Spotlight On HBD: There is Hidden RISK Involved in “Chasing Big Numbers!”

5 mo
LeoFinance
5 Min Read
930 words

In the course of the past couple of months, there has been a lot of talk and discussion about the growth of Hive's own ”Hive Backed Dollar” (HBD) and its potential/promise as a stablecoin for the greater world.

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To WHAT do we open the door?

I can see why this all is exciting, because it's always exciting to ”chase the big numbers,” and earn a hefty return on your investment.

Maybe I'm being "unpatriotic" here, but it already makes me slightly nervous that the HBD interest rate was raised from 12% to 20%... but WHY?

Chasing the big numbers can be a very dangerous proposition that often leads to ruin, rather than riches.

Just to clarify, in this case I am thinking of the term ”chasing big numbers” as what happens when a company, or an organization, or an individual grows impatient with the often laborious process of organic growth and declares ”we have to do something!” And typically that "something" takes the shape of something big and flashy... that people also tend to conveniently overlook the long term cost of.

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It's easy for us to get stuck in our little microcosm of the world of Hivelandia, or even the microcosm known as cryptocurrency, but the history of business is literally littered with the wrecks of organizations that lost sight of their core idea and went off in search of "big numbers…" usually because somebody else in their industry was suddenly going off on a wild tear.

The great Peter Lynch — founder and steward of Fidelity Investments’ highly successful ”Magellan” mutual fund for many years — was fond of using the term ”di-WORSE-ification” instead of diversification to characterize what tends to happen when an organization loses sight of their core mission because they decide ”more growth is needed — NOW!”

So why is this really a problem?

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Well, if what you are offering is fundamentally really good, resorting to competing with the "bargain basement fire sale merchants" — on their terms and turf — in order to draw a crowd can be disastrous!

Why?

Because they are just looking to make "a quick buck now" and move on... not to build a solid foundation for the long term.

With Hive, presumably what we're all looking for — in an ultimate sort of sense — is to become large and successful. But the problem with trying to become large and successful too quickly is that it tends to attract a lot of what you might call ”fast money.”

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Here today... gone tomorrow

Fast money definitely represents the typical character profile of those who chase "big numbers," but fast money is also very fluid, has little loyalty to anything other than seeking the next profit opportunity, and will leave you just as quickly as it came to you.

When you back up a bit and project that forward over the longer term, "fast money" represents little more then those sudden upspikes we can see in almost any crypto chart or even recent wunderkind IPO stock chart.

Fast money can definitely make your balance sheet look super impressive — for 24 hours, or maybe a couple of weeks, or a couple of month — but it can also make your balance sheet look like a trainwreck when that fast money moves on to the next grand scheme out there... because they suddenly posted an even bigger number.

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A lot of it is no more than simple psychology: People tend to expect exactly what you promise them.

So if you promote your nice four-star restaurant by offering "Free beer and BBQ" to draw in lots of people... you will get LOTS of people looking for free beer and BBQ, and as soon as they realize that an actual dinner will cost $40 a person, they'll be taking all their excitement and ruckus with them to the next place offering free meals... while you suddenly find yourself "playing to a nearly empty house."

So what's the MESSAGE, here?

Make sure the people you draw to your venture... be that your own new business, or Hive... are actually the people you WANT. If you're looking for long-term builders don't cater to "big number chasers," no matter HOW alluring their numbers might be!

Thanks for reading, and have a great weekend!

How about YOU? What do YOU think? Comments, feedback and other interaction is invited and welcomed! Because — after all — SOCIAL content is about interacting, right? Leave a comment — share your experiences — be part of the conversation!

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Created at 20220603 15:05 PDT

0558/1804

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I understand your concern, I had the same feeling at first, but fact is there is so little of HBD in circulation there’s no way big money can come in fast. That’s just the sweetest part of it. As the supply dries up, maybe the interest rate should be lowered, at least that’s what my take on it is.

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I'm by no means opposed to the idea, as long as there isn't some change to the code that suddenly releases many millions of HBD into the system.

