Recent Run In Hive Shows The Need For HBD

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The Hive Backed Dollar (HBD) is going to be a vital part of Hive's future. This is something that was overlooked for a long time yet we are now seeing how important it is.

In this article we cover how the recent price action in Hive reveals the needs for HBD is more crucial than ever before. When the main token was acting like a stablecoin, the need was not evident. Yet, considering what took place over the last two days, we can clearly see how massive attention needs to go into discussing how to improve HBD and get more of it into existence.

We recently covered some of this in Hive Backed Dollar Taking Things To The Next Level. However, when watching what took place, we see a major flaw in our currency system.

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HIVE Now Acting Like Bitcoin

HIVE has now joined the ranks of the major flaw with cryptocurrency. It is something that plagues the industry and why many believe Bitcoin will never be used as a payment system.

We can use the recent situation with Punks on Hive. This epitomizes what how impractical the system truly is. Cryptocurrency is more often thought of like stock rather than a unit of exchange. For this reason, Hive will need to change this.

Did you know that if you bought a HivePunk during the initial release, and are still holding them, you lost money? Obviously, this is going to vary from Punk-to-Punk, yet each holder suffered during the price action in Hive.

The reason for this is, the value of each Punk dropped in value in relation to HIVE. Looking at the market, there are now Punks being sold for less than the original 20 HIVE. Many will point to the fact that the price is more than triple in USD and that would be correct. When priced in USD, things are better. However, when it comes to the value of the assets held, in the native currency, we see a devaluation.

Volatility is great for speculation, it sucks for a payment system. This is a drawback to Bitcoin as the global payment mechanism. When there is the opportunity for massive price appreciation, people are going to hold. At the same time, it will massively affect the purchasing power of the currency and the value of assets priced in that currency. This can be a positive or negative depending upon which side of the equation you are on at the moment.

Another issue we see is that Hive-Engine uses Swap.Hive as the basis for all transactions. Now, when making a purchase, there is another layer of volatility that needs to be considered that might not have been evident before.

Obviously, none of this should be the case. What is one HIVE worth? 1 HIVE. However, people do not think like this. We all are watching prices of the token in another currency (USD). This is simply how we, and the entire world, are conditioned. It is also something that is not going to change anytime soon.

Thus, we need to focus upon a payment mechanism that is based upon stability and in a denomination most everyone understands. Here we see the Hive Backed Dollar as the ideal solution.

Removing A Layer Of Risk

There is an added risk when deciding to purchase something using HIVE. Certainly, this can be an opportunity for those who are astute in arbitrage and playing market inefficiencies. However, for most people, this is a pain in the hind end.

Simply put, when making a decision to purchase something, one needs to decide whether that asset (token) is going to appreciate more than just holding HIVE. This is especially true since most of us are valuing, at least mentally, things in USD.

HBD eliminates this for the most part. We know there also is volatility in this token so it is not yet the ideal stablecoin. However, the range is much tighter than with HIVE and it is something that is being worked upon. A great deal of the volatility will diminish if more HBD is printed and on the open market.

As a tangent, there are still some people who believe that HBD is backed or somehow tied to the USD. It is not. The Hive Backed Dollar is backed by $1 worth of HIVE. In this instance, the USD is the unit of measure, nothing else. We also are tying into the universal pricing mechanism along with lower volatility as compared to other asset classes.

This eliminates the loss that occurs when staying within one currency. Going back to the Punks, because of how people operate, a Punk both for 20 HIVE is now being sold for 15. This means the person has 5 less HIVE than before. Does it matter to the holder if the person has more in USD, BTC, or Mexican Peso? What if the person is not going to convert into those currencies. The bottom line is that asset is worth less in the native currency for the blockchain.

With HBD that is not a problem. Buy something for 20 HBD and sell it for 30 HBD. Here we see a 10 HBD profit. If this currency is the payment mechanism, this move could pay for one's 10 HBD per month subscription.

This is the value of a pegged currency to a universally understood unit of exchange.

