HBD: The "Safe" Stablecoin?
The Hive Backed Dollar (HBD) is making a lot of progress. Since it came into focus the last few months, a great deal was done to improve it. Through those efforts, with culminated with the changes in the last hard fork, we saw the entire scope of that token altered.
It is something that is happening at an interesting time. Stablecoins are getting a lot of attention of late, and not necessarily from beneficial sources.
Most believe that, up to this point, cryptocurrency failed as a payment system. In fact, that was the message of Chairman Powell of the Fed just last week. While that is mostly true, the speculative nature of cryptocurrency means it will likely continue.
However, there is one area that could serve this role very well and that is stablecoins. Here is where we see a major threat to the current financial system and the currencies associated with it.
For this reason, we can understand why there is attention being placed upon them.
Regulation
Everywhere we look, we see the attention kicking up. Just this past week, South Korea tightened regulations on cryptocurrency. This is all about supervising what is taking place to start while moving down the road to control them in the future.
We can presume that, when these governments see the growth to the point where a large percentage of transactions are done in cryptocurrency, they will seek to eliminate them. It might coincide with the massive rolling out of CBDCs.
Not to be outdone, Janet Yellen of the United States is going to get together with the Fed and SEC to look into the matter of stablecoins.
The guise is the threat to capital markets. This is a misdirection because the amount of money that is at play, compared to the whole, is basically an insignificant amount. The genuine threat is not to capital markets but, rather, their power. If stablecoins take off in terms of their use, this will reduce their ability to control things.
Ergo we are going to see them try and instill rules to reduce the viability of stablecoins as a new payment mechanism.
Centralization
The biggest challenge comes from decentralization. This is where the existing powers have an issue. If something is truly decentralized, there is no single point of vulnerability. In essence, there is no place for them to turn.
Unfortunately, this is not the case with the present state of most of our stablecoins.
It is also something that did not go unnoticed by the powers that are. These same regulators are taking a closer look at what is taking place. Again, we can expect clampdowns especially since there tends to be a point for them to go after.
They even have a term for these entities: shadow banks.
One that is moving towards their crosshairs is Circle. With the issuance and popularity of USDC, they have gotten on the radar of the United States regulatory bodies. The fact that they are moving towards a stock exchange listing is only bringing up more scrutiny.
With more regulators watching stablecoin growth, the Federal Reserve chairman said they are close to weighing in on the role that crypto will have on the US money supply. Circle’s listing through the SPAC merger has raised concerns about transparency.
This will most certainly result in greater regulation. Of course, the writing is on the wall. Even Powell said this week that stablecoins do offer more efficiency but would not be necessary with a digital currency from the bank.
Hence we can see where they want to take this.
The Decentralization of HBD
The Hive Backed Dollar's biggest challenge right now is to see if it can hold its peg. As spelled out in Hive Backed Dollar becoming a stablecoin, the range on the token tightened since the hard fork but we are not certain it is going to keep it as time pass.
If the peg on HBD does hold, we are in for some very interesting times.
To start, it is best to clarify what backs the Hive Backed Dollar. Too many seem to confuse it.
HBD has nothing to do with the US Dollar. This is not tied to fiat currency in any way.
Here is what it is: HBD is $1 worth of Hive. It is not worth $1.
The USD is simply a unit of measurement. HBD is backed by Hive, $1 worth. The unit of measure does not change, if pegged, although the value (the amount of Hive for each HBD) can.
Thus, we see their is not tie to the USD or anything the Fed is doing.
We also know there is a decentralization that is in place already. The situation with Hive Blockchain, the company proves that. With Hive, there is no single point of access.
Source
HBD resides on the base layer of the blockchain. It is not controlled by any single individual or entity. All the witnesses run nodes that validate blocks on a rotating basis. This is all set by the base code and run all over the world. The witnesses are not located in a single country nor are all of them known. Plus there are the 100 or so non-consensus witnesses who validate blocks on a rotating basis also.
Therefore, HBD does not have any association with the physical world. There is no corporation or foundation behind it. If someone did want to come a-knocking, there is no door.
HBD operates entirely in the digital world. Sure, there are servers that are running things yet they are spread globally, with a couple operating in individual homes.
Could we see a stablecoin that is out of the reach of the establishment?
As stated, the only question is whether HBD can operate as a stablecoin. If it can, there is little doubt it is out of reach from the establishment. It suddenly becomes akin to file sharing. While they could go after Napster, they could not stop the wide spread use of it, even 20 years later.
