HBD 20% Interest Is Sustainable
A few are starting to question whether the 20% interest rate being paid in the Hive Savings Account is sustainable. For some reason, people feel this cannot go on long term. Where do they get this notion?
Perhaps it stems from the fact that the same path was followed with TerraUSD. That started out paying 20% yet it was realized that it was nothing more than a 'teaser rate". The unsustainability entered the picture.
There is a key difference. That operation was funded by Venture Capital money which ran the supply up very quickly. This encountered a problem since the number of use cases were limited. With HBD, there are a number of different projects being worked upon that will enhance the use case.
In this article we will discuss how the HBD 20% interest is not only sustainable, it is required.
Distribution
There are roughly 10 million HBD in circulation. We are excluding the amount that is in the Decentralized Hive Fund since it is locked away. If we use the 10 million as a starting point, what will things look like in 20 years?
Using the 20% interest, for 20 years, with the interest compounding monthly, this is what we see.
The result is that, after 2 decades, we would have a supply of HBD of just over half a billion. This is presuming, of course, that all HBD was put into savings, none was removed, and all interest was reinvested.
Here we can take the worst case scenario.
Does anyone believe this will be a valid stablecoin if there are only 500 million of them in circulation? We already see that market into the hundreds of billions. Over the next few years, it will move into the trillions.
And HBD is not sustainable creating a few million coins each year?
The reality is that, if HBD is going to be a player in this realm, we need a lot more of it. We are going to have to see the amount pushed into the tens of billions.
Liquidity Crisis
Few seem to be aware but there is a global liquidity crisis right now. This is both in the form of money along with collateral. The international banking system is starving, especially for the latter.
Here is why stablecoins will keep growing as a market. They are needed in a major way. However, the true solution that can be provided is for the private sector to generate pristine collateral. This is where some of the ideas floating around regarding HBD are targeting.
Find a need and fill it. As detailed in Cryptocurrency: The Responsibility Of Private Collateral, the industry has the ability to construct high quality collateral, something that was lacking in the financial system over the last 15 years.
This is where we see an asset like HBD entering the picture.
Many view currency simply for its payment capabilities. Few take the time to really consider how the system truly operates. In a world where credit is offered, to generate more money, collateral is needed. This all ties into the quest for yield (return), the ability to borrow, and providing money elasticity as the market demands. Collateral is a major piece of this.
Therefore, to generate growth, collateral is often required.
HBD Use Cases
We can take a look at just a few of the discussed use cases for HBD:
- Payment System
- Collateral
- Liquidity Pools
- Time Locked Options - Hive Savings Bonds
This is where we see the tens of billions in HBD required. For any of these use cases to function properly, there needs to be liquidity. As we are seeing, there is not a lot of HBD available to fill even one liquidity pool. Imagine if we saw a dozen available.
Of course, people need access to HBD. This is what the likes of TerraUSD did well.
However, we can see other options exist. These use cases are even more profound in terms of their impact. It is impossible to have much of a payment system with only 10 million units of the the money supply available. Commercial activity will be stunted.
Using the same calculator, instead of the full 10 million float, the starting point of 3 million HBD in savings equates to 158 million produced over 20 years. This is a lot less than the half a billion from above.
Going one step further, we can really show the sustainability of the 20% interest rate.
If we change the payout to 50%, this is what the results are.
After 20 years, we would have 53 billion HBD. That might sound like a lot but, keep in mind, it is 30 billion less than Tether has today. What do you think Tether, USDC, and some of the others will look like in 20 years?
Here is where we are: not only is the 20% interest on HBD sustainable, it is far too low. We need to generate a great deal more HBD at a faster pace.
So should we increase the interest rate to something absurd like 50%?
The answer is no. We get to a point where something becomes unbelievable. Most will look at that ROI and think it a scam. Confidence is vital in the financial markets.
However, here is where we can see a higher rate being applied to a time locked option. Thus, we introduce a trade-off. For a larger payout, one has to commit one's HBD for a period of time. The asset is not liquid at the base layer, thus affording a larger interest rate.
Getting HBD Into Circulation
The key is going to be getting HBD into circulation. Obviously, the interest if one method of creating it. We also have the 50/50 payouts which can generate HBD from the weekly reward pool. At the same time, there is the conversion mechanism that will allow HIVE to be turned into HBD.
All of this will help to expand the supply. When the conversion mechanism is starting to be utilized, we will likely see the price of HIVE increase as the amount float decreases. The incentive increases as more use cases are designed.
This is what ultimately creates sustainability. It is not the specific number available but what is done with the currency. As shown, there are a number of areas that are presently receiving focus. With HBD tied to a thriving economy, the velocity will be such that commerce can expand rapidly.
Of course, to create a thriving economy, more HBD is required. It is hard to have commercial activity if all of money is in locked up.
Once again, we can see how important it is to keep building.
What are your thoughts? How grand is the opportunity before us with HBD? Let us know in the comment section below.
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