Does this all sound like a mental exercise? At the same time, does it seem rather complicated? The answer is yes on both parts. That is why those who have the acumen to navigate this can arbitrage situations for even greater financial gain. The reality is that complex systems, which economies are, rarely break down to a simple stimulus-response scenario. There are always many variables in play as evidenced here.

Few discuss stability as a main criteria for an economic system yet, as we can see, this is something that Hive needs to concentrate upon. HBD helps greatly on this front.

A New Convertible Bond

The Hive Backed Dollar is becoming a completely different asset class. Essentially, we might be remaking the convertible bond. This is going to revolutionize how funding mechanisms works while expanding the overall value of the entire ecosystem.

To start, let us look at the definition of a convertible bond from Investopedia:

A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond's life and is usually at the discretion of the bondholder.

As a hybrid security, the price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's credit rating.

We can quickly see how this is instantly improved.

HBD is blockchain-coded debt security that yields interest payments and can be converted at any time based upon market prices. There is no concern about credit rating or interest rates in terms of the value since it is a pegged asset. The interest that is paid comes in the form of more HBD, not another currency.

Essentially, we are looking at a pegged fixed-income security that is convertible at any time. The asset can be held for the long-term income stream which can provide the resources for other things.

Does anyone see the potential with this? @theycallmedan did and he solved perhaps one of the biggest equations in #Play2Earn gaming.

Without stealing the thunder from his announcement, which more information is on the next Community Token Talk episode, we can see how this can be implemented. By creating a sink for HBD, one where it goes in but does not come out, we see the funding mechanism for in-game payouts in place. HBD is used to purchase whatever is needed for the game, the money placed into savings, thus generating an income. The later is then used to reward the players in whatever manner is established.

Obviously, as the game grows, more players equates to a greater number of purchases, thus increasing the savings. That means larger reward pools for the game over time.

Just think of what communities can do with this concept. They start to develop an economy around whatever topic brings them together. As they engage, the size grows, meaning more HBD is being utilized. They could start to lock some into savings, generating a return for the community. Here we see how projects could be funded at no expense to the community itself. This provides a greater benefit to each member.

What this means is that we are going to require a lot more HBD printed. The numbers truly do get ridiculous when we think about it. For this reason, the 10% interest rate is not going to suffice for long.

Just looking at USDC, from the Circle website, this is what we find:

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Let us compare this with HBD:

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It is evident there is quite a difference. To be a major player in this arena, the amount of HBD needs to expand greatly. Of course, we need to keep in mind this is a truly decentralized stablecoin since there is no company who is behind it. Also, with no ties to the USD, or claims to be backed by them, the regulators cannot do much about it.

As our present regulatory environment grows, do you think this will be a value asset to the cryptocurrency community?

The opportunities presented by HBD are enormous. This is something that is going to truly benefit the Hive ecosystem if we focus upon it. We are treading upon new territory with this asset. It can truly revolutionize the way things operate.

Our next step is to start getting utilization in place so that we can start to generate demand. This will force the creation of more HBD, which can only be done with HIVE. What happens when the demand for something increases while the supply is actually decreasing?

I hope people are starting to connect the dots with how massive this can be.


If you found this article informative, please give an upvote and rehive.

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Bang, I did it again... I just rehived your post!
Week 82 of my contest just started...you can now check the winners of the previous week!
!BEER
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(Edited)

The original name is Hive Blockchain Dollar not "backed". The lawyers for Steemit and Justin Sun were keen to make this point in the Bittrex case.

With the current regulatory discussions I think it's strongly preferable to stick to Blockchain not Backed. The HBD is backed by Hive which is a utility token. It's not backed by the USD. Might even be worth editing your post.

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But reading this again now I'm seeing that it can be read that the HBD is a Dollar backed by Hive. 😊 now I'm thinking what I wrote at first is nonsense.

Carry on.... 😂

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That might be the case and thanks for the correct. That said, perhaps it is a smarter move to change the name to Hive Blockchain Dollar.

That could help to alleviate some confusion.

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Personally I would call it an Oracle Dollar.

