Good questions
"If you knew that Hive price was going to spike you could convert Hive into HBD and trade that HBD back into Hive for a profit."
- The current price of Hive is 40 cents.
- I know the price will spike to $1.
- For simplicity we assume that HBD is $1.05 to negate the 5% fee.
- I convert 1M Hive (worth $400k) into 200k HBD immediately.
- I trade the 200k HBD into Hive on the internal market (assuming liquidity exists) for 500k Hive.
- I now have 500k Hive and a repo agreement to pay 200k HBD in 3.5 days with 1M Hive as collateral.
- In 3.5 days when the loan is automatically repaid, The average price of Hive spiked to $1 (already known).
- I owed 200k HBD on the contract; my 1M Hive position loses 200k Hive.
- I am left with 500k Hive + 800k Hive.
- I made a profit of 300k Hive from the on-chain conversion.
- The total marketcap of Hive changed by +200k HBD minted and -200k Hive destroyed.
- This is exactly how HIVE >> HBD conversions work.
"...sell some Hive into USDT to go long."
Again Hive is 40 cents I know it's going to $1
- I sell 1M Hive into USDT.
- I leverage my 400k USDT to x20 long Hive.
- Hive goes up x2.5 and +150%.
- My position is now worth $400k x 2.5 x 20 = $20M
- I close my long position for a MASSIVE $19.6M profit.
- I take my 20M USDT and buy spot Hive or Bitcoin or maybe I flip short; whatever.
- It costs way less than $20M to pump Hive x2.5 so any whale can pull this off.
- In fact I think it could be done as cheaply as $1M on a short timeframe.
"...this is the bottom and I'm looking to move that 1M into other assets."
Yes, HBD is a stablecoin, and whales might want to use that stablecoin to buy Bitcoin. If they want to buy Bitcoin with it they might need to hedge frontrunners by shorting Hive right before the public conversion... because the only way to sell HBD is to convert it and sell the Hive, as HBD has no other market liquidity but this one single option... I hope this makes sense.
"Why are longs being paid an arm and a leg to make this market?"
The chance that shorts can make money on a -2% funding rate is VERY LOW. As I stated in the original post, a -2% funding rate would be able to buy the entire world economy with a $1 investment after less than a year. The APY on a -2% funding rate is 682,929,949,073,531,120,761%, which is exponentially more money than exists in the entire world.
In order for some of these shorts to be profitable the price of Hive has to dump over 12% in a single day, and if it only dumps that amount in a single day is a breakeven trade, and if it trades flat the shorter loses 12% of the money they put in every 24 hours (auto liquidation after 8 days of trading flat).
So either these people shorting have no fucking idea what they are doing and are throwing their money away and not checking on the funding rate (which I've seen happen several times now via infinitely salty traders) or a huge whale is playing huge whale games somehow.
Being able to farm yields like this risk-free with zero extra exposure should not be possible, and yet here we are. Manipulation may not be happening at all and the demand to short Hive might be irrationally high due to the ignorance of the funding mechanic.
This comment is another 40 dollar post
lol these things happen
I was missing some of those details. I appreciate the detailed explanation.
I have to make a lot of assumptions in these posts because they are already too long.
It looks like a few others have benefitted from this thread as well so thanks for posing the questions.