I have not been able to get my mind off the role decentralized stablecoins can play in stabilizing the crypto economy by simply functioning as the debt instrument it is.
After having swam in the ocean of traditional economics in the past couple of days because of our dear crypto president, I've found reasons reinforcing my belief in decentralized stablecoins.
I think that crypto is, so far, mostly speculative. It's not my proudest moment to acknowledge this because it's a slap on our faces having carried the gospel of crypto for years now as some sort of solution to traditional finance and economy.
The problem here is that we can't replace a “fraud-backed economy” with a speculative one, it's an even worse system to embrace.
At this point, we have both recent and past crypto economic failures from various projects to understand why speculative building just doesn't work.
Even memecoins are not fundamentally speculative even though they appear in that light to some. Memecoins growth could largely be attributed to “cultural significance” perceived to be worth an investment.
Evidently, once memes transition to being mostly speculative assets, they tend to lose growth momentum and simply become a market maker's playground, just take a look at all the old memecoins. They've all failed to become sustainable economic systems, even those that tried to introduce incentives and utility structures, all because post-launch growth only has speculations.
Decentralized Stablecoins as Debt for sustainability
There are generally two kinds of debts in my books and that's good debt — which holds both incentives and risks, then there's bad debt — which only has risks(consequences).
How can one tell which is which?
Well, it's actually pretty simple, not as complex as it is often made to sound.
Bad debt is essentially consumptional debt, it involves any debt that is consumed after acquisition(zero yield).
If a government borrows money to pay workers, that's consumptional debt as it is used up upon acquisition.
This is why the United States for instance has $36.22 trillion in debt today. The nation's GDP growth cannot be attributed to any of its debt acquisition from the way I see it. The latter is rather acting as a force limiting growth and increasing cost of living for the citizens.
Good debt having both risks and incentives means that if one acquires debt to invest, provided it's not greed-invested, that is theoretically good debt because there's an incentive of profiting from the investment and the risk is defaulting upon debt maturity, essentially enforcing a need for strategic approach to debt acquisition.
When we look at decentralized and native stablecoins as debt for sustainability, we can internalize cost and effectively peg our economies to revenue and community contributive building.
Picture this: a blockchain has both a native governance token and a stablecoin.
The native governance token acts as a reflection of economic growth of the blockchain, while the stablecoin acts as a community-held debt supporting the network's financing.
Certainly, this already sounds familiar as Hive literally runs on this very system.
That said, Hive isn't exactly “revenue-driven” at the moment, so that makes its debt instrument almost useless and sometimes creating fear in the system rather than fueling growth.
So what would the solution be?
killing the zero-gas structure with a dynamic fee system
I think a fee-less blockchain isn't as “cute” as we think it is. It doesn't make sense especially if our idea of removing fees is locking investors into a 13-weeks release contract.
So am I proposing tossing it out the window? Absolutely not. I am simply suggesting a dynamic adjustment that incentivizes holding HBD.
Printing all of HBD’s interest on savings out of thin air might be a mistake long term even though temporarily it's safe. The major problem is in the fact that Hive as an asset is still largely backed by speculation of occasional Korean pumps and dumps.
So what would a dynamic fee system look like?
I love the idea of multi-layer incentivization, it creates investor dilemmas and that's good for building a healthy and sustainable economy.
Investors have to be confused about where to put their money to avoid having a specific segment being crowded and becoming a security risk. Multi-layer incentives create a balance as value is spread around different areas and never concentrated.
Moving on, the proposed dynamic fee system does not eliminate the “zero-fee” feature, it just turns it into a premium feature — an incentive of some sort.
What this means is that if a new user perhaps wants to transact on Hive, they can decide to pay directly with Hive for continued operations or choose to stake some Hive and enjoy the gas-free experience.
In a lot of ways, this is more user friendly. First off, it gives everyone “an actual choice” that makes the 13-weeks time-lock a unique incentive, as opposed to being a forced reality.
In addition to this, it also improves user experience by not limiting operations to stake but enabling users to pay for gas directly with Hive tokens without committing to holding a stake in the network.
Where does the Stablecoin, HBD, come in?
HBD is debt, so unlike Hive, it doesn't hold much economic and network benefits so it has to be incentivized in some form for people acquire it.
This is what HBD savings is for but the interest source is flawed.
With a dynamic fee system, HBD would have a yield source that is sustainable. When users pay for gas with Hive, said Hive is converted to debt and rewarded to debt holders, reducing Hive's inflation from not only witness rewards but also from HBD interest payments that are currently printed out of thin air.
This system would take the burden of controlling interest off of witnesses because where it is at now makes it vulnerable to the emotions of the witnesses and they may react as the Federal reserve does. We could make it a two-layer system where part of the interest is controlled by witnesses and the other is based on fee payments, essentially ensuring that even if witnesses signal 0% APR, the community would still be incentivized through fees.
What if everyone decides to stake and avoid fees?
The weird thing about this system, which is actually its strength, is that it's mostly aimed at taxing inflow and outflow. Now this is where I'd say that I believe RCs for monetary transactions should generally be jacked up above the free RC given to new accounts because if a user can afford funding his account, he can afford a couple pennies in fees to move the funds around or power up and never pay gas again.
This would create room for the network to be able to generate revenue each time a consumer(spender) comes in and exits.
The debt(HBD) holders will always do just fine.
If majority of users stake their Hive tokens to avoid fees, that just improves Hive's market value as liquidity will be thin in the markets and that would lead to the network owing less debt and witnesses can simply jack up their side of interest influence on HBD, incentivizes “consumers” which are less likely to hold Hive stake to buy more Hive and move into HBD savings.
It makes sense to have some sort of fee structure. Fee-lessness should be a premium benefit, and limited RC should be a social benefit.
Value flow should contribute revenue to the network in some form. In this way, we have a sustainable debt system and highly incentivized stakeholders. Certainly, there could be flaws I'm not acknowledging, but it's worth looking at how we can generate revenue when money moves in or out of our economy. That's the only time HBD being pegged to HIVE would make sense because HIVE itself is no longer a “speculative investment” at that point.
Posted Using INLEO
A15% APR for savings is better than opening a savings account to traditional bank or to online banking. Also a 15% return is also more as speculative investment. In some ways there is a good, a bad, and a ugly with the system. Nothing is perfect and flawless.