While 2022 has been a challenging year for the cryptocurrency industry, HBD has been in a bright spot, especially for users within the Hive ecosystem. This is because, in the past year, witnesses have increased the interest rate for HBD in savings and, since April 2022, it has been set at a very attractive 20% APR.
One question that arises is whether this is sustainable. To answer this, we will be examining the theoretical inflation resulting from the HBD interest.
To start, it's important to understand where the HBD interest comes from.
It is an additional inflation on top of the regular inflation. Because HBD is a derivative of HIVE, this means we are increasing the base inflation rate for HIVE. However, the Hive inflation and supply have always been complex, with many details, particularly with HIVE to HBD conversions and vice versa. The conversion dynamics can result in an end result that is very different from what was initially envisioned. It is not a straightforward process where the new minted coins simply get added to the current HIVE base.
Currently, the regular inflation rate is around 7%. However, for example, Hive inflation for 2021 was deflationary at -2.7% due to conversions. The realized inflation for 2022 is surprisingly the same as the projected rate of 7%. This is surprising because, since the beginning of the chain in 2016, all realized inflation rates have been different from the projected ones.
How Much HBD Is Created From HBD Interest?
HBD is created from HBD in savings. To get the data, we need two things:
- HBD in savings
- interest rate
HBD Savings
First the chart for the HBD balance in savings in 2022.
The HBD in savings has been consistently growing in 2022. At the beginning of the year, there was around 2 million HBD in savings, and now we are at 5 million! We can see that, in the past few months, the amount of HBD in savings has increased even more. This is mostly due to the increase in the debt limit from 10% to 30% with the last hardfork in October, and other market conditions.
The above is the principal for the HBD interest.
What About the HBD Interest Rate?
Here is the chart.
There were a few more changes in the interest rate back in 2021, but we have seen a one- time increase in 2022, from 12% to 20% in April 2022, and it has stayed there since then.
Now that we have the principal and the interest rate, we can calculate the interest in HBD.
Daily HBD Interest
Here is the chart.
Not surprisingly, as the principal and interest have grown in 2022, so has the paid HBD interest.
At the beginning of the year, there was around 700 HBD paid daily. This increased to 1,000, and then sharply increased to 1,500 in April, when the interest rate was set to 20%. Following this, the principal grew, resulting in more HBD deposits in savings, and the daily interest reached 2,000 and stayed there for months until September. In the past few months, we have seen continuous growth in payouts, mostly due to the growth in the amount of HBD in savings.
The monthly chart looks like this.
The amount of HBD interest now stands at 80k HBD per month.
Cumulative for 2022 there is 640k HBD paid as interest.
Inflation From HBD In 2022
Ok so we got the absolute amount of HBD paid daily, monthly and overall. But what this means when we compared it with the overall HIVE supply and inflation.
At the beginning of the year there was 370M HIVE in circulation and now we are at 395M HIVE. An overall of 25M HIVE was added in 2022 from all type of inflation sources, that is exactly at 7% inflation, as the projected one. Having an inflation as the projected one, might be considered as a win for HIVE in a year where the crypto markets are down.
What is the share of the HBD in this overall HIVE inflation?
We have seen that an overall 640k HBD is paid as interest in 2022. To convert this in HIVE we need the HIVE price. The proper method here would be to take the HBD interest generated on each day and convert it to HIVE with the price for that day. Meaning a sort of average. But let’s go with the worst-case scenario that is the lowest price for HIVE that is now.
When we convert the 640k HBD in HIVE at a price of 0.3, we get a 2.1M HIVE. Meaning from the 25M HIVE created in 2022, a 2.1M is coming from HBD interest. This of course is a theoretical number, because not all the HBD interest will be converted to HIVE and at the 0.3$ price.
The chart pie for the HBD inflation share looks like this.
An additional 8% on top of the current inflation. This is a share of the inflation.
When we take a look at inflation rate for HIVE on a yearly basis we get this.
Up to 2022 the numbers are realized, and after that, they are projected.
We can see that the realized inflation for 2022 from the HBD interest is 0.54%
This again is a scenario where the HIVE price is at 0.3$ and all the HBD is converted to HIVE. In reality this will be a mix and we cannot properly allocate what share of the HBD interest was actually converted or not. Most of it will probably remain as HBD.
If we set the price of HIVE double than that is today then the inflation form the HBD interest will be at 0.27%, and if we set the price of HIVE lower at 0.15%, then the inflation from HBD interest will be at 1%.