Stablecoin regulation will be the same. If there is a company to go after, they will do that. However, something that operates without this will circumvent their control.
As a final note, we also saw the interest rate of HBD that is in savings increase from 7% to 10%. Now it is on par with some of the other returns provided by DeFi applications.
The savings rate on HBD was increased to 20% in mid-2022.
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Good analysis. I would have liked you to say some more about what you mean by 'interesting times' should the peg hold.
It opens up a lot of doors that means we can push many more projects to it. That could really change how things are viewed around here.
But the first is us to get a track record as a stablecoin.
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BEER.I wonder if the recent increase in the HBD interest rate puts downward pressure on Hive? does it mean more inflation? I am sure there is a trade-off somewhere.. but I am looking forward to parking some money in HBD now its a decent return.
The amount of inflation generated by HBD interest is very small compared to other sources of inflation in Hive. There's a couple of reasons for that: 1) HBD total supply is effectively limited to 10% of Hive marketcap and 2) most of that HBD is held on exchanges and in the DHF (i.e. not in savings account where it can receive interest payments).
Do you think its is important, just for optics to new investors, to have the % of interest with the savings wallet of HBD to hold steady at a consistent % at least annually to not confuse new investors. If that makes sense. Just wanted your input as I'm ignorant on a lot of financial matters
Do you think its is important, just for optics to new investors, to have the % of interest with the savings wallet of HBD to hold steady at a consistent % at least annually to not confuse new investors. If that makes sense. Just wanted your input as I'm ignorant on a lot of financial matters @blocktrades
It's a judgement call. There's value to consistency. There's also value in flexibility. If the USD starts to inflate heavily, it will be better to be able adjust more regularly.
Thanks for your input!
How is the market cap limited to 10% of Hive? Is that because hbd is only created by 50% of the rewards and there is no other way for it to be created? I thought in HF25 we can now exchange hive for hbd, is there a mechanism in the exchange process to limit supply?
The blockchain stops producing HBD if the value of it reaches 10% of that of Hive.
It will pay out in liquid Hive until the percentage drops below 10%.
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Makes sense, by the sound of it, everything has been thought through quite thoroughly, which is great, gives me confidence
There are a lot of reasons to be confident about Hive in general and HBD in particular.
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It is one of the best APY stablecoins on mostly any DeFi project, and since it is backed by Hive I think it is much more transparent than USDT for example. If Hive had bridges to other blockchains, or at least easy to develop smart contracts, it would unlock a huge potential (I want to develop something like that but no idea how/where to start)
We will have to see how things spread. A HBD/USD pair somewhere would be helpful. As for now, we just have to keep working on it holding and expanding the use cases.
If we can do that then perhaps HBD becomes a desired token for others to pair with.
I would like to see Cubfinance incorporate it in at some point.
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From what i have noticed so far, the fluctuations are quite small for this. HBD among stablecoins!!...that would be interesting. I would really like HBD to be seen as a stable currency for this digital world.
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Yeah so far, it is looking good. We will see how long it lasts with time. It is only a few weeks but we have to start somewhere.
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I hadn’t noticed the bump from 7% to 10%. I’m happy about the shift toward initiatives to attract people with a long term view of things.
This alone should go a long way toward filling the community with people less interested in a moon shot and more intrigued by what’s actually being built.
Your comparisons to Napster always delight me. This particular reference to it got me to thinking about how the world would’ve treated it if we had warning and hype around it like crypto, rather than it just being dropped into the mix out of nowhere (from my position at the time, anyway).
Would there have been zealots spreading the gospel of free music and the utopia of having every song on demand for free? Probably. Would anyone have really cared, even as they were feeding money into a jukebox with only a few hundred options? Probably not.
Even now there are people who don’t appreciate the ease of access we have to things we used to have in limited supply but there’s no arguing it’s an ongoing shift.
It was so long ago that people forget how things were before the introduction of Napster. It introduced a technological breakthrough that few were prepared to deal with.
The analogy is probably correct. We would have a lot of people shouting the different agendas. But in the end, we saw the world of music change a great deal.
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Yearly inflation is looking to be higher in usd. Hardly even. I wish we’d focus 100% on hive tokens. There’s already stable coins with track records. HBD or before ur steem dollar were a means to have part of reward in something stable. I think it’s use case is that. HBD as a all around stable coin makes no sense to me. Maybe I’m missing it 🤷🏼♂️
I think having our own stable coin not directly tied to the fiat system is the point.
If investors and consumers know they can transact here without the volatility the crypto space is infamous for it gives us a competitive advantage.
