If you Google the word "subsidized" the results found might be a little surprising. Most of the content generated is going to be about government subsidized loans vs unsubsidized loans. Yes, college degrees are expensive, and it's one of those things that many still view as a necessary thing to get. Not for long I think, but that's another story.
The actual definition of 'subsidized' is much more generic than the common link to college loans. It just means that some percentage of something is being paid for by another party. Within the context of government this could be interpreted as socialism (or even communism), which many of my readers would vehemently oppose.
Why do people oppose socialism and communism? Because they don't scale. They give too much power to too few people. They are inefficient because the money has to be stolen from the peasants and funneled through multiple intermediaries that rake off the top of the pot.
It also doesn't feel fair for those who work hard and have a strong work ethic to be "paying for freeloaders". Of course that's a very reductive and inaccurate viewpoint. It is not my viewpoint, but it is one that others will argue, which does give it some validity in the world of 'perception is reality'.
But honestly that's not even the real reason that socialism and communism and capitalism end up so ridiculous in practice. One of the core problems with government is that they are historically very bad at generating real value. Famous even. You tell me, off the top of your head right now, one way that government makes money. If you said taxes: that's the problem. Try again. No? Nothing?
Think about how crazy that is.
Why are all governments just these ridiculous parasitic vampires running around stealing money from their own citizens instead of building value in real ways like everyone else is doing? Why don't governments have profitable business models that actually generate income? Why is all the money that the government spends: debt that just piles up year after year getting bigger and bigger with no end in sight? Truly, I do not have the answer to these questions. I've never even thought about it before, which is also strange. We have a tendency to accept things because that's the way they've always been. Is what it is.
What was this about? Subsidy?
Right, getting back on track, a subsidy is just when one party helps another party pay for something. Hive has many subsidies. In fact we can think of all of the inflation we allocate to the network as a subsidy.
- Block production is subsidized.
- Blogging is subsidized.
- Curation is subsidized.
- The decentralized hive fund is subsidized.
- Interest rates are subsidized (both HBD and Hive).
The title of this post is "Hive Subsidized Debt" so apparently I wanted to talk about HBD interest rates for some reason? Beats me, but also with all the regulators losing their mind over UST it's a very interesting topic of discussion.
Pegging HBD to Gold Would be Pointless
- HBD is not USD.
I've gotten into several disagreements over the last few weeks about the gold standard. Nobody seems to realize that pegging paper currency to gold isn't a good idea. You know what happened during the Gold Standard? The Great Depression started in 1929. You know when the Gold Standard ended? 1933. Why? Because the Gold Standard was a big big reason the Great Depression happened in the first place. Why would we try to go back to that system as if it could save us? Not only is it not possible to do this within the current system, it would have drastically negative unintended consequences. We need to move forward, not backward. Gold is not a good form of money. That's why nobody uses it. It only made sense before we had the technology to print value digitally.
Velocity of money
No one wants to spend money if the money keeps gaining value over time. This leads to hording money instead of economic expansion. Stores-of-value do not make for good currencies. This is a known fact, and basically proven by Gresham's Law. Bad money drives out good money from an economy. People want to spend the bad money. They don't want to spend the good money.
Therefore HBD being pegged to USD instead of Gold is exactly what we want. We want HBD to be bad money, by design, that's the entire point. We want people to spend it. We want the network to owe back less debt than was issued. The guaranteed declining value of fiat allows for all of these things to happen using nothing but a price feed from the witnesses. It's a very nifty system.
But again, HBD is not gold
HBD actually shares more 'genetic' code with Hive than it does with USD. HBD is closer to Hive than USD. HBD is a derivative of Hive, and is explicitly dependent on Hive in every way. This becomes even more apparent when we look at subsidized HBD interest rates.
Wow, 20%... that's... a lot... right?