Projected inflation from HBD interest
2022 had a mixed interest rate for HBD at 12% and then 20%. We have also seen a growth in the HBD in savings. How will this continue forward?
For the current interest rate at 20% and HBD in savings at 5M, this will generate a 1M HBD interest in a year. Now comes the tricky part, at what HIVE price we should convert the HBD in HIVE. If we set it to the current one of 0.3$ it will be 3M HIVE per year, or around 0.75% additional inflation. For a lower price this will be higher say double 1.5%, and for a higher price, the opposite, say 0.37% for 0.6$ HIVE.
For a more volatile scenario If the amount of HBD in savings goes 10X to 50M HBD and the HIVE price remains the same as now we will have an additional inflation of 10M HBD, that is equivalent to 30M HIVE or 8% additional inflation. But this is almost impossible to happen as this much of new HBD entering circulation in a short period of time will for sure increase the price of HIVE.
HBD Supply
Except for the HIVE price, the other major thing that impacts the amount of HBD interest is the HBD in savings. We have seen an increase in the HBD in savings from 2M to 5M in 2022. Thing is 2022 started with a lot of HBD floating freely around. At the beginning of the year there was 14M HBD in circulation out of which only 2M were in savings. Now we have 9M HBD in circulation, the HBD supply has contracted, and out of those 5M are in savings.
It is increasingly difficult to add more HBD in the savings without the need to push HIVE. There might be a slow increase in the amount of HBD in savings, but drastic changes cannot happen.
This is simply because of the fact that the HBD supply is constrained and small. There is no pre-mine or any type of source from where a significant amount of HBD can come on the market without the need to get HIVE first. The most liquid market for HBD now is the internal market, where the stabilizer provides HBD from the DHF, but it usually does that at a premium, locking HIVE in the process. Of course, the conversion option is the ultimate liquidity for HBD, but that one directly removes HIVE from circulation.
The main conclusion from the above is that even with the sharp drop in the HIVE price that happened in 2022, the inflation from the HBD interest remains small at 2M HIVE equivalent or 0.54%. This is not an actual number but a theoretical. The actual HIVE inflation for 2022 ended as the projected one at 7%, meaning things have balanced out between payouts and demand for HBD in 2022, resulting in close to zero additional inflation.
Going forward in 2023, all things remaining the same, this number might be around the 1% (plus/minus 0.5%). Again, only a theoretical number, HBD demand can offset this. We are entering in 2023 with much lower freely available HBD supply then it was at the start of 2022. Most of it is in savings. Because of this HBD might be more sensitive for demand, as there is no freely circulating HBD. HBD demand offsets the interest, as it pushes HIVE.
In the mid-term, five year, the interest from HBD is not putting any pressure on HIVE and is totally manageable. The exact output will depend on markets dynamics, that we can not predict. The risk might increase in the long term if the price of HIVE remains stagnant and depressed for a prolong period of time. The interest might start to put some pressure than. If there is any increase in the HIVE price, the HBD interest can go a long way.
Predicting how things will go is extremely hard, and there is a big possibility for mistake. The crypto market can be very volatile and unpredictable. At the end there is always the HBD haircut rule that is the ultimate protection for HIVE from HBD.
All the best
@dalz
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Nice info buddy!
I see you have migrated to HBD :)
Any long term plans?
Yep, I'll start buying HIVE once it gets lower 0,20 cents.
The plan is to have 100,000 HIVE for the next bull run, meanwhile I will also be stacking BTC.
What about your plans?
20 cents seems closer by the day :)
I'm more of a slow grinder, I already started accumulating some HIVE and plan to do so in the following months ... will see how it goes from there ... I'm accumulating BTC throughout the whole 2022, once per month, and there will be no stopping there, just maybe changes in the sums :)
From time to time I trough in some ETH ... I exited all things related BNB in the last month.
Top current positions, stables, btc, hive and eth...
Cool, looks quite similar to my plan. I think it's the safe path too.
I'm just wishing there is more pain for the first half of 2023, then slowly up until bulls are in full control again.
See you at the top 😉
I saw you asked a few about their HBD goals long-term :D
I will try and get as much HBD in my savings this year after I buy an upcoming token though. But I want to hit at least 1k HBD this year.
The long term goal would be able to pay off a Dev for small projects or giveaway a few hbd now and then to people who struggle in real life ^^
I raise my hand. My (hopefully not so) long term goal with the Hive Dollar (HBD) savings (and with cryptocurrencies in general) is to get out of poverty. I currently have $295.73 HBD in savings. Hopefully I will have at least $300 HBD in savings before the end of 2022. Nowadays my real life pension-like income is around $211.77 USD per month, so literally every cent counts. In the local currency, it is around 80 000 Hungarian Forint (HUF) per month (theoretically there will be a very small raise in the beginning of 2023) ($1 USD is currently 377.76 HUF).
