On Reducing the APR of HBD for the Savings Account
An interesting debate sparked yesterday regarding the reduction (or not) of the APR of HBD in savings from 20% to around half, probably gradually. Discussions were prompted after the posts of consensus witnesses gtg (here) and deathwing (here). In the meantime, the latter came back with a response post after feedback.
First of all, those interested in the topic should stay alert, because I believe witnesses were just testing the ground for now, to see how much drama they'd create with such changes, the comments, and especially potential vote swings. I believe there is much more consensus on lowering the APR among witnesses, they are just analyzing the reactions.
Before I go on about this, I want to share my current focus on HBD / HP, so that people understand where my bias is. I currently have very little HBD (186 to be exact), over 33k HP, and almost enough HIVE to make another 1k powerup on HPUD. So, I am currently all-in on HP.
Now, what do I think about all this...
The Timing Is Awful!
If the thinking is we shouldn't be the only ones offering an exotic yield for a stablecoin, we should have lowered it soon after we remained the only ones offering it.
That wouldn't have created false expectations of a longer-term predictable APR of 20% for HBD in savings, even though it wasn't based on reality, which means that APR is flexible, and witnesses can change it at any time (but if they don't have good enough reasons, things may backfire).
At the same time, that wouldn't have put pressure on second-layer projects on Hive during the bear market, and I know many if not most of them will support the drop of the APR on HBD because they can't compete with it, particularly in the bear market.
Why else is the timing awful? Because to expect that that HBD withdrawn from savings to go to HP is, sorry to say... fiction, for the most part.
Anyone from outside the ecosystem who came for the APR of HBD will not switch to HP, they will withdraw and move to another stablecoin. Because that's what they are seeking. Plus the 13-week powerdown compared to the 3-day lockup on savings are incomparable.
There is a big risk of crashing the price of HIVE (even further) by taking this action now. If this action is taken in order to load up HIVE at lower prices, it is irresponsible, and I hope this is not the case.
Reasons Are Not Convincing
There are very serious reasons why the HBD interest should be lowered, even to zero, at some point, and even as an emergency, without any debate.
This is hardly the case, and the reasons provided for doing so are kind of light, especially given the timing. Think what would happen if they start lowering the APR for HBD in savings and in a few days the SEC says no to at least one of the ETFs... Where will HIVE stop then? What will happen to the confidence of the community? Those who aren't hardcore, I mean, but even those to some degree...
One more thing to be taken into consideration when setting an HBD interest rate. Hive is a worldwide network, not one for 1st tier countries only. We should consider inflation rates, and exchange fees wider than our own countries because I've seen some rates proposed that are really low (not by witnesses).
When to Lower HBD Interest Rate Then?
If that remains a priority without going into severe debt-based scenarios, I'd do that in the second part of the bull market. And lower it gradually.
My reasoning.
Right now, everyone who wants to buy HIVE and power it up will do it at some point, even with a 20% APR on HBD, based on the expectation of a higher return on HIVE during the bull market. You don't need to lower the APR for that. Lowering the APR will only scare away outside money which will crash the price of HIVE.
In the second part of the bull market, the reverse scenario will happen... People will start to take profits and move them to HBD in savings. At 20%, that might increase the inflation from HBD, so lowering the APR until the end of the bear market could make sense, in my opinion. Helps second-layer projects too during the bear market.
Posting Rewards
One paragraph about the "draft" on posting rewards percentage shift to HP holders. Let's keep in mind PoB should be more like "proof of wider distribution" for HIVE, which helps make the entire network more resilient. So I think it's a bad idea because it centralizes HP instead of distributing HIVE wider!
Posted Using LeoFinance Alpha
Posted Using LeoFinance Alpha
It was not true?
What to be true? The APR change hasn't happened yet. More witnesses need to signal for a lower APR for that to happen.
This thing is something that people have to grasp! The "system" was created to be dynamic, flexible, and I really can't understand all the freaking out about lowering the APR to 15-17%... You can easily put it back to 20%... Or to 10, or to 5... or whatever...
We have a situation where people think about 20% like an IDEAL number, while it was just picked as stupid LUNA had it at those moments... And we know how that finished... People from the outside compare HBD with UST just because of these 20%!
Nobody will die if it changes... It's not that HIVE did miracles in the last year while we have that 20% on HBD savings...
Here's the thing... If it's just for that reason, not to be compared with UST, a small drop won't make anyone freak out. The timing is still wrong.
I think the problem with HBD savings, is that people are not too familiar with it, and are scared because of what happened to LUNA. Even in the Splinterlands community, this was the case. I remember when Holoz0r suggested putting some of the DAO funds in the HBD savings, some were against it because they have no idea how HBD works.
I do agree that now isn't the best time to decrease it. Lowering it during a bear market is not ideal. I have heard some games in Hive survived because they placed their funds in HBD savings, and the interest helped/helps them continue even in this bear market. Decreasing it during a bull run is better since other coins might give better returns, and HBD can take a backseat.