HBD is close to it's peg after the hardfork. Seems like we are getting there.
I am happy to add all of my HBD Author rewards into savings and see it growing on its own. It's 10% now so why not.
HBD savings is a cool 'no-risk' DeFi option.
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This is a great statement. I am going to tweet that exactly saying out here today. Really promote the concept. If we all do it, we might get some traction on Twitter.
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No risk?
You own your keys, you own your crypto/funds/money. There are no chances of rugpull since there is no central authority that owns the funds.
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That's a great idea T. 🚀 I will tweet about this as well.
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You're right, let's see how pegged HBD will be, for now, the biting dip is affecting it, I think 0.98$ to 1$ would be decent.
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If we could hold for a while between .95-1.05, I think that would be tolerable. The witnesses could always make some more adjustments to try and tweak things.
The HDB stabilizer could also get more effective as time goes by. We need more people engaging upon arbitrage.
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Yeah, I believe we could have a little tweaking here and there, I guess it'll be better over time, we would benefit a lot from having a stable HBD.
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A stable HBD would going a long way towards pushing the entire Hive ecosystem forward.
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Well at least so far the HBD peg hasn't really dropped as much. I think the mechanisms will bring prices down eventually but I still think we have to pay attention after what happened to IRON/TITAN.
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What do you mean? Wasnt that a rugpull?
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I think it was kind of someone abusing the algorithm they were using. By removing liquidity then selling the tokens, the price was knocked off peg and it destroyed a lot of people who had the base token since the price tanked.
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The difference is the coding for HBD is in the blockchain. Hence it cant be changed without a hard fork and has to be done openly.
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The sweetest part of HBD is "Decentralization"
Would like to see them go after what is not controlled by any body.
Hard to do that. There is nobody or entity to contact about it.
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I think central banks have it wrong. Their main purpose is to manage the money supply. Unfortunately, they rely on data collection, analysis, and meetings to decide what the monetary policy shall be. Even politics plays a role. It is retrospective in this regard.
Stablecoins introduce an efficiency into capital markets in that as money is needed, money is “created”. In the case of DAI, the creation and destruction of tokens is managed as needed on a continuous basis. In this regard, stablecoins are better at monetary policy than the geniuses at central banks. Unfortunately, the scale is only large enough for the crypto market, not the economy as a whole. This is something remedied in time.
Centralized stablecoin has a disadvantage that it requires dollars to be deposited to mint the equivalent in tokens. There is no net expansion or contraction of the money supply.
Decentralized stablecoin like DAI and HBD, mint new coins through overcollateralization of underlying assets. The power in this is that, unlike central banks that print money out of thin air, stablecoin prints money that is backed by other assets. And if the money supply is too big, causing the peg to slide, burning tokens releases collateral back into economy.
Tether, it’s hard to say. Tether is a mess. They have some cash and other assets supposedly backing their stablecoin. Yet, like with Doge, good sense evades holders of USDT.
Coming back to HBD, the market cap of Hive will be a wall that we would hit if HBD gains traction, as HBD is limited to 10% of Hive. The workaround is to buy more Hive to convert to HBD, which simultaneously increases the market cap of Hive as the blockchain switches off HBD rewards. In other words, we would have to add capital to Hive to be able to mint more HBD. That could drive up the price of Hive.
I still don’t know if HBD paid in interest comes out of thin air, or if it is subtracted from the reward pool and paid out to savers.
It is just created and is separate from the rest of the issuance schedule. It has been there from almost the beginning of Steem, initially 10% APR, but it was largely ignored after witnesses set the interest to 0 because SBD was overpriced, and then never bothered to increase it again when it went below.
Even being outside of the normal inflation schedule, it is an extremely small source of inflation, there is no reason to expect it to become a large source of inflation, and the rate can be managed downwards again if it ever looks like it was somehow a problem.
If it becomes a lot more, than it means we have a major success on our hands. There would have to be a ton of HBD created and entered into savings.
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You nailed it with this comment. You are right about central banks. There are many things that influence their decisions, many of which takes them away from concentrating on the elasticity of the money supply. And yes the Fed has become politicized.
HBD's greatest value is that it can expand and contract as needed. With the ability to convert, we will see the value of Hive potentially moving due to this.
If HBD can increase in value, through creation and economic activity, we could see it push the value of Hive higher.
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Another thing to note here is that HBD is pegged to whatever the witnesses say it's pegged to. If the witnesses say Hive is worth $3 in the price feed then for all intents and purposes that is what HBD will be pegged to (0.33 Hive per HBD).
