to realize that.
Feeding a Monster
Debt is not necessarily a bad thing. It is a tool that can help you develop your skills faster (student loans to fund university studies) or businesses. For many, a loan may be the last option to get through a difficult period. Or it could be the stupidest option, like lending money to afford fancy Christmas gifts or an expensive vacation in a tropical paradise. Yes, people borrow money for all those reasons and various other purposes. Now, why do we, the Hive community, borrow money at such an interest? To feed a monster!
One of the reasons for keeping the current interest rate was that if we lowered it, some of the Savers would dump their HBD, which would effectively dump Hive. Yes, it's a perfectly rational prediction. However, we are not working on a solution (protecting Hive from such a dump). On the contrary. A monster wanders around, a threat that could slaughter us. And we feed it day by day, making it stronger. Currently, there’s nearly $8 million in Savings. If the interest rate remains (and nobody deposits more), it will make us feed the monster with an additional $1.5 million in one year. Yes, the monster gets 20% stronger each year, and I don’t count on the extra deposits.
But let’s say that feeding a monster is fine because somewhere out there, a hero is coming to slay it and save us all. We keep feeding it to protect ourselves in the meantime. Who (what) is this heroic savior? And even if there’s one, does paying the interest out really make sense? Are we just waiting for a mythological Bull? And when it finally arrives, then what? The predicted dump wouldn’t suddenly matter?
Or Rather Becoming a Country?
Our current debt ratio hovers around 7%. That’s amazing compared to any country. However, countries may not be the best to compare with. It was their rigged fiat economies, where high mandatory spending must end with generating debts and printing more money, that brought many people into crypto. Unlike most countries, we have a threshold that should protect us from over-indebting – at the debt ratio of 30%, the network would cease emitting HBD as rewards, and replace it with liquid Hive instead. But that is an emergency brake.
Let’s simplify the HBD interest issue to the very core – this year, we will pay $1.5 million. Consider it a public spending of a virtual country, the Users Federation of Hive, which consists of a semi-autonomous and self-governed Republic of Lions, Neoxian Polis, the Realms of Splinterlands, and dozens of other places. Anyways, $1.5 million is quite a lot of money we’ll have to give away. The question is: What do we get in return? Is there a profit for any of the communities or the network itself? And if it is paid out just to keep the monster calm, how about cutting it by bits every week or month, so it would starve to death rather than slaughter us in rage?
I would happily offer this money to anybody who could onboard active users for, say, $200 per person. That is 7,500 newbies, of which about 2,000 could stand the test of time and survive for at least a year. Does it sound too little for too much money? Those 2,000 authors would easily add more value than we spend on their acquisition, unlike people who only stake HBD.
Using HBD as a country-issued bond is a retreat to the very basics. Consider it spending money we don’t have yet. It is fine as long as the risk/reward ratio is in our favor. I am sure that currently, the risk/reward ratio is in favor of those who Save HBD, not in favor of the community. Let’s discuss that matter openly and come up with better ways to invest these bonds smarter!
Posted Using InLeo Alpha
Posted Using InLeo Alpha
Tvůj článek jsem si prohnal překladačem stejně jako ten Tvůj první na tohle téma. Stejně si proženu překladačem i všechny reakce, které se mi na zádkladě mé znalosti angličtiny budou zdát na první pohled relevantní, jako jsem to udělal i u minulého článku.
A jsem zvědavý...
Great overview and I certainly concur. It would be far healthier if we reverted back to the white paper.
Thanks for the opinion :)
I always read your articles with great attention. But I still don't understand where the HBD interest comes from?
I thought that interest on HBD is essentially created "ex nihilo" (out of nothing) by the blockchain network. And that basically, the Hive network creates new HBDs to pay interest on savings accounts.
I think I'll stop commenting on your posts related to this. I'm not participating in the debate at all and wasting everyone's time. But I just wanted a clarification on this.
Well, yes, it is created out of nothing just like new Hive tokens. However, the emission of new Hive happens according to the code and the rate is known. HBD created to cover interest are then backed with some of that Hive from the Reward Pool - instead of giving the new coins away to authors and curators, they are given away to the stakers, if I put that very simply.
I believe we all shlould be aware of those things, if we want Hive to succeed in the long term. It's important to realize that even in the world of crypto, you cannot create something sustainable out of nothing. True, you definitely can generate some buzz and sell nothing for billions, but that's something completely different than what Hive should be.