Yes, a 20% APR (22% APY) is very very very high for an asset pegged to USD. This is the ultimate subsidy that makes HBD not USD. HBD is loosely-pegged-USD + 22% variable APY. Because it is not possible to get 22% variable APY anywhere on the planet with USD... that means that HBD isn't anything like USD at all. From a value perspective, it's superior as long as we can keep the debt-ratio below the haircut. Sure, that's a big ask, but we've been doing quite well ever since HIVE >> HBD conversions came into play.
While USD is constantly going down in value, HBD is constantly going up, because once we add that 22% APY into the mix this will offset all the losses and inflation of USD. This means that as long as USD is inflating less than 22% a year, Hive is subsidizing HBD and we are willing to take a loss on the debt we are issuing. On average, we have to pay back more value than we are printing, and that might sound bad until we get to the next part.
But what if we never have to pay back the debt?
Welcome to the Pyramid Scheme that is capitalism!
Enjoy your stay!
This is the thing we need to remember about debt, especially when we are the ones who are issuing it (and not the ones who own it). Given enough demand for HBD, conversions back into Hive will never occur, and we never have to pay back the debt.
As always, we can think of money as water.
And while we might have to convert a million HBD back into Hive during any given time, there's still a certain level of demand left for HBD that guarantees that all of it will never be converted. The more demand and utility our debt has, the more we can just print out money knowing we'll never have to pay it back. Now that Hive >> HBD conversions are in play, this entire process happens in a transparent automated way that pumps Hive every time demand for out debt increases.
Deal
Therefore, a 20% APR on HBD ensures that demand for HBD is quite high, to the point that we can be almost certain that a bank run will not occur, and we can essentially leverage our utility into a bunch of "free" money. The more apps are built on top of HBD, the more utility and free money we will get.
Ultimately the thing we will need to be very careful about is the debt ratio. Imagine that Hive went x10 and the debt ratio was maxed out. This could be a very bad sign that our debt has become unstable and we'd get hit hard during the next bear market. It is in cases like this that the witnesses need to not be greedy and lower the APR of HBD when the debt ratio is too high (lowering demand on purpose during the bull market), even if that action brings the price of Hive down due to the lowered demand for our debt. It's going to take very steady hands to be able to navigate this situation as Hive scales up.
https://hive.ausbit.dev/hbd
As it stands right now, our debt ratio is below 5%, which is very good. Not only that, it's basically been below 5% ever since we raised rates to 20%, which again... is a very good sign and shows that not very people are taking advantage of this unheard of deal (RIP UST). Thus the stability of the system stays intact. If everyone was doing it (like LUNA/UST) then we'd be having a different conversation. Institutional adoption of Hive will be a very awkward process. Not looking forward to that.
What else is subsidized?
Anything that society wants, but can't fund itself or be made profitable in the short-term. The sustainable Green initiative is a good example. Elon Musk gets "carbon credits" for making electric vehicles. Citizens get subsidized for putting solar panels on their rooftops. Scholarships. Research grants. That kind of thing.
And this is very much a doubled-edged sword. Subsidization is basically an investment. That investment may turn out to be a winner or a loser in the future. Many would argue that subsidizing solar panels is completely pointless because of how many resources it takes to build them and how much pollution that process creates vs the small amount of electrical output it produces over time. I'm not sure if I agree with that assessment or not, but these things are coming into the limelight more and more as the push for Green energy continues.
Ironically my readers already know that I believe that Bitcoin is the ultimate solution to sustainable practice. While all the propaganda points to Bitcoin as a "waste of energy", it truly is the exact opposite. It's no secret that the biggest waste of resources lies at the center of government and the military industrial complex. The powers that shouldn't be constantly make up lies about Bitcoin because it threatens their hegemony. It's blatantly obvious to those of us here in the space; not so much to those on the outside looking in. That's what makes it such excellent propaganda in the first place.
