The Ripple Effects of HBD’s Risk Free Return

in LeoFinance2 months ago

Hey Jessinvestors

I recently spotted a post about HBD now paying out interest, and it got the old noodle percolating on what this means for the ecosystem.

At first glance, it's like yeah, big deal, 3% APR on a stable coin, getting some extra drips into my wallet, and I'll move on with my life. But when you take a step back, what seems like a minor change could have serious implications for the system.

I rarely talk about the HIVE chain and ecosystem in my blogs, enough people are doing that, so when I do, you know it's something I really thought about and not just me shilling my nipples off.


Pressure on HIVE

HIVE has been kicking off passive staking rewards since its inception, its currently around 3.22%. Most people don't know about it because you don't see an active drip transaction into your wallet. It just accumulates with your staked HIVE. Apart from curation rewards, this extra staking reward is meant to encourage staking.

Many people don't take advantage of it because that staking comes with a 12-week power down, so you're locking in 3.22% but depending on the size of your stake, you could have made more arbitraging between HDB and HIVE or trading with other tokens.

The incentive to remain liquid is still pretty high as it should be since your staked rate is your risk-free rate. A rate you get passively simply for supporting the network.


How HBD interest works

HBD, whether it's in your wallet or your savings wallet, will now collect a 3% APR simply for holding this stable coin. Since HBD doesn't have to be staked to earn, your tokens/value is completely liquid and can be moved at any time. The blockchain will calculate your rewards based on how much HBD you hold, and everything is managed on-chain.

Screenshot 20210302 at 19.18.55.png

Comparing it to other stable coins

HBD is by no means the only game in town. Naturally, there is still SBD which has a massively broken peg. There are also a host of US dollar-pegged stable coins on the market right now; as the world reserve currency, the US dollar has the widest demand and acceptance rate, and it makes sense to peg a digital asset to it.

There are tokens like:

Fiat backed stable coins

  • USDT - Tether
  • USDC. - USD Coin
  • TUSD - True USD
  • PAX - Paxos Standard Token
  • GUSD - Gemini Dollar
  • RSV - Reserve
  • BUSD - Binance USD

Algo collateralised stable coins

  • DAI - MakerDAI
  • nUSD - Havven

The reason I bring this up is that HBD surely has a lot of competition. All these stable coins are minted on different chains, most of them being Ethereum. However, stable coins like USDT, for example, are a multi-chain asset and exist on Ethereuem, TRON, EOS and BSC.

However popular and large in market cap any of these stable coins are right now, none of them is offering you a risk-free return on your capital hosted in a native wallet.

Getting a return on your stable coins

Sure, you can get up to 10% APR on CE-FI apps like BlockFI or Celsius, but you will have to give up ownership of your coins as these are custodial services, which carry considerable risk.

You can opt for on-chain smart contracts, submit your coins to a dapp like Compound and get a variable interest rate based on their loan book demand.

The issue here is that smart contracts aren't perfect and aren't validated by the chain. They are also high fees on ETH, which make certain transactions impossible and not worth attempting.

You could try putting your coins in a liquidity pool on Ethereum or BSC, but you will suffer impermanent loss, and you're at the mercy of the variable rate that comes from calculating your share of the pool versus the fees earned.

As with any dApp and smart contract, they can have vulnerabilities, and they are not ironclad. The rate you getting comes with a sizable risk.

Given what I've listed above, HBD's on-chain liquid risk-free return rate might sound low compared to other options for stable coins, but it short of the entire chain going down, the risk is very low.

If we consider that US banks are giving their citizens around 0.50% and foreigners holding dollars don't often have the means to earn interest having a rate of 3% is more than generous given the current market conditions.

What a risk-free rate means for tokens

Now that we have liquid staking via HBD, any hive investor has the luxury to park their money in their wallet and wait for a good investment opportunity. Your HIVE wallet has effectively become a high powered brokerage account.

If a HIVE based project wants to secure funding, be it a dapp, community or second layer token, it needs to return a higher APR than the 3% hurdle rate or become a dead project.

This provides a safety net, and project's that cannot beat the hurdle rate won't survive for very long, flushing out poor projects and pushing them to be even more innovative to secure capital from investors.

HBD and diesel pools as an example

As diesel pools roll out their incentive structure this month, if those providing liquidity in HBD does not get a better return from the pool, it would make no sense to provide liquidity.

It will be interesting to see the pool's returns what the spread will be versus the hurdle rate we now get.

Next phase for HBD? A risk rate and stable coin interoperability

If the logic of a 3% return on a non-custodial, fee less stable coin catches on, more people will want to use it. So I think that interoperability with other stable coins is a vital next step in the process.

If I can convert my USDT/USDC/PAX/BSUD or any other stable coin to HBD easily, you could see a flood of liquidity move into the token. Once they're in the HIVE ecosystem, it will then be up to the Dapps and other projects to convince those holders to invest in their projects for a better return.

Having HDB available on other chains could also be an option, so instead of converting it to USDT to get a riskier rate somewhere else, I can use the original asset. Wrapping the token on other chains also means HBD can be added to multi-asset liquidity pools like Curve or have a trading pair on other chains, which brings with it new arbitrage opportunities.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

Let's connect

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Here he is, Shill Kohler 😜

But yeah as you pointed out, the interest on HBD is a lot more than just a 3%. Opens up the doors and gives reason to hold on to it with the once per month payout! Seems like it holds its peg better than SBD but still not always at $1. I'll be holding HBD now in any case with the other 50% going to HP that gets put to work with voting (and also earns 3% too!)