Okay yes I understand better. Basically, instead of better remunerating creators and curators, we're giving too much income to stakers? Is that it?
In that case, indeed, lowering the HBD interest a bit would allow people to focus on value creation and curation instead, because that would then be the most remunerative.
I'm saying this in simple terms, but it's to help me better understand this economy.
Yes. There is one huge bag of minted coins, and we opted for this commitment - paying some of it out for HBD staking.
It is good that people are getting some profit in case of APR so people will surely stack it here.
A high interest rate doesn’t seem to benefit the blockchain a lot. It surely does benefit huge savers. I consider the high interest rate an extremely attractive feature of the Hive blockchain, but if it is not helping us grow exponentially maybe it is an investment that is not worth it, because the interest will make the debt grow exponentially.
Yep, I feel it the same way :)
Nepochybuji, že sis toho článku také všiml.
https://ecency.com/hive/@pharesim/hbd-stabilized-at-20percent-again-for-now
I já mam teď čas a chuť sledovat, co se tu děje.
Všiml jsem si toho. Článek jsem nezaregistroval.
Compared to what?
$1.5M is a very small amount.
At the current level that's only 1% of the Hive market cap.
Tiny tiny tiny number.
The smallest of numbers.
The fact that you're trying to twist it and claim this is a big number is very suspect.
Do you have any idea how many senior blockchain devs $1.5M would pay for in 1 year?
Yeah they make like $500k a year so 3 devs.
It's an absolutely nothing amount.
You also misrepresent the issue by assuming that Hive even has to pay back this debt in the first place. We don't. The demand for HBD is growing. 20% yields help it grow. If HBD grows 20% a year then we NEVER have to pay back the debt. Ever. You also haven't calculated how much true value USD declines every year due to inflation and the CPI. USD going down in value means the debt is worth less, meaning we have to pay back less.
Also bringing the whitepaper into this is ridiculous. Not only does it not matter what the whitepaper says (it's a document designed for bootstrapping the network at day 1) but also savings account yields have existed forever. We didn't add them after the fact. They are in the whitepaper and you've just ignored it. So shady.
The only one thing you got right here is to point out that our debt ratio is 7%. Yep, that's the only thing that matters: making sure the debt ratio isn't volatile. Which is isn't. 7% is low.
Here's the problem:
The bull market is going to roll around and number is going to go up, and then all the people like you who were talking about reducing the HBD yield are going to go away because that's the real reason you're making the argument: greed. Number go up. This is ironic because the bull market is the EXACT TIME we need to be reducing the APR to pop the debt bubble before it gets too big. There is no bubble to pop right now. Stop pretending like there is. It's tedious.
Thanks for the response. I would have upvoted it if you already haven't done so.
I see the $1.5 million as paid out for nothing. The three senior developers would most likely deliver something within the year.
Where can I see that the HBD demand is growing? Is there any data for that?
Yes, the USD loses a bit of value day by day. However, stablecoins are designed to reflect that - you have to count in that 1 HBD in 2025 would worth less than today, just like you do so with fiat.
Could you please explain why there's no payback if HBD grows by 20% per year? We can create more HBD anytime simply by converting Hive.
Regarding the interest mentions in the Whitepaper, you're right. I am sorry for that, here it goes:
However, I still believe the money could be used better way. I don't see the point in assuming I would or would not do - and that's not a valid argument in any fair discussion. I also did not suggest that there's a bubble.
The fact that you're asking this question is very troubling.
If you are making these arguments to change economic policy then you should already know and have the data presented in the original post. Instead you have no data and think we should determine our economic policy based on feelings and half-cooked theories like "printing money bad".
In fact you clearly already know where to get the data but you refuse to use it because you can't use it; the data proves your entire theory wrong. All the information @dalz puts out shows that 20% is perfectly sustainable and that inflation rates of Hive are doing great.
It's clear as daylight and I'm tired of everyone on this network being blinded by the light and parroting the same ignorant message based on feelings instead of the actual data. THE REALIZED INFLATION OF HIVE IS LESS THAN PROJECTED BECAUSE OF HBD YIELDS. 20% yields are MAKING US MONEY. WE AREN'T LOSING MONEY WE ARE MAKING MONEY. IF 20% YIELDS DID NOT EXIST HIVE WOULD OF CRASHED BACK DOWN TO 10 CENTS LIKE IT ALWAYS DOES.
