Hive Backed Dollars
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Hive Backed Dollars
It's no secret that Hive has its own stable coin which is called Hive Backed Dollars (HBD). It came across in the fork of Steem and for those who were on Steem would know that SBD never really was a good stable coin and would regularly break its peg.
Hive too had a similar issue especially when people would short it on exchanges. And if we look at the stats of HBD on coinmarketcap it shows us the instability of the token.
But one thing you will notice is over the past 5 months or so it has begun reaching and maintaining a close peg to $US1. This is because of the Hive Stabalizer account that undertakes arbitrage.
However, similarly to UST on Terra Network HBD allows users to perform arbitrage by converting HBD and Hive between itself to help maintain the peg.
The difference between HBD and UST is that USTs ability to do this is instant where HBD takes 3.5 days and converts based on the average over the 3.5 day period.
I'm not certain if the 3.5 day period is of any benefit to maintaining the peg but I thought I'd try it out to see how it works out. There was a stark difference between UST and HBD.
As the peg was below $1 I needed some HBD so I sold some Hive and I had a small amount of HBD in my wallet and ended up with 38 HBD. Only a small amount to play with just incase this didn't work out.
I commenced the conversion and then waited the 3.5 days. Over that period HBD did break its peg and went up to $US1.01 but the HBD stablizer did it's thing and brought it down. Hive also began dumping and I thought this would be a good thing surely I'd end up with more Hive than I started.
The day came for conversion to end and I got my payout of 29 Hive..... well it didn't seem right and didn't seem like I had made a profit on arbitrage so I decided to see if 29 Hive was worth 38 HBD.
Nope, I suffered a 3 HBD loss on arbitrage so it wasn't the most effective form of arbitrage. Much of that is to do with the 3.5 day conversion time in which crypto being highly volatile changes significantly.
The price volatility impacts ones ability to support maintaining the peg and in this scenario the best bet is to not get involved and wait for the HBD stablizer to do its job.
There are moments where users can support arbitrage when Hive is high and HBD significantly increases above the peg. But even in that scenario the 3.5 day wait period is not helpful and you won't out do the HBD Stablizer account.
At current with the HBD stablizer it seems to be working in maintaining the peg and it's doing a decent job so there is probably no point to the feature of conversion for people wanting to participate in arbitrage.
Improvements could be made to be more inline with UST where arbitrage is instant this would probably have flow on effects for the price of Hive also and help further secure the Hive price.
But for the meantime I'm glad I only attempted this with a small amount of HBD and nothing substantial otherwise, it could have been costly.
Do you have any tips on how and when to use the HBD conversion? Let me know in the comments section below.
Image sources provided. Supplemented with screen grabs of my blog. This is not financial advice and readers are advised to undertake their own research or seek professional financial services
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