HBD Interest Rates: A Call for Prudence
The existing HBD interest rate on savings is set at 20% APR, a rate that, to put it mildly, highly irresponsible on the part of the witnesses. Network holds 7,810,000 in HBD savings. Annually, this means we are disbursing 1,562,200 HBD in interest to those who store their savings in these accounts.
When respectable financial institutions like banks or the Federal Reserve ask for money from investors, they set rates between 1% and 7%, with 7% being considered high. These rates rarely exceed this range, as historical data evidences.
These institutions use the funds to lend to clients, invest in companies, technology, and equipment.
In contrast, what does the HIVE blockchain gain from the members who store their money in HBD savings? Absolutely nothing. We are literally giving them away our money for free.
Second, lets point out again the HBD interest rates is 20% and let’s compare it with the annual returns of the greatest Western World investor Warren Buffet.
According to TheStreet journal article since 1965 Buffet achieved annual returns on 22%.
Essentially, HIVE saving account is literally the best market product, if you want to quickly become billionaire quickly and with no risk. This situation is alarming and deeply concerning.
Every year, in fact we are giving away $1,562,200 to individuals who do not contribute to the network. While some might call this witness fraud, I don't believe that is the case. A quick examination of the 20 most significant witness accounts reveals that none of them personally significantly benefit from this. In my opinion it rather appears to be a case of financial mismanagement, lack of investment market understanding. Fortunately, we can rectify it with better education and understanding.
The HBD interest rates must be drastically reduced
The HBD interest rates must be drastically reduced.
To what extent? I propose a reduction to at least the Hive Power APR, if not lower. HP APR stands right now on 3.14% a suggested rate of 2% for HBD would be more reasonable as owning HP benefits network much more then savings.
Owning Hive Power benefits the network and justifies the additional rewards. Conversely, HBD savings simply reward passive participants who do not contribute to the network’s growth.
We must be financially prudent, or the value of our token will continue to decline. To add urgency to this discussion, consider that part of our token’s price drop is likely due to the millions of dollars given away in recent years to HBD savers.
I even claim that some of the very hardworking witnesses did not receive such high rewards for their job in recent years.
I will be glad to attend witnesses, hive devs meeting and discuss it further if needed. In the meantime you can expect me to buy more HBD and use the golden opportunity at my favor.
Sources:
- Thumbnail generated with AI image generator Pro
- https://fred.stlouisfed.org/series/FEDFUNDS
- https://www.thestreet.com/investing/warren-buffett-berkshire-stock-investor
We do not print HBD to reward any activity; we do it to slowly increase the supply, which is crucial for it to become the real stablecoin. And by slowly, I mean slowly. It's just $1.5 M yearly. We spent more from DHF, not even talking about author/curation rewards.
That's not exactly true, as investing in HBD poses a risk. It is loosely pegged to USD with HIVE as the backing asset. In some circumstances, you won't be able to convert it back to HIVE to receive USD equivalent. So, after all, you might have a loss.
That's only your opinion, I see it differently. Although I am not a top 20 witness, I can say that my motivation to keep it at 20% is that the amount of HBD in circulation is extremely small and not enough to become a significant and recognizable stablecoin in the industry. We need to print a lot of HBD stably to make it better. Our current circulation amount is prone to market manipulations.
That's most likely not true. There's no sign it might have been connected at all. We are printing even more as a posting rewards and spending a lot from DHF, which generates a lot more sell pressure than savings APR, which, in fact, mostly stays in the savings.
Do you think it makes sense for a stablecoin that isn’t backed by actual dollars? While I applaud the unique mechanism that keeps HBD pegged to the dollar, not having a real dollar backing each coin (assuming all parties issuing a stablecoin actually have a dollar for each coin in existence) might also mean that the amount of HBD printed should stay more relative to Hive’s user base rather than trying to match the scale of other stablecoins.
Backing by the "real dollar" means there's a single entity you need to trust that emits new tokens and keeps the backing assets in their accounts. Our solution is much better in my opinion.
Completely agree, I was more wondering about whether it justifies the 20% APR.
I'm honestly curious to be clear and don't mean any offense. I'm trying to learn more about the witnesses and the processes behind Hive these days but can't find so much information about the reasoning behind the 20% APR on HBD
You would need to ask each witness because everyone sets it independently. There were multiple discussions on and off-chain regarding this. I think the idea to set it to 20% emerged yet before Luna collapsed (as they also offered 20% APR). Since then, some witnesses keep it at 20% (because there's no sign of it's negative effects) and some already changed that to lower value.
@engrave Thank you for taking the topic seriously, encouraging me for writing an article and joining the conversation.
I propose that we view HBD interest rates as a reward for providing a service. We are distributing $1.5 million $ annually without any return. There are numerous strategies to increase supply, and I believe that giving away such a substantial sum to passive actors is one of the least effective methods.
Let's compare our approach with other stablecoins. For instance, does USDT offer any interest rate? On nexo.com, you can lend your USDT at approximately 10%, which can be seen as a simplified interest rate. However, this involves considerable risk: you need to own USDT and lend it through a third-party platform. In contrast, we maintain a 20% interest rate without leveraging these funds at all.
The fact we spend more money on DHF is not an argument to disregarding 1.5 million dollars I deeply believe we can use it very effectively elsewhere.
I agree on that point. At the same time I believe that owning HBD poses less risk then owning HP, that is why I believe interest rates on HBD should be accordingly smaller.
I put it to harshly. I am sorry for that. It was an acapit I wanted to calm down concerned readers.
1.5 million worth of additional HBD is a potential additional supply. Even if the current price drop is not related we are adding to the inflation in the future. ( Let's not make FED mistakes :) )
Between lines of your message I read that you want to promote and create our stable coin to compete with other networks. I believe it to benefit us. At the same time I believe the approach we take, high interest rates, is not the way.
If you are still interested in my points, I can prepare another article where I compare our stable coin with competitors and do my best to find our and theirs strong sides, weak points and a way to use them. I understand how hard it may be.
Feel free to elaborate on this in next post, I will be happy to read it.
Of course, it's not an argument, I just wanted to say the sum isn't as significant as you see it.
Yes, that was discussed multiple times, and many different views exist. I don't believe HBD APR cannibalizes investments in Hive Power. Stablecoins and their APR (if any) offers different promise and different group of people are interested in such an investment.
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