Having to make these arguments over and over and over and over and over again to the same fucking people who can never defend their own position and just continue believing the bullshit without any evidence whatsoever is aggravating as shit.
Again, statements like this show that you don't understand economic policy. There is not a static amount of money that can be printed. We don't have have a budget. We don't have to choose where to allocate money and where not to. If HBD yield goes away we don't suddenly have extra money to spend somewhere else.
Printing money is an investment. If we allocate these investments wisely we can continue printing money forever. 20% yields on HBD is a better allocation of resources than more than half of the projects being funded on the DHF. I guarantee it.
Yes, you absolutely did.
Is this a joke?
Are you fucking kidding me right now?
More bullshit:
The burden of proof is on YOU, not me.
The inflation rate of Hive is LOWER than anticipated.
Hive is not being created because the demand to hold HBD is high.
You are trying to lower it.
Fuck around and find out.
In conclusion
It's very easy to see why so many people would believe that 20% HBD yields are unsustainable and unfair. The simple fact of the matter is that economics are complicated and this is not a popularity contest. You're all wrong, and you have absolutely no hard data to back up these claims. All the data leans in the exact opposite direction.
Now is the absolute best time to be creating debt. Creating a lot of debt is the same thing as going long. You go long when the price is low and you pay back the debt when the price is high. Buy high. Sell low.
Instead what we have are a bunch of people panicking and trying to sell the bottom like they always do. No thanks. That's not going to fly.
What I see is that there’s more HBD converted to Hive than vice versa. That does not seem like a growing demand to me. The projected and realized inflation are now levelled, and they weren't. I'd say we actually experience a drop in HBD demand.
Nope, I am not kidding you. The only real argument to support the interest rate on my previous post was that if it was lowered, people will dump HBD and hence Hive. As this scenario sounds reasonable, I wanted to point out that the thing that scares us, the dump, would occur anyways once the interest is lowered below certain threshold perceived as a breakpoint by people who hold HBD in Savings. I did not say it was a bubble. I used the monster-likening as in my experience, such things make the message more comprehensive.
If it is easy to see why people like believe the interest rate is not sustainable and/or fair (I believe it is not beneficial to Hive as a network for several reasons mentioned in the previous post), it may not be that difficult to articulate the reasons for the rate in a comprehensive way and without labelling. Just a side-note: I am not going to dump my Hive anytime soon, quite in contrary. I am happy for the low price as it makes earning my share easier. However, unlike most crypto, Hive is currently under its February 2023 price. It may be due to inefficiency of our DHF proposals (and that’s yet another topic that would need an extensive discussion), but there can be other factors influencing it.
Well I have quite a bit more to say on this topic but it's very easy to see that I'm overly triggered and sensitive to the issue.
I guess my final thought points to something you said earlier.
It's statements like this that are extremely frustrating and further add to this theme of forging an opinion without really knowing how these things work. We are debating as to whether 20% yield is sustainable to HIVE. Of course it would matter if the debt we owe back is less over time. But instead you completely disregard this fact and compare HBD to non-algo stable coins as if they are the same thing. They are not.
If the value of USD gets diluted by inflation, the collateral of dollars in the bank stays exactly the same. But in that exact same situation the value of Hive goes up in terms of dollars because USD has gone down. Meaning that the value of the collateral (HIVE) goes up on an algo stable-coin, and we will in turn owe back less money if and when HBD gets converted back into Hive. This makes HBD more sustainable over long periods of time.
The comparison of HBD to bank-backed coins is a complete false equivalence and totally confuses the issue. It has absolutely no bearing on whether 20% is sustainable or not, and yet you presented it as though it was some kind of infallible argument. This is simply just not how any of this works. The entire system is extremely counter-intuitive and you can't just wing it and hope you get it right.
Thank you for this discussion. I understand that the topic is not that intuitive, that’s why I also wrote this in the opening paragraph:
I’m not disputing the sustainability, rather the benefits. Yes, I am aware that HBD is more a voucher for Hive worth $1 rather than a true stablecoin, and hence it suffers from USD inflation we cannot affect anyhow. That’s why I don’t advocate zero interest rate.