I guess I also need to come to hungary
appears a lot cheaper than german hell
Do not worry. Hungary also has its on hell. Literally the highest VAT (27%) in Europe, while the salary is one of the lowest. Many people are struggling, and live from day to day, from paycheck to paycheck. Many people (including me) live under the local minimum wage. This is why I am building my Hive Dollar (HBD) savings. To get out of poverty. Hopefully I will be able to do it in the next years/decades.
Happy New Year.
Have a nice day. All the best. Greetings and much love from Hungary.
I think it is pretty much the same now.. only some little differences in prices..
Germany is not cheap - and I earn nothing (officially - unofficially I can very closely survive and from time to time have a bigger or nearly no scope of action)
I also massively live under living minimum, have permanent pain, am partly homeless and was also already very very hungry for way too long
I get no help by the state/ welfare, am even blocked/banned/ being criminalized and not allowed to work.
Instead of helping me, the state preferred to support my mother in welfare fraud so she can have vacation
while indirectly trying to kill me
I've learned a lot by it and the state probably hoped to get rid of me but only made me stronger
still rough, but you seem to know what's up
also the best to you!
I was homeless multiple times (even as a child), so I know what that is. I receive a very low pension-like income, but only because I live with multiple disabilities. Otherwise the state do not care about me either. The very low income is around 80 000 Hungarian Forint (HUF) per month, which is currently only €199.67 EUR, because €1 EUR is currently 400.66 Hungarian Forint (HUF). This is enough to not starve to death.
I do not know what is the situation about your mother, but my mother died five years ago (on 2017.12.17). She did everything for us (for my brother and for me). She loved us very much. I wish that I would have spent much more time with her. I wish that I would have been much more kind to her. I wish that she could still live. She deserved much better. Both from me, and from life in general. She worked in her entire life. Even in her early pensioner age. She was 64 years old. She died because of brain tumor (cancer).
Probably the best thing would be actually to speak with your mother. I do not know what does "indirectly trying to kill me" means in your case, but probably a misunderstanding. A mother loves her child, and I am sure that she love you too, deep in her heart.
Sometimes I feel the same about our state. Looks like there is indeed no much difference between the German and the Hungarian government in this aspect.
Stay strong.
Happy New Year again.
Have a nice day. All the best. Greetings and much love from Hungary.
Sad to read, I would prefer your mother being alive
mine sadly is a full blown psychopath and hunted away 5 parts of our family and is now keeping everything for herself while my dad, my little sister and I are forced to fight for survival
We did everything for her, but it was not enough - now she is enjoying WHAT WE BUILT OVER DECADES with some foreign new steady boyfriend (while blocking the divorce with my father and forcing the whole family into survival situations)
I can understand you and your love to ur mother, sadly I never got that love and maybe therefore am also unable to give it.
I am not sure. We tried everything we can imagine to help her, but she plainly did not want.
She wanted more but not of honest real help. only of materialism
me, all my siblings and even my dad are traumatized
Attachment trauma but probably also developmental trauma
We are trying to limit damage but it is very fucking rough - while she just goes completely batshit psychopathic crazy full madness
and we do not even have a car or money to buy food
sorry for the negative energy, again thanks and all the best to you
I came to similar conclusions as well.
Nice to have even more numbers to back them up.
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Thanks for breaking this down for us. I will continue to grow my HBD savings :-). Just reached my 10k goal this year! Let's say 15k for 2023 :-)
15k in hbd savings would be enormous ^^
I've set my goals to reach that in 2023. Will see if I manage ;-)
fingers crossed :)
my target for buying Hive with HBD is 20 cents
Its nice to have goals :)
Even better some that depends on you ;)
I like lazy goals :P
Thank you for the sharing, It's good information :)
HBD have been really helpful which I appreciate it a lot in the blockchain and thanks for sharing @dalz
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I bought Hive for 1000hbd on $0.36, I will buy more if the hive price keeps falling near the $0.20. Part of me even wants the prices to tank some more 😅
Wow... that really IS a very complex relationship between Hive and HBD. Whereas I have had ambitions to save some, it has so far not come to fruition because of the current climate of declining incomes (we're self-employed) and rising costs of living.