This is a more generic term that could describe most algorithmic stable coins.

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I would not be surprised if regulators tried to make arguments based on how users and frontends interpret the backend data. They are in for a rude awakening.

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Lawyers are wrong, why does that surprise you? The meaning of HBD has always been "Hive-backed Dollars" (and just to be clear, SBD stood for Steem-backed dollars, although I wouldn't be surprised if someone tried to retcon that).

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Obviously you were around and I defer entirely to your recollection. The more I've thought about it "Steem Backed Dollar" makes sense as a "Dollar" backed by a USD $1 worth of Steem.

I do remember finding it odd that Justin Sun's lawyers seemed to be so adamant about correcting the record on this point. It doesn't make any difference to their case as far as I could see.

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My issue with any stable coin is: How do you know its backed by USD? And why do you want to use a currency that devalues?

I would much rather have higher volatility for long term growth than hold a slowly depreciating asset but market conditions are easy to predict.

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Hive wants hbd for the same reason the fed wants fiat. The devaluing nature of hbd lowers our debt every year.

Also hbd is governed by oracle price feeds. We can stop it from devaluing if we choose to do so.

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The issue is the token's name will always indicate it should be pegged to the dollar. People will sell above $1 or buy below. So in effect, the FED controls it.

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I mean it's very hard to take you seriously because you essentially just said the FED controls HBD because "dollar" is in the name we gave it. It's not hard to change the name and what its pegged to.

The FED doesn't control shit, and the devaluing nature of HBD actually helps people who hold Hive.
It's a win/win in pretty much every scenario.

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Well the fed controls the dollar and that is what HBD should track in everyone's minds.

I agree, it's all positive for hive.

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To what extent does the FED control the dollar?
They can't control demand for the dollar, only the supply.
And even then the way that the FED operates is well beyond 99.9% of most people's understanding. (including me)

This idea that the FED "controls" the dollar and therefore controls all derivatives of the dollar is provably false.
They can barely handle their own currency, let alone all the derivatives of it.

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I guess that is true, but ultimately as shown by covid they can massively devalue it on call. And yes the market decides its price, and yes its asset purchasing and credit creation, but they have ultimate power at least in short term.

If they wanted to increase the price they can just slap a few % interest and they know the market would adjust.

Its an interesting conversation, and many factors at play.

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That's why ice cream comes in more than one flavor.

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Honestly, I've been quietly unimpressed with the concept of the stable coin that is HBD, but I have to rethink that now. It is very impressive how well it has been functioning, especially with this latest crazy pump of Hive.

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Still needs work. Not enough liquidity that makes it too volatile still to be a strong payment system.

But we are getting closer.

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The reason I would have to pay Hive for HivePunks was a pretty strong reason why I wasn't in a hurry to buy any, especially at this time. I agree, we need to grow HBD as a payment currency for products/services.

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When HIVE didnt move for months on end, few thought about it. Yet now, we see a massive run up in the value of HIVE, people start to wonder when they see their assets devalued in terms of HIVE.

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Luckily Marky buys back punks occasionally. Even the lower tier ones he will basically give back your Hive if you choose to do so.

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Not saying people wont make money and that Marky was at fault for taking HIVE. He did what he had to do.

The HBD isnt really an option at this time anyway.

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So if it was priced in hbd you'd of sold hive for hbd and still lost the same amount? Pricing nfts in hbd is not a solution to this opportunity cost problem.

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It is if people start getting paid in HBD and utilizing it. Then we would have it floating around and in our wallets.

Not everyone is holding all in HIVE.

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I have some HBD so I would have used that if I wanted to buy. But that's not really the issue. The real opportunity cost was paying with funds that are the basis for a few major airdrops in the near future. About HivePunks I didn't know what to believe, and by the time I wanted to check them out they were already sold out anyway.

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I wonder if the pump is a good or bad thing for the HBD. Of course we are no where near the print limit is and we are also generating more HBD from comments/posts but is it enough to help guarantee prices? At least currently it does seem somewhat pegged.