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You know me? Nothing but a paid shill not financial advice just me pumping my own bags!

If I’m not mistaken I think interest is paid out every 30 days or so! If you making transactions in you wallet in HBD.

I was actually looking at CEL and BlockFi and they only support ETH you can’t even send them stable coins on a side chain or a other chain like BSC that’s cheaper.

Until then I’ll park in HBD! My rule is if it takes more than a months worth of interest to cover your fees when moving a coin that transaction is not worth it

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Hmm... wonder if the transactions includes claiming rewards. Either way, time to stack HBD!

I think that will be coming with CEL - they have AMAs each week but looking at their own credit card offering, the insurance and adding more tokens - could always put it in as a suggestion but wonder who will be using HBD as collateral on a loan in CeFi...

That's a good rule, one I've rigorously enforced myself!

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I checked my peakd wallet and there’s filter for interest and also one for escrow so i have a hunch that’s setting things up for HIVE loans which would make HBD even more tastey to use since you could collateralise your HIVE or tokens abs get HBD to spend

It’s a solid model that HODL HODL has been using with Bitcoin multi-sig wallets

Really insightful look into this new development. I never thought about how much more this changes, it really is a much bigger deal than just making a passive 3% return. Hive network is becoming a better and better place to store your crypto and put it to work every day.

It’s going to take time to see if these effects play out and a little bit of marketing but it’s a fun thought experiment to walk through some of the possibilities.

First step for me is, I’d be interested to see how much SBD will come over to take advantage of the rate

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Or how long it will take for them to offer something similar.

I don't think very long if they WANTED to they could just grab the code and run it on their witness nodes, but I haven't seen any of their witnesses doing much so I won't hold my breath on that

I did not realize this was a witness initiated update.

I was surprised when I saw it. I thought it was another kind of update or something lol.
But isn't it nice to know we will be receiving 3% APR on holding our HBD?

Yeah it's brilliant, I am sure many users will use it as a savings account once they figure it out and start converting liquid HIVE to HBD more regularly

I am sure. Before people used to prefer keeping liquid hive, so they immediately convert their HBD to give but I know the story will change now ;)

I think so too, well if they are savvy enough know about how to maximise returns. Liquid HIVE can still bring you returns there are many people making bank arbitraging it between different exchange accounts and pocketing a spread way better than 3%

Can you write a post next about converting hive to HBD and why and how to make it the most profitable?

Sure I can, I will need to take some time to source the data and also see how the new interest rate affects the internal market, but I'll make a note of it

This looks really interesting. So, if I'm reading this right, HBD would be a fantastic place to store gains made in other places. For instance, if we head into a bear market down the road and I wanted to get out of alt coins, HBD could really be the place to store it. Will it actually stay pegged to the dollar?

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In theory yes, perhaps you also pick up price spice on HE coins or something like that you can park your gains in HBD and collect an interest rate. Regarding the peg, there is no guarantee it remains but there is work to keep it in place, but with this interest rate we will have to see how quickly demand picks up for the asset. We must also remember that HBD like its pegged asset is also subject to devaluation so theres that risk also if the USD poops its pants

3% is better than 0%, i suppose. Personally, I just convert it to Hive if its above $1.

Oh for sure, you can do the arbitrage game since its still liquid so you have the best of both

Thank you!

I saw the change and thought "cool, now I can HODL instead of convert and stake."

But now I see that it is so much more than that.

Can you explain a little about how the interest rate will be paid?

The chain reviews your HBD holdings over a 30 day period and then calculates based on the 3% APR how much you should get. If you do not move your HBD, as in add some or remove some your interest will continue to stack but it won't be paid into your wallet. The moment you perform a transfer it will be paid out and then the next payment batch will then start from 0 again.

So if you don't care about it you can just leave it and collect it when you feel like it by making a transaction. If you have a large amount of HBD could be worth making regular transactions so you get your payout every 30 days

Thank you for explaining that.

This is really good information
I did not know about this
Thanks a lot for sharing.
I know a lot of other wallets give you some returns for mani my you crypto available to them but I was not sure if the risk involved. I not sure even now but with HBD I at least understand something 😎

Yeah but those wallets that give you returns either hold custody of your coins or are running a node on a staking chain. We could surly campaign to get external wallets like atomic wallet to run a node and provide staking inside their wallets in future

Will it make more or less stable to usd? It has proved to be not pegged ...

The interest rate has nothing to do with the stablity, sure it can encourage more holding but there is an HBD stabiliser program that focuses on keeping the peg. I did mention getting into mutli-asset pools which can also help but yeah no algo peg is perfect and clearly investors are nuts to bid up a stable coin

Ok. Thanks. Just give me interest and I Will stay happy

Dude, now I am totally going to HODL and wait for one of those pumps on a peg that make no sense.

This has just be implemented and we still need to watch it closely to see and know how well it would perform.
And all the same, if it plays out well then its still good as it will make some people hold onto their HBD

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I know and even though it's available it's not as if many people know about it, so the effects could be minimal if the news never gets to enough people

Exactly. You know I only knew about this last night when I opened my wallet and saw some changes :)

Lol Me too! I got the article I tagged from Marky sent to me on discord and a few momements later peaked dropped their wallet update and I saw it

Lol. That's awesome then. We wait and see what happen afterwhat

Thank you!

I saw the change and thought "cool, now I can HODL instead of convert and stake."

But now I see that it is so much more than that.

Can you explain a little about how the interest rate will be paid?