I don't see any downside for raising to 20% at this time. I think quite the opposite. But my thoughts change as I learn more.
I see more positive outcomes for the network. If we find out something is wrong, the parameter can always be reverted back to lower APR.
My reasoning follows the reasoning of central banks, as far as I understand them.
HIVE Backed Dollar (HBD) is, as the name suggests, backed by the HIVE currency. So if we print too much HBD eventually some people may cash out. It is a balance of market caps because HBD is designed to eat HIVE value to sustain itself.
For HBD to grow in market cap (circulating supply) more HIVE has to be used as "collateral" to back the HBD. So it is not just HBD inflation but also HIVE inflation.
When governments wants people to spend less and save more they raise the interest rates, the short term benefit are control in prices and increase in the value of the currency, in the long term the money will eventually flood the markets and monetary maneuvers have to be taken to control prices and prevent generalized losses (by the way that is why capitalism has crisis like every ten years)
Applying central banking logic to Hive, by raising interests rates people are incentivized, for example, to burn HIVE in exchange for HBD and save it, instead of spending it, in the short term this definitely helps hold prices and maybe even push them up, but eventually people will cash out their HBD to HIVE and I don't know which financial tool we would have to minimize the impacts.
By the way, reasonably high interest rates are awesome to promote Hive and onboard new users. We were raising interest rates even before banks were doing the same, which gives us an edge, we raised first which I think brings trust to us because we might achieve stability easier and sooner, central banks were very slow and conservative to raise rates.
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No. HBD inflation = HIVE deflation. This is how we reduced more than 21 million HIVE from circulation in September last year. 1 million HIVE also got burned in the process. I think more than 8% deflation. (this is only from September 2021)
Also, this is a marketing push to draw more interest in the Hive blockchain.
Edit: HBD printing as interest is not the same though. I considered HIVE -> HBD conversion in this comment since the HBD supply is low enough that we can ignore it in comparison to the newly printed HBD from conversions. So overall more HIVE is burned creating HBD than the newly created HIVE from HBD to HIVE conversions. This is true if we can bring on enough users. Then we can adjust the interest rate later to not have inflationary problems.
Interesting, so are the witnesses willing to increase that apr, I thought that having it 20% would be harmful but with your explanation seems that doesn't need to be like that.
didn't read all your post..
but selling HBD doees not necessarily mean that it puts selling pressure on Hive as one can trade HBD directly for other coins/tokens. This should be even better with the planned liquidity pool of HBD and a USD stable coin on polycub
HBD is backed by HIVE, that is what it means. Imagine a situation of a bank run. There is already native function on the Blockchain that, when the value of HBD is below $1, it is profitable to call it and what is does is burn the HBD and print hive out of thin air.
If HBD is at 0.5 cents and HIVE is at 1 dollar and you have 10 HBD and sell it on the market, you get 5 dollars, but using the peg function you burn the 10HBD and get printed 10 dollars in Hive, because for the function 1 HBD is always 1 dollar, which in this example would get you double of what you would get by selling, but it would be by printing, by inflation.
Luckily HBD doesn't fluctuate that much anymore, but it doesn't mean it never will, and the market cap switching and consequences is a tough subject for me because Hive is very new and I am not in the fields of economics.
those are valid points; I just wanted to mention that if I sell e.g., HBD for USD on polycub in the near future it at least won't put direct selling pressure on Hive
I totally get that, I was considering the backing of HBD because in the end what pegs the HBD to the dollar is the promise of printing $1 of HIVE per HBD independently of HBD price in the outside market