Conclusion
What is subsidy? Is it socialism? Is it communism? Is it an investment? All of the above? It's a very generic term. Paying for your kid's college tuition out-of-pocket is technically a subsidy (between you and your kid). In the context of government, it is very much socialism at its 'finest'. Many do not like the idea of it, not because it's a bad idea, but because they view it as theft from one group and giving it to another that doesn't deserve it.
It should be obvious by now that crypto flips the board. We make our own rules. Crypto is not forced on anyone. This is opt-in governance. If your community votes to fund something that you don't agree with, worst case scenario you can leave and join another community that shares your values (in the case of Bitcoin, they subsidize nothing as block rewards get slashed to zero). That's the magic of governments that exist within digital environments. Very little overhead cost in jumping from one to another. That and we can participate in multiple communities simultaneously.
The combination of HBD + high interest rates shows us that HBD isn't what it's pegged to, but rather HBD is whatever we program it to be. As a derivative stable-asset soft-pegged to a 3-day price average, it is even more stable than USD over time because the interest rate subsidy makes number go up instead of number go down. This is a very valuable utility to have, that will hopefully multiply onto a lot more demand later as development continues, eventually pumping Hive in the process. The grind continues.
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So I generally agree with most things you talk about in your posts, but this one I very much disagree with, and I would challenge you to think about it more because I've done a lot of learning on the subject to come to the opposite conclusion:
The reason Gresham's Law doesn't prove the point you seem to think it does is this part: "if there are two forms of commodity money in circulation which are accepted by law as having similar face value".
Gresham's Law ONLY works with government intervention in the free market. Every time in history where two commodity monies competed without govt. intervention, the harder (i.e. better) money won. This is why gold has won out as the best commodity money all over the world. It has beaten out every other commodity that different cultures used as money over time.
Any time people are forced to spend money that they might not otherwise spend due to inflation of the money supply, that is market manipulation, and it distorts the value of assets.
It is actually good that people will try to hoard store-of-value money like gold. Ultimately, with truly free markets, people will still need to spend their gold. They will need food, shelter, and they will want luxuries and entertainment. The difference is that those things will have to be priced in such a way that it's worth it for people to spend the gold on them rather than saving the gold. This is the proper, free market way to price assets. You have to decide whether it's better for you to have the food now, or more purchasing power in the long run, and that goes into the market pricing of all assets.
With inflationary, govt. controlled money, that whole system goes out of whack, and people just need to spend and/or invest their money as quickly as they can, so they buy and/or invest in things that they have no business buying or investing in under normal circumstances. That leads to asset mispricing and boom and bust cycles.
I know you state many times that the gold standard caused the great depression, but I think that the true facts show the opposite. Despite being on a so-called "gold standard", the money supply was heavily manipulated by banks which led to the crash. It was actually very similar to the 2008 crash. The gold standard prevented the government from being able to bail out the banks at the population's expense, but it was not the gold standard that caused the depression. Don't take my word for it though, this is what the facts show as far as I am able to tell.
Any economic depression is seeded from corruption in the economy.
This didn't always used to be the case.
It used to be Mother Nature's fault.
Like in Ancient Egypt if they didn't get a flood the economy would suffer if they weren't stockpiling grain from a better season. Now that technology has created abundance, all depressions are probably caused by artificial scarcity and the failures of modern capitalism and greed from the top-down.
In the case of the Great Depression: it was likely created from the growth created during the Roaring Twenties. When the economy is too good for too long people get lazy and assume it will always be good and they don't hedge for a downturn. Looking at crypto, we see that technology speeds up time and creates these cycles every 2-4 years. Crypto bear markets are created by the exact same corruption and greed, but they burn out the zombies much better than the legacy system.
The context in which I say these things matters more than the actual truth of the issue. The context of HBD is that we peg HBD to the most stable asset on the planet, and then we try to make it even more stable with interest rates. Pegging to gold would be a terrible idea unless it becomes more stable than USD, and even then a negative interest rate would then be required because gold can increase in value.