=^..^=
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Thanks for the great work.
very insightful, as usual! ❤️
Thanks for a breakdown of a complex relationship between these two! 😊
I was considering whether it would be more beneficial to collect HP only or to place the 50% share of HBD into savings, then later convert the interest to Hive and then to HP again. The math is a little bit difficult because it's quite multifactorial and susceptible to changes in HIVE prices which can't yet be predicted in the short term.
What is the haircut rule?
If the HBD market cap is more than 30% of the market cap of HIVE, the debt limit as it is called here, than HBD is no longer valued at $1 from the blockchain when converted to HIVE.
That seems like a dangerous rule. If HBD were to be changed to less $1, I would think that would unhinge and all of Hive value would collapse.
Its a protection against the so called death spiral, that happened to LUNA/UST.
HBD is set to deppeg by design, but not going to zero.
This has already happened on the old chain during the previous bear market when HBD, formerly SBD dropped to $0.6 for a short period of time, and stayed around $0.8 for around four months. It did recover from there though.
You can monitor live the debt limit and the HIVE price that can support the current circulating supply for HBD here:
https://hive.ausbit.dev/hbd
At the moment the debt is around 6%, still far from the 30% limit, and the support price for HIVE of $0.06.
But this is crypto and things can change fast.
The HBD concept for a stablecoin is sort of bend but not brake approach. In extreme bad market conditions HBD can drop in value. HBD holders should be aware of this and adjust their position according to their preferences.
Thank you for some really valuable information. I appreciate you taking the time to give a concise answer. I have started adding to HBD and I think of it as a good investment, but I was not aware of the haircut rule. I will start monitoring the debt ratio.
why arent you adding the theoretical from-HBD-to-HIVE-converted Hive on top of the 25m Inflation Hive of this year?
you say those theoretical 2.1m Hive are inside the 25m added inflation hive - but that only appears true to me if those were traded from HBD to Hive, not converted
what do I miss?
aren't these HBD leaving circulation? due to going INTO savings?
what do I miss?
very interesting post, thank you :) also for any reply in advance ^^
That is the virtual hive supply and yes it is up, as it is depended on the hive price. The clean HIVE supply is what important. Also the overall hive supply is not the focus of this post, I make monthly reports for the overall HIVE supply, icluding the virtual supply.
The final number is 25M HIVE added... where this came from we can not realy tell, as I mentioned in the post... some are conversions, but maybe from a two year old hbd, etc. ... what matters is the hive in absolute numbers .... the theoretical hive supply from hbd interest is just an idication... not reality...
HBD in savings is still in circulation, not burned.
thank you for the response and clearing up :) ^^
I'll take a look at ur monthly report about the overall hive supply
Really good explanation of the dynamics between Hive and HBD. It's comforting to know that the current interest rate being paid is nowhere near causing any stress to the system. Hopefully the price of Hive can rally and we can really take any worries of overinflation off the table. In fact, at that point, hopefully we can actually accelerate the growth of HBD to keep up with what should be increasing demand.
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Yeah 2022 is very bad year for crypto and his users. People's invest his life savings in luna and ftx sadly says all investments going to zero. 8 people's attempt to sucide due to this crises. In this bad situation hive and hbd looks to strong. Many stable coins down in this bear market but hbd stable in 1$. Thats the success of hive Blockchain technology. Hbd staking is great option to the users. Hopefully incoming bull market hive coin break his all time high. My 2023 goals is to buy or earn 30 thousand hive and power up all to support new users.
Awesome analysis and thanks for sharing.
Great analysis I appreciate the work on it here! Interesting to see the effect HBD has on inflation and how these things tie together.
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Thank you for sharing this great inside of investing in HBD saving. This is really educative.
I really like the way you approached the subject! Good boy!
I have been saying for several months on my YouTube channel that the HBD 20% play is the best opportunity in crypto right now. 2nd best opportunity in my opinion is Litecoin leading up to its halvening event next year.
Great article explaining more Information.
Does any of the HBD in the DAO that doesn't get paid out earn some of this interest?
I find the whole mechanism interesting and have also came to the conclusion that if someone with deep pockets wanted to go very deep the price of HIVE would likely get a boost and also if a lot of people pulled out of the HBD and converted to HIVE and dumped that the debt percentage would have went down protecting it from hitting the 30% threshold.
The one thing I worry about is the potential unwillingness to approve proposals in fear that a lot of it would be put in savings to earn more HBD increasing the debt percentage.
Wondeful analysis and HBD savings drastically increasing. Well I dont's have that much HBD but definitely buying Hive by using HBD at low price is nice idea. And when the price of hive will go high, save them and earn APR.
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