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That is true too. I think the fact that it is tied to Hive but that can freely float makes it very attractive.
For now, we will just have to see how much arbitrage is taking place to try and keep it pegged.
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Wonderful article and very insightful post.. Lets see HBD progress.
I can imagine a stable coin without transaction fee.
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If we can get the peg to hold, then we have that.
At this point, it is still an if.
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That is very good thinking. However, I wonder - if the interest rate has gone from 7% to 10%, does that also mean it can go back to 5% for example. Does that have any effect on its stability?
It can go back to 5% if the medium of the consensus witnesses reduce the amount.
I would say that if that step is taking, it will not reduce the stability but to increase it. They might need, at some point, to lower the interest rate to deter people from piling into HBD if the price is moving up too much.
But then that is where arbitrage comes in and the HBD Stabilizer.
So there are a few tools that are available to try and keep the peg. The interest rate is only one of them.
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I think we will only notice a difference in this when Hive is over $1 as at the moment what is the point investing in HBD when the opportunity of Hive to go up another 200% is still possible. I thought about it then with serious consideration have rejected this until the time is right as you would be throwing too much away investing in HBD right now. In the next year hopefully things will change so that HBD can be a plausible place to store value but right now the risk of losing out by Hive increasing is always there. Hive in my mind will go up and by a considerable amount making the 10% return on HBD look kind of crazy.
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That is if you only think of it in HBD versus Hive terms. There are a lot who pile into stablecoins for different reasons. Plus, the fixed income market is huge.
So while you are right about the choice between the two, there are other motives at time. After all, people have stablecoins and not everyone is piling into Bitcoin.
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I will also be piling in when I see Hive over $1 as I do like the idea of having many revenue streams.
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Many revenue streams and diversified returns in them. It is important to have a place for non-speculation monies.
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I honestly do not know how all this is going to culminate friend something that I have noticed is the decrease in the rewards of the publications of the asian continent, which I am not happy at all but I came to think that it could have been a goal for all users of decentralized platforms ....
I see no point in holding anything that’s point is to be Same as dollar. It’s good for short term crypto stuff. But I don’t tuu hi UBI it’s wise to promote HBD as a stable coin that’s a success. I’m team Hive through and through. Hive is very important to me as is our community. But HBD has never kept a peg and people are celebrating white it’s still moving 5% off it’s target in past weeks. I just think we need to be honest and clear. Maybe we just disagree and I’m wrong so just my opinion. It’s all respect
Cheers 🍻
It is interesting. Since Stable coins are being targeted by the FED I wonder if HBD is unique enough to stay out of the spotlight of this negative targeting? Instead of a physical asset like FIAT USD or Gold I believe HBD is fully backed by the price of Hive or crypto currency in general?
HBD is far too small to even be anywhere near the spotlight of the Fed or any other regulator. With 10 million, and most locked in the DAO, it isnt much of a token from their point of view.
The peg for HBD is $1 worth of Hive. So yes it is backed by Hive. Anyone can go and convert it for Hive at any time.
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This is a smart move, we need more stablecoins in the ecosystem. It feels good to know that my decentralized multi-coin wallet from https://atomicwallet.io/ supports most of these stablecoins.
Great seeing HBD holding strong for the past few weeks. The experiment of a true stable coin on hive might actually be working fine has intended. The recent increase in the Apr might actually help more people to save and keep the price of hbd more stable for the long term.
We are not there yet. The range on HBD still makes it not the best of stablecoins. However, it is tightening up. We might need some tweaking over time.
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Yeah, Range should tightened with time. Not a bad start so far
Very interesting ideas.
Stablecoin definitely have the attention of regulators and governments. I believe you are exactly right about the threat they pose to monetary systems due to current lack of control. The whole Facebook Libra incident showed the ability of the banks to mobilize their political allies against threats. Once Facebook Diem becomes widely known I expect a similar assault, but time will tell if Zuckerberg has managed to ”acquire” the necessary political allies to protect his next attempt to monetize Facebook further.
It’s going to be interesting to watch.
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I never thought about this before. Essentially, all the popular stablecoins right now are foundationally centralized from the perspective of pegging it to the dollar, whilst HBD is pegged to $1 of HIVE, the value of which is maintained by the people.
To be honest, this feels like a flimsy foundation, what HBD has going for it. USDT maintains its peg so well because its pegged to something that will never change in value, while HIVE is susceptible to the market's greed and fear. It'll be interesting to see how HBD is going to improve its security going forward.