The gold-standard is an outdated practice and would only work as a inefficient but robust backup to crypto.
Luckily crypto is all about inefficiency and robust backups, which is why crypto will inevitably subsidize the gold/silver standard, as I have written about many times.
We're in complete agreement that pegging HBD to gold is a really bad idea and USD is a much better choice. That's mostly because HBD is debt though, and you want to have your debt in an inflationary asset not a deflationary one.
I was just saying that I don't believe the gold standard caused the great depression, and I believe that stores of value like gold and eventually bitcoin would make the best currencies in a free market system.
Yeah the whole "Gold Standard created the Great Depression" angle was a pretty flagrant hot take.
But I also believe that intelligent decentralized inflation is doing to become a killer dapp.
That isn't possible to achieve with Bitcoin or Gold.
To me Bitcoin and gold are all about security and robust backups and will take a backseat during the good times.
I haven't looked into it deeply, but Oil & Gas have been getting massive subsidies for decades. Society needs energy and energy often requires massive investment upfront. I think if solar got the same subsidies that Oil & Gas have received, it would be way further along in development.
I disagree about a Government needing to be profitable.
Part of the point is to be unprofitable.
A library, for example, shouldn't be profitable. The benefits of a library are a better educated population that can solve more complex problems and generate even greater GDP. Libraries are amazing investments for a region and a community, but terrible short-term profit-generators.
I'm sure you're aware with how amazingly terrible PG&E is. They've killed at least 127 people, caused millions in damage, etc, all because it's not profitable to maintain their infrastructure. If PG&E was government-run that wouldn't be an issue.
I agree that Bitcoin isn't a waste of energy, especially compared to financial institutions, but it is pretty sickening when Bitcoin miners find that restarting old coal plants is the most profitable way to power their servers. I hate all of that.
This is a very good example of a proper usage of subsidies.
The question then becomes, how do we pay for such a thing?
Gov demands tax dollars... why? Because they don't control the money.
Hive would just print the money through the DHF and build the library.
One of these solutions has a future within permissionless systems, and one does not.
That's a very "don't throw the baby out with the bathwater" issue.
The propaganda says we need to throw the baby out.
They're liars.
No surprises there.
What many do not seem to understand is that the main byproduct of mining is heat.
We should be focusing on repurposing the heat in a useful way.
This eliminates 95% of the electrical 'waste' of Bitcoin mining.
Theoretically it also creates decentralization (like if we heat homes with it).
My local library the kids just use the free computers and wifi to play minecraft. 🤣
Hahaha, learning the most essential skills.
I totally understand what you're saying, and the DHF and Hive printing/inflation is clearly superior here.
I'd push back a little on your summary of the Govt though. The Govt does control the money doesn't it? The US Govt printed trillions for the Covid PPP loans for example. The tax collected in the US is miniscule compared to Government spending, and my understanding was that it's main purpose was to force its citizens to use USD for at least that. Regardless, it doesn't really matter, your point on the DHF is excellent.
Is the propaganda lying about coal plants? They deaths they cause from their pollutants is huge... and heat is extremely hard to move. So much heat energy is lost in the coal mining process, the whole reason the coal plants are used to generate electricity (to heat homes for example) is because electricity travels so well and heat does not.
Under capitalism, Bitcoin miners are always going to go for the cheapest power, regardless of how it's generated.
I love the idea of everyone heating their homes with Bitcoin miners, but I'm not sure how plausible or likely that is. I'd say it's possibly more likely that battery makers build miners in to use excess power when batteries are full from solar, etc.
Yea I’d push back much more then a little myself. This is getting ridiculous is my take.