0

I concur. I did start switching to 50/50 post rewards instead of my preferred 100% when the announcement hit, but the last crypto sale led me to sell off a lot of HBD for HIVE, because the staking is where I see the most long-term value. Do we want people here for a quick buck, or long-term? But on the other hand, the 20% return could help encourage people to accept HBD as a marketable currency instead of just offloading it immediately for Bitcoin, so I can see the argument for encouraging an ecosystem for it.

2

HIVE and HBD are completely different.

The first has speculation while the latter is fixed income.

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2

HIVE is also power on the platform regardless of price though.

0

That is true. There is utility with it.

However, when looking at the reason why most are investing is different.

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1

As a content ceator and active curator, I value HP. I also think HIVE itself is undervalued against the dollar right now because Bitcoin took a hit and dragged altcoins down with it, but I acknowledge I could be wrong here. I know I am gambling on market changes, but I suspect HIVE has a bigger upside even compared against compound interest in the next few years.

If I were to go inactive for a period of time, I would consider a change in my holdings. I might power down some HP, buy HBD for the 20% interest, and delegate more to Ecency and OCDB for an return on HIVE above and beyond the interest rate there.

0

Indeed, they are definitely very different. But they remain interdependent in the sense that if it is more attractive to hold HBD than Hive (in people's MINDS, regardless of the market movements) people will sell Hive to buy HBD... and vice versa.

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I look at it from the building value and where it is driven to.

Development needs to take place to build value for HBD by building value for $HIVE.

Of course, we also have to take the steps to build value for HBD on its own.

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0

I am on 50/50 post rewards, as well. I am also slowly building a savings balance in HBD. And I reckon I'll keep doing that for as long as I feel inclined/have time to actively post.

The thing that concerns me in a curation only scenario is that you (meaning "any random person") can earn more from holding HBD than from staking Hive for curation rewards. So where's the incentive to buy Hive? And if that incentive is lessened... where's the counter-pressure on the BUY side of the market to offset those who are always selling every cent they earn here?

1

We need a lot more HBD. If you look at the present float of HBD, even at 20% per year, it will take about 20 years to get to 1 billion HBD.

If you think that makes HBD a legitimate stablecoin, I would disagree. That is still a small fraction of what it takes to a legitimate force in this world.

So this is the first major use case for HBD, creating more HBD, which is badly needed.

We also have other use cases being formed. This means we are going to have to get even more out there. So the belief that this is just a fly by night, get some fast money in, that is not how I see it.

It is laying the long term foundation for HBD as a legitimate stablecoin.

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1

As long as it remains an organic process and people (including witnesses) continue to regard it as a long term proposition, I'm a little less worried about it.

So HBD is really likely to be more of a hybrid than an actual stablecoin.

One of the great challenges in the Cryptosphere — and I have brought this up many times — is that we need more use cases that involve USING a token to make money via projects (i.e. the PROJECTS make money, not the TOKENS... like Splinterlands, where a substantial part of the picture is the game having "stuff" you need to buy, using a token), rather than just holding the token as the way to make money... regardless of whether we're talking about Hive, HBD, or anything else.

As long as Hive stays clear of going down the "flimsy" road of some of the stuff I see... that amounts to little more than vaporware backed by unicorn sparkles, promising a 60% APY... paid in rainbow poop!

1

Without a doubt, I agree 100%. There needs to be a lot more business building as opposed just monkeying around with tokenomics.

Certainly HBD requires a lot of long-term work. This is where the idea of centering it as collateral (loans), derivatives, and funding/investing.

Utility is overlooked in crypto. The key to HBD's success is making $HIVE a success.

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0

I will have to disagree with you. :)

Not only I disagree with your thoughts, I will also attempt to change your mind. Normally, I don't try to change anybody's minds, and nobody really can change anybody's mind other than their own.

Your first mistake is, you are making it sound like offering 20% APR for HBD was a sudden and quick things. This is not true. It took almost two years of efforts to get to this point. Not only it wasn't sudden, it was done in a methodical, careful, calculated, and strategic manner.

