There seems to be a consensus among some that the 20% APR on Hive Backed Dollar (HBD) in savings is unsustainable. Many are claiming that it has to come down. The view is tied to returns that we get from other investments and how the Fed's interest rates are radically different.
Hence, 20% is unsustainable, or so goes the thinking.
Of course, to draw any conclusions, it is imperative that we drill down to see exactly what is taking place. This is what we will do in the next series of articles.
Image by @doze
What Is HBD Interest?
This seems like an odd question. Naturally, everyone knows what interest is.
When we go to a bank and deposit money, the bank (in many instances) pay us interest. We deposit currency, which results in more being returned.
It is the same thing with HBD being placed in savings. The coins are moved into that account and the wallet is paid interest on a monthly basis.
The same holds true for bonds. When we purchase something as a U.S. Treasury, money is paid in (as a loan) and we get that back plus interest.
Overall, it is a very easy concept to grasp. Or is it?
Here is a question: where does the money come from to pay the interest? Now compare that to HBD.
The difference is that interest in the existing system is paid with existing currency. With HBD, we are seeing new coins created as payout.
Therefore, the interest on HBD is actually inflation.
This means the question is not whether the interest rate is sustainable but, rather, the inflation rate.
We also have to keep in mind this is only part of the rate. The payouts in HBD for posts and comments is factored in. We also have to look at the conversions which can expand the inflation or, even, turn HBD deflationary. Of course, this is all against the backdrop of the market capitalization of $HIVE, which is a free floating rate priced in USD.
HBD As A Foundation
We can see latest HBD in circulation (minus the Decentralized Hive Fund). There are just short of 12 million floating freely. Part of this is the HBD in savings which has a 3 day lock up period.
In this article we will not go into the specific amounts along with the growth rate. That will be the subject of an upcoming one. However, what we need to focus upon is the total is a miniscule amount in proportion.
The other thing to highlight from this chart if the conversions and stabilizer rows. Notice how they are a negative 23 million between the two of them. This obviously can fluctuate based upon the needs of the community along with present market activity. Here we see many ways to alter the inflation as well as exciting supply of HBD.
Finally, at present, there are few use cases for this stablecoin. Many often discuss utility in reference to cryptocurrency. Unfortunately, they are often referring to value capture tokens. The true utility should be on stablecoins since that is a viable medium of exchange.
For this reason, HBD has the potential to be a foundation for Hive. With so many new projects arising on this blockchain, we can see how having a built in stablecoin at the base layer could be an advantage.
Going forward, the focus should be upon developing commercial and financial utility for HBD. Here is where the equation shifts completely. In fact, in the next article, we will cover how that impacts the amount that is required.
Larger Pie
This is a bit of a tangent but it is an important piece of the conversation. We are looking at a pie that is likely to be much larger in financial terms.
There are a number of reasons for this. Two of the most important are:
- life in the digital world
Unlike the physical economy, which is constrained by atoms, we live in a world of bits. Expansion in the digital realm can go much faster and to much higher degrees. This is why the likes of Facebook and Google achieved high valuations.
As we keep expanding this realm over the next decade, with more advantaged technology, the pie is going to grow in a major way. Just consider the impact of something such as artificial intelligence (in the different forms) and how much economic production that can bring to the table.
This is another subject worthy of its own article. However, the point here is not only will DAOs alter the ownership share but it also captures another layer. Whereas present corporations deal with equity and debt layers, DAOs incorporate the social layer. This is vital when looking at the digital realm.
We often mention the combining of social media and finance. Here is an example of where the network effect from social media activities have a direct impact upon value. Without tokenization, it is arbitrary how much is captured. Certainly, there is no way to financialize this.
With cryptocurrency, that goes out the window. Not only can that value be accumulated, it can be harnessed as an asset. This is the value of tokenization and what we are developing.
This is how the numbers can ultimately get into the quadrillions of dollars. Value is going to be not only created to a much greater degree but is being captured. This is a radical transformation.
It is also part of the reason why the 20% HBD is a baseline that we can operate from for a long time.
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