I believe it's worth linking to that failed SPS proposal:
https://peakd.com/@holoz0r/dao-deposits-stable-coin-to-hbd-savings-using-interest-to-buy-and-burn-dec-daily
The proposal gathered 36% support out of 66% minimum needed to pass (one of the lowest in the history of SPS proposals). I voted for it only as an exercise because it was obvious it wouldn't pass, but here's a very good point to fail it, which Matt brought up:
I believe that's a good case to analyze when trying to reduce the inflation for HBD.
Having funds in HBD before the bull market ended and through the bear market was smart. If the stablecoin generated some return was even better, but its best quality in the context is stability.
https://twitter.com/lee19389/status/1695416434019783126
#hive #posh
Thanks.
In the end, I think it is better to lower the interest rate gradually.
NOT in one stroke as some insane users say 🤯.
All in due time just the same the market will continue to go down or up.....
The important thing is to make the best decision possible
Al final creo que es mejor bajar la tasa de interés de manera gradual
NO de un plumazo como algunos usuarios dementes dicen 🤯
Todo a su debido tiempo igual el mercado seguirá bajando o subiendo.....
Lo importante es tomar la mejor decisión posible
Cutting inflation at once makes no sense, since there is no crisis. It was increased gradually, if or when it will be decreased, it should follow the reversed course.
Cutting it at once screams crisis, and if anyone says that's what we should do, he or she is indeed insane.
We agree on the same thing
I just prayed it is not true
Well, for now, we have a few consensus witnesses who changed their signaling to a lower APR. I imagine there are others who haven't done it yet because they are waiting to see the waves this creates.
Thanks for this post @gadrian - I've been reading various posts on this topic with interest. It has prompted me to revisit the Witnesses section of Peakd, but how do we find out which witnesses want to change or maintain HBD interest rates?
Thanks!
!CTP
Here it is:
You can check it out, but I think things are cooling down for now. I unvoted a few witnesses to "signal" back, but I wouldn't have done it if I had a higher stake. And I will most likely vote them back if consensus remains at 20% (or 19%) for the time being.
Some witnesses (like Blocktrades) never signaled to 20%. He was constant at 12% ever since the APR was increased. So some of them haven't changed their positions now.
Thank you for clarifying that @gadrian - appreciate the extra info.
!CTP
!ALIVE
@gadrian! You Are Alive so I just staked 0.1 $ALIVE to your account on behalf of @ hirohurl. (2/10)
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I think you are right, there is more concensus for a lower interest rate among witnesses is my gut feeling.
There would never be a good time to lower these rates, now is a good a time as any. As pH below stated, the rate is dynamic, why the big fuss to reduce rates for a time?
Because if enough HBD exits the Hive ecosystem as a result of an interest rate reduction, it will do it via HIVE, most likely, and add selling pressure when there is enough of that already. During the bull market, stablecoins would not be so much in focus and a reduction then would have a lower impact.
Better to take the medicine sooner than later
Are we ill? That's the question. Because if we are, we should take it right away. But there is no indication of that, other than the effects on second-layer projects, which are unfortunate, but if HBD would have a 12% APR and their APR would be below 20%, I still see those who prefer HBD going with HBD. It's a matter of the second layer and centralization versus the base layer and decentralization. Plus difference in liquidity.
I'm not sure we even need a stable coin tbh. But you make good points.
The argument has been made back when it was called SBD, what we don't need it. Since the relative stabilization of HBD and after interest on savings was introduced even the strongest adversaries to a stablecoin on Hive started to back off.
In my opinion, those aren't even the best qualities HBD gained. Its best qualities are that it is a permissionless stablecoin that cannot be censored (without a hardfork). How many stablecoins can say that about themselves, that transactions cannot be censored or reversed at the whim of a central entity?
I certainly agree those are good things, my main issue as Deathwing asserts is that HBD interest is printed out of thin air. Secondly, I don't see the sense in pegging a token to fiat with an unlimited inflation, I guess that means HBD will at some point go to 0?
That's exactly the point, isn't it? How else would you have more HBD if you don't print them? Have you seen the failed SPS proposal linked in one of the comments? One of the main reasons for failing it was it was practically impossible for the DAO to get almost 500k HBD. Like the DAO many other businesses may be interested. And they would buy HIVE to get to HBD.
As long as we pay our bills and buy groceries in fiat we need something pegged to fiat. When we will buy with HIVE, bitcoin, ethereum, xrp or anything else not stablecoin (a new coin most likely), then we can move on and no longer need the stablecoins. I imagine that would take decades to happen, if it ever will.
I think the SPS proposal could still have bought 500k HBD, but it would have taken some time is all.
I would say we don't need something pegged to fiat, if we have a unit of measure. We just check the conversion rates each day, like with any foreign currency.
Yeah, but that's a lot of work over a long time. And if they thought it wasn't a great idea, think how someone who has no idea about Hive would think.