Witnesses reached consensus of allowing Hive blockchain pay APR for HBD for the very first time in its history last year. March 2021 to be exact. This initial APR was only 3%. Even before this happened, there were discussions and efforts to make HBD work as a stablecoin and pegged to USD as it was originally intended. One of the biggest efforts was the hdbstabilizer, which turned out to be a huge success. Not only hbdstabilizer helped with the peg, it also earned extra funds to Hive Decentralized Fund. How cool is that!

At the same time Hive core developers team worked on layer one code that allowed converting Hive to HBD, also with the goal of making the peg work. Previously, we could only convert HBD to Hive. Core dev team also made a change to pay APR only to HBD in Savings. This exchanges wouldn't be rewarded for HBD held by their users, and this will also encourage people to remove HBD from exchanges. Keeping your assets in your own wallets, is a general crypto philosophy - "not your keys, not your money".

After few months of 3% APR, witnesses decided to raise the APR to 7%. After couple more months they raised to 10%, and then 12%. Nothing is done here quickly and suddenly, chasing the numbers. It took a year since the first introduction of APR, for witnesses to raise it to 20%. Within this time, a lot of things has been discussed and potential risks considered. Even before getting to 20%, we had 15% APR for a very brief time.

I think 20% is reasonable, just because of the crazy inflation. USD has been losing its value over the years. Last couple years it has lost even more of its purchasing power and continues to do so. Since HBD is pegged to USD, HBD would be losing its purchasing power as well. So it wouldn't make sense to hold HBD or save fora long time. Now that 20% APR mitigates the current inflation in USD and loss of purchasing power, HBD can be an attractive investment instrument.

Compared to traditional market returns 20% sure is high, but compared to ROI in bitcoin and other meaningful crypto projects is much higher than 20%. First HBD with 20% APR would/should attract crypto enthusiasts. But why would they go for 20%, when they can make 100%, 200%, or higher holding bitcoin, ethereum or hive?

While the goal is to attract more people from outside Hive ecosystem, the very first beneficiaries of the HBD 20% APR are the Hive community members. They get to have another option to invest. Now it becomes a choice among holding Hive, HP or HBD. It is not a zero sum game, so we don't have to choose only one option. We can diversify. We can have HP for meaningful engagement in the decentralized network, and also we can have some saving in HBD for various reasons. Some of us maybe saving to buy a car, a house, vacation, or just using HBD as a hedge during bear markets to increase their HP even more if opportunity presents.

HBD experiment is definitely not a quick things. Nothing about HBD is quick. lol. Even with 20% APR, the growth of HBD holder is very slow. Numbers don't lie. But even if all of the sudden there was a huge interest in investing in HBD, there aren't many of it in the market. HBD available in the market is under 10 million. This is nothing compared to Hive market cap, and crypto world.

For HBD to grow significantly in supply, people will have to convert Hive to HBD which burns Hive. Those who want to have large amounts of HBD, say in millions, will have to buy Hive first then convert them to HBD. Such actions would result in decrease of the Hive supply, and increase of Hive in price. For HBD supply or market cap to reach a billion, Hive price will go up to $100 easily. Again, this wouldn't be a sudden and quick thing. Even if it was, we wouldn't mind to have $100 Hive suddenly. lol

There are several reasons why I believe witnesses reached the consensus of 20% APR. The first one is that APR can be lowered or even completely remove with a click of a button. If there were some events or conditions that raised the alarms of some threat the Hive network, witnesses would quickly be able to see that and change the APR parameter. No forks required.

Other reasons are that witnesses know there are protective measures in place to safeguard the Hive blockchain against potential risks. There is a haircut rule, that in essence no longer keeps HBD pegged to USD if HBD supply went higher than 10% of Hive market cap. There is a small fee for converting Hive to HBD. At the same time Hive itself is a great investment instrument, that will attract HBD holders to buy Hive if/when prices drop.