“ I'd push back a little on your summary of the Govt though “
If it’s a good enough plan for the U.S. Treasury, it’s good enough for us. 😏
lol that's the idea
an ever expanding network never has to pay back the debt
works very well in crypto because it's very easy to expand
the bear markets hurt though
but also users only need to survive one bear market to make it
Yea right, not who I’d wanna model it after 😂
HBD being pegged to HIVE and not USD is simply genius. That works like an umbrella from stablecoins shit going in the world. Hopefully, the mechanics will hold on and I wonder if HF26 extending to 30% of the HBD haircut rule to take effect puts it in any danger. What do you think?
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lets tie hive to USD so it can crash and burn when its value goes higher.....Smart move 😂 If anything we need to treat Hive as its own form of value IE: Trade real goods and services using hive.
Does does USD crashing and burning hurt Hive?
It helps Hive because then we don't have to pay back any of the debt we issued.
It would be the HBD holders who get burned.
Seems like you don't understand how this works.
To be fair it is pretty complicated.
Exactly!
Increasing the haircut puts Hive at more risk and gives more assurances to HBD holders.
It also allows the Hive network to expand to a much greater level.
We are taking more risk to get more reward.
It's something I've been asking for, for years.
Will be nice to see it implemented.
I think 30% is still very safe.
It's all about volatility and how quickly we get to that 30% level.
Faster is worse.
It’s moronic. Respectfully it really is.
I think you underestimate the chain reaction of making Fuentes like this this late in the game. You make fair points but I just am getting the urge to sell and watch. This sounds a bit desperate to me the way these posts just wanna change how it works while at same time promoting the 20% APR is safe but buy buy HBD. I don’t mean you, I just mean these posts by many about this topic. It’s getting a bit ridiculous
I see comrade I see, all jokes aside that was a great write up keep up the good work
I am trusting the process and onboard with earing 20% on HBD savings. It's a weird reaity Edicted. Stay cool. Time will tell. Soon enough we will see where this crazy train is going!!
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Yea only worked better then anything else for 5000 years. The Great Depression example makes no sense. You are blaming Gold for that? Respectfully I question many of the things you claim these days. You think the Gold standard is dumb but think a APR of 100% can last and promote them even down 95%. Have fun with that.
100% yearly ROI can and has and will continue to happen with Bitcoin.
It's obviously a very possible outcome for DEFI if done correctly.
There are many reasons why it hasn't been done correctly, which I have also explained in detail.
It makes perfect sense in terms of velocity of money and Gresham's law. Kinda seems like you just skim over what I write, see something you don't like, rage blackout, and then post a comment about it.
You think it's a coincidence that the gold standard ended during the middle of the Great Depression?
Because it's totally not.
If the gold standard was so great, shouldn't that have fucked everything up a hundred times worse than it was before? Can you show evidence that the economy got worse in 1933? No, you can't, because it didn't.
Don’t mean to sound annoyed. It’s just getting a bit scammy promo on these posts to be frank.
I’ll move on.
You have made me question holding Hive all together and make me wanna sell it all. I’m not kidding . This is a insane idea
You know that I don't actually control policy around here, right?
Explaining how HBD is a standalone asset and isn't actually the thing it's pegged to is not 'insane'.
In fact I have no clue which idea you think is 'insane'.
You think you know enough about Hive an HBD that a peg to gold is a good idea?
It's not, and I'm telling you why it's not.
If you think I'm wrong then you probably don't understand the system very well.
Take it or leave it.
Overreacting much? :)
Yea I guess so! I quit caffeine today! I’m going back asap. @edicted is good people no doubt. Sometimes it’s better to not comment unless you have a really good argument. But just saying “ you are wrong 🤪” comes off silly. I owe our boy an apology. I’m driving to Starbucks to get some caffeine ✌️
my caffeine addiction is so bad right now...
it only just started too within the past couple years.
made it over 30 years without a problem
now I'm sucking down like 3-5 cups a day plus chain-drinking PG Tips black tea. lol
;)
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🤯
Thank you.
I need to read this three more times, but I think that time is a good investment, err subsidy.
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Thanks for the descriptive analysis, what of #leo token?
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