Here's the thing. It matters the currency you spend, not the one you earn. If your earnings are the same, but the currency drops in price compared to the currency you make purchases with, then your earnings lose value. That's why a stablecoin is useful.
That's why many full-time crypto people (at least on Hive) eventually take a job during the bear markets because rewards don't cover expenses anymore.
I do not deal with finance and tokenomics except as much as I have to, and perhaps I do not see the whole picture. But is there a catastrophe on the horizon that would drastically affect Hive? I do not see it, but if there is anyone or any expert in this field, let us be clear.
But if something did come up that would affect the whole Hive ecosystem then the witnesses would reduce it very quickly, as each of them can set APRs whenever and as much as they want.
For me, this is just one of the (can I just say great) opportunities to make passive money in the Hive blockchain and an opportunity to advertise outside the system. Maybe someone is afraid of Hive "expansion" and what that would cause?
But if the consensus is to reduce it, that earnings will be reduced, or that opportunity will be gone. I don't see any rational reason for this, other than fear. But, as I said before, and again, the APR is dynamic and each witness can set it whenever he wants.
In any case, I will be monitoring the work of the witnesses more closely and will give or take support accordingly.
There is nothing threatening to Hive now or in the foreseeable future because the APR on HBD is set at 20%! Their public reasons for doing so are weak. Their timing is worse! Maybe next time they'll do a better job explaining it if they have some real reasons for doing it other than "because I can".
!discovery 30
Thanks for the manual curation.
:)
Well, they may feel they reduced the interest rate for the benefit of the platform which is normal but at the same time, a lot of us will not be pleased with this.
And the reasons they gave does not seem to be valid to me
That's the other factor that made me talk about it in this post, besides the wrong timing. If you want to lower the HBD interest rate, at least offer some arguments that make your case (and the case for Hive). And unfortunately, they didn't, although they are trustworthy consensus witnesses on technical matters.
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Thanks for sharing this. Let's monitor the situation and adjust accordingly
Yeah, it doesn't hurt to keep an eye on this.
I am not in favour of this HBD apr decrease. It will move away the investors.
I believe the timing is wrong. In the bull market, it could be an idea to go back a bit, to have room to increase it if we need a higher APR at a later date. The APR should take into consideration various inflation rates around the world on national currencies, excluding the extremes, so it shouldn't be too low.
Those large stake holders consider anything that helps with decentralization of stake and power as liquidating their investment, and in a way they aren't wrong.
They will do whatever they want and discussions are usually pointless.
:) That's exactly how DPOS is supposed to work, but it doesn't make it a good investment.
They aren't wrong if we keep Hive in a pond. But if it becomes a sea, a smaller stake could value much more. But who has the guts to allow their influence to diminish for a vision of the future that may or may not materialize? Someone... with vision.
I wouldn't say discussions are pointless. Justin Sun had controlling power over Steem. How did that help him in the long-term where Steem is concerned?
It does if the entire pie grows.
I just don't think it's the time to reduce HBD interest and I agree that it should have been done much earlier. In any case, there have been a lot of adoption for HBD through communities like Sucre and I think reducing the HBD will reduce liquidity for HBD. It's hard enough to get into HBD as it is and I don't think it is the right time.
People seem to forget that. Yes, it is currently an outflow for Hive. But those who only see it like that should consider it a pilot project we can keep en eye on and see if we can grow this into a circular economy based on HBD in the physical world.
Maybe. Others may keep more liquid HBD in order to catch better deals on HIVE.
Absolutely.
I don't think they should have done it this way. But still as we all know his team is very smart and they must have taken this decision thoughtfully, we pray that this decision turns out to be good for the project in due course.
Nothing has been done yet. And nobody is an expert at everything, although I respect the witnesses that stepped forward for their technical abilities and their dedication to Hive.
Everything is going good with HBD and no one has presented any data that the HBD 20% has done any harm to hive. If everything is going well then why to do experience that may make things bad. Reduction can a be good but this is not the right time. I don't support HBD Apr reduction this time as it may trigger the panic.
In a way I understand that they have their own internal discussions and debates, and when they finally reach some sort of consensus, they either don't realize or ignore the fact it may be at the wrong time. Because then, the next time they want to do it, they'll have to go through the same process most likely, and they want to avoid it doing it twice.
But what they miss we need to be aware of and make them pay attention.
https://twitter.com/LovingGirlHive/status/1695766802931093561
Thanks.
Timing is really important and doing the reduction in a bear market, to me, does not sound all that cool. And doing it in a one fell swoop, that's a no no. Gradually and in a bull market sounds cool though.
If they are doing it 1% at a time, they can start a little early, but I wouldn't start just yet. Give it a little more time to have some market recovery. And I definitely wouldn't do it in significant steps, that creates anxiety, especially on the way down (not the same reaction on the way up).
You are definitely right. A gradual process with the market in view appears to be a better approach.