Are there unknowns that can be potential risk? Sure. There is always something that may have not considered or are wrong about. Luna fiasco made us all to reevaluate our positions and thoughts about HBD and risks to the network. I did as well. At this time I don't see any risks. But tomorrow things may change, we may learn new things that suggest otherwise. When/if that happens, the protective measures will be triggered, and we will be just fine.

Lastly, HBD has never been a short term game. It is long term game. It has a lot to offer to the world. So its growth will be beneficial for Hive network, its participants, and those who utilize HBD. Having an algorithmic stablecoin that actually works, in a network that provides fast and free transfers is a big deal. Regardless, if the world accepts it or it just remains a Hive thing, it will still be useful in many ways.

To answer your question - "why?", I say because it was/is time for HBD to shine.

1

Wow... thanks for that exceptional reply @geekgirl! Sorry for the late response, but I wanted to give this the attention it deserved.

No, I didn't think the 20% interest rate was necessarily sudden, as you said, it started with just 3%... and as I recall, it was started as an incentive for people to hold rather than always sell. From 3% to 20% in 15 months? That is a pretty fast rise, but that may just be a matter of perception and semantics.

Is 20% "reasonable?" Maybe it is, in the current market and economy. And ultimately, I'm not super concerned about it. As long as Hive keeps their eye on their OWN project, and doesn't resort of competitive thinking, and we start feeling inclined to match every project that starts offering a 30%, 40%, 50% APY for their vaporware. As you pointed out, we have done a great job of "stabilizing" HBD and we appear to have something quite solid there. I'm merely suggesting it would be a mistake to jeopardize that in pursuit of "big investors."

But why would they go for 20%, when they can make 100%, 200%, or higher holding bitcoin, ethereum or hive?

Why would they, indeed? Let's keep squarely in mind that a "stablecoin" is not the same as a regular cryptocurrency. As I recall, stablecoins originally came into being as relative "safe havens" that allowed active traders to "park their uninvested funds" without having to exit to fiat... until the next buy-in opportunity. As such, I see any comparison as somewhat comparing apples to oranges... similarly, in legacy markets, comparing high tech IPOs to 90-day T-bills isn't really meaningful.

One of the things I often have talked about in the past is actual use cases for Hive... and subsequently HBD.

Experience — and going back 30+ years here, LONG predating cryptos — tells me that any structure or organization that relies excessively on the "make money/earn returns" paradigm WITHOUT having a substantive and tangible idea/product/service supporting that quickly finds itself in deep trouble... because you're essentially trying to create something out of thin air, backed by nothing but promises and unicorn dust.

Why is Splinterlands doing so well? Because there's actually a substantial thing there, aside from the income opportunity. People enjoy playing the game, not just earning a return. And they have to "buy stuff" to be effective in the game.

Five years ago, I tried to float the idea of something like a peer-to-peer marketplace of goods and services, "denominated" in Steem Hive, but the "problem" being that a token whose value fluctuates all over creation is not a desirable pricing tool, so let's use a stablecoin, instead... like HBD. I like the idea of being able to trade all over the world in ONE currency, independently of fiat. Sure, there are those who argue you can do this with various card/payment services that handle crypto... but their shortcoming is that they ALL rely on ultimately transacting in fiat.

But I am digressing a bit. As long as HBD remains primarily a stablecoin (it's presumable purpose) rather than becoming "just another investment vehicle," then I'm sure all will be well and good! And it is a long-term proposition, for sure.

Ultimately, it takes a lot of commitment to build long term in an industry that's obsessed with chasing quick gains and "Wen Moon?" as its primary driving energy. As I see it, that's a tendency we have to downplay and eventually overcome, if the greater cryptosphere ever expects to be taken seriously on a larger scale. And a lot of that is a matter of psychology and perception, more than anything. The vast majority of the world is just not going to buy into something that looks like "investing in NOTHING, supported by NOTHING, in order to create new NOTHING, that you can then sell for... NOTHING?"

And yes, we can talk about Web 3.0, decentralization, consensus and other good things till we're blue in the face, but that consensus (as I see it, at least for now) doesn't extend very far beyond our own closed loops...

Thanks again for the excellent reply, and for taking the time!

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