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It has been a concern seeing how hbd devaluated during the pump. I think it would be good to discuss more on it

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I was thinking about that with hivepunks as well. However I concluded that even if punks were priced in hbd this wouldn't have prevented any losses in terms of opportunity cost. Either the value is stored as hive, or it isn't.

Nfts are a good hedge against hive volatility no matter what currency they are priced in.

Of course hbd is a great thing to have around. This is a base case showing the value of using witnesses as oracles via price feed. Stable value is fundamental across dozens of applications.

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(Edited)

Well from a newcomers perspective I would just it just depends on where you see the 3 day projections after the fact would be right? If we were looking at it in terms of hivepunks vs hbd. If you thought that hive would go up within 3 days then hbd would be the better purchase method and if you felt that hive would have gone down then hive would have been better purchasing method.

But seeing how nft's in this space are slowly being rolled out I'm sure many people moving forward will offer a choice or pricing in both for convenience sake and to give that power towards the consumer. Also I like that statement you made about nfts being a good hedge against hive volatility, but I think in terms of future it maybe the opposite as nft become more of a thing here, hive will be used as a hedge against nft's haha. It's a balancing act same thing happening in eth on opensea.

Just like in splinterlands you can convert either hive/hbd into credits rather easily I hope as developers create and build they make the option easier. Like in rising star although you can utilize and price in anything there are only 3 main scroll downs just simply adding hbd as a 4th scrolldown is steps in increasing awareness.

Ah interesting I just now noticed both of their front end shows leofinance hahaha so how come on yours it doesn't show anything? Does that mean all those that don't are on POB frontend and it only shows if people are posting on a foreign front end?


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Just converted some Hive into HBD! Probably the best bet this black friday

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LOL well if we get some more use cases, might be a good move.

Also could be good if you think the price of HIVE is going to continue pulling back.

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Either way I am happy. I would say a pullback to a 1.60 that's if crypto respects some trend lines which it doesn't always. I would be even more uber bullish if it went back to that.

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@taskmaster4450le I love this article and the amount of research you put into the concept of HBD bringing more stability to the HIVE price. I've only recently started holding more HIVE thanks to some of your earlier posts a few months ago.

My biggest question after reading this, is how to we create more HBD? Is this something we can do as curators by choosing to receive HBD instead of HIVE when curating posts?

Thanks again for all of the great information you continue to provide to our community!

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HBD is being created all the time in two forms: payouts to post authors and to fund the DHF. There's no option to earn HBD by curating though, you have to post to get it.

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Also when there is a large imbalance, another way to create more is to convert HIVE to HBD (w/5% fee)

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I know a lot of people sell their HBD to gain more HP. I decided to rather leave allocations as I receive them. In essence, it's a hedge, giving me the best of both worlds.

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great post, I would invest/buy more HBD if it were more stable. So increasing the haircut to 30% would be a good start to get more into people's hands which should stabilize it

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In the pump, one of the things I bought was a bunch of HBD with my hive! I was glad about that purchase for sure. It’s done well for me in the end since I’ve doubled my hive if I sell the HBD as it is right now so I’m happy with that!

The use of HBD in the future like with Dan’s idea and game should be incredible! I think it will certainly stabilize some stuff and generate a fair bit of interest in the process.

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The sink idea seems like a winner. Would also like to see a way to easily cash out HBD to a bank account. And/Or be able to buy things with HBD.

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I agree, we need to have like 1 billion hbd for it to be useful

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(Edited)

HBD is unlike most convertible bonds in that: 1) there is no ability to hold it to maturity and receive payment in anything other than 'equity' (native HIVE token in this case), and 2) the conversion ratio is variable, not fixed. The latter is why convertible bonds can trade up or down depending on the stock price but HBD mostly won't.

When the haircut rule comes into play, the conversion ratio becomes somewhat fixed, and HBD may trade more like a traditional convertible bond, moving up and down along with the HIVE token price.

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I agree. It took me a while to understand the stabilizing effect. This extreme price change made me appriciate it.

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