We are embarking upon a lot of twists and turns. As we often covered, the relationship between HIVE and HBD is offering some very interesting possibilities.
In this article we will discuss the idea of Hive Power becoming deflationary and how that could change the governance of the ecosystem.
For those who are unaware, HIVE, when it is staked, becomes Hive Power (HP). This is where on-chain governance comes from. People votes are based upon the amount of HP that is in their account. This is also called "influence". Those with greater stake obviously have more impact.
The main governance actions are voting for witness and proposals. A non-governance activity is to use one's voting power to curate content, thus determining how the daily reward pool is distributed.
What happens if HIVE becomes extremely deflationary? This is something that we want to take a look at.
HBD Causing Deflation
HIVE is an inflationary token. There is a daily distribution that comes from new HIVE created. At this point, it is around 7% annually. It decreases every year, reducing the amount of new tokens created.
So how does something that is inflationary move towards deflationary? To get this answer it is best to follow the work of @dalz. For the year 2021, there was actually a negative in the creation of HIVE. Because of the amount of HBD created, there was less of the former on the 31st of December as compared to the first of the year.
Here is where we see the correlation between HIVE and HBD really having an impact. If memory serves me, the net was about a 3% drop in the amount of HIVE for the year.
Naturally, this brings up the question of what happens when large amounts of HBD are generated? How will that look?
Let is dive a bit into the numbers to see where things are.
Present Distribution
We are going to take all information from Hiveblocks.
Here is the current supply of both tokens:
Then we have the amount vested:
Essentially there is roughly 223 million HIVE that is floating around in liquid form. This could be on the exchanges or in people's wallets.
Now we have an idea about the existing landscape when it comes to the token distribution.
Deflationary HP?
The idea that the amount of Hive Power being reduced is not something people will commonly think about. Here we have to make some presumptions to determine the likelihood of that happening.
Understanding that if HBD becomes popular, we are going to see a vast amount of HIVE converted. That will reduce the amount of the token available, causing a contraction of the supply. This is what we saw last year, a move that put us at roughly 25 million HBD. What happens if we set out to create a couple hundred million HBD?
Obviously the effective deflationary rate would be much greater. This could result in 50M-70M in HIVE being converted. Here we see a drastic decline in the supply.
Of course, a reduction in the amount of Hive does not mean that the HP will follow a similar path. It stands to reason that those who are powered up, for the most part, are the Diamond Paws. Thus, we can presume the conversion will take place, for the most part, using the liquid HIVE as compared to people powering down.
There is another variable that is about to enter the equation. We are about to see Resource Credit delegation taking place. This could be an incentive for people to power up more Hive. If one is able to profit from the delegating of Hive to help applications, this might be an incentive to move things in the opposite direction.
That said, if the amount of liquid HIVE becomes scarce, logic says the price will head higher, in USD terms, over time. Here is where things could change.
Let us be honest, we all have our price. At what level does it become attractive to sell at least some of your HIVE? Even if it is nothing more than playing market fluctuations, i.e. converting some to HBD expecting a market pullback, one could take a couple weeks of power down for that purpose.
Good Bet HIVE Becomes Deflationary
How the amount of HP that is out there is affected is rather uncertain. This is designed to be the most stable part of the ecosystem, providing security to the blockchain. Therefore, those who are staking their HIVE are making a rather strong commitment.
This is not going to wane with every tick of the market.
What we can conclude is that HIVE is likely to be deflationary over the next few years. With the attention HBD is getting, we are going to see some use cases emerging over that time. Once this happens, we are going to need to generate a great deal of it. While there are mechanisms in place such as getting half the rewards in HBD, it is still a slow process. The quickest way to massive amounts of HBD is converting HIVE.
Do not be surprised if the report for 2022 ends up showing a lower HIVE total at the end of the year as compared to where we started. This will eat up some of the liquid HIVE.
The question for the community is whether or not you think this will float into Hive Power? Will we see a reduction there over time as HIVE gets eaten up (if it takes place)?
Let us know in the comment section below.
If you found this article informative, please give an upvote and rehive.
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If HBD get more attention and most of Hive will be converted in HBD then reduction in quantity and increase in demand will automatically increase the value of Hive. In this case, staking Hive Will give a lot of benefits.
If we take a look on figures. Rate of HBD on 9 March 2022 was 0.99$ and rate of Hive is also 0.99$ on same date, rate of HBD on 15 march 2022 was 0.99$ and rate of hive was 0.80$ on same day. Today rate of HBD is 0.95$ and rate of hive is 1.15$. I think their prices are also effected by some other facts and this effect is not same in HBD and Hive.
but @taskmaster4450 I agreed with your idea that is explained in this post. Your are one of the most experienced person of our community.
You would think the more HBD that is out there, if converted, the higher the HIVE price.
We are not seeing a ton converted at this point though.
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Exactly 💯
Looking at the numbers it's evident that there's just not enough HIVE for everyone. With the right kind of exposure and inflow of new users there would be some serious upward pressure on the market price of HIVE. I just hope we will be able to handle such massive traffic when the time comes.
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That is true. It was always the case if activity picked up. The fact that RCs are needed tells the story.
Of course, with delegation that changes a bit.
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Sorry, just to clarify, did you mean that there was less Hive in existence on the 31st of Dec, or less Hive created that year compared to the previous? Is there a way to burn Hive? I can't say I've ever really looked into it.
You can create a Hive account by burning 3 Hive. Splinterlands burned a lot of Hive last year to create all the new Hive accounts when they were signing up hundreds and thousands on new players every day.
Ah, thank you, I didn't realise the account creation process burned Hive, I just thought it took resource credits. Thanks for this.
You can create an account either way. Either by burning 3 Hive or using Resource Credits.
Ah, thank you!
It's incredible just how much there is to learn about Hive. I've been around for a while and still learning things all the time.
There was less HIVE on the 31st of Dec than on Jan 1st of that year. It went down.
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That is honestly incredible.
So essentially all the Hive minted for the entire year for rewards, investors and witnesses was countered by the amount of Hive burned for account creation. That's an incredible stat just by itself. Very bullish.
Thank you!
I feel that the price increase has a lot to do with it as well...if I bought at 13 cents and sold at 3$, that's a lot of disappearing hive there-not a bad thing
I might be misunderstanding the situation, but I would have thought that Hive sold wouldn't be included in these statistics, since that Hive still exists (just on a different wallet or exchange). I thought we were saying that less Hive existed everywhere at the end of the year.
If you sell on hive engine, it's being converted to hbd, which would make it disappear -as opposed to doing it on an exchange
I think!... I'm just a dumb nerd definitely not a techie Blockchain guru
So if you bought ten hive at ten cents for a dollar and sold all at 1.00 ... Then you made 9 dollars and burned\converted to hbd. Now u have 10hbd. If price goes to 2$, now you can only buy 5 hive with that ten
This article is a good one in case you want to dig deeper in this subject :)
https://leofinance.io/@dalz/hive-ends-2021-deflationary-with-2-73-or-a-look-at-the-inflation-and-supply-for-december-and-2021#@etiboy56/re-dalz-r53q7o
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Thanks for such an amazing content. I love deflationary ecosystems, just because they goes against traditional money, and they are not printed with no limits.
I have joined Hive ecosystem, despite 18 months of previous activities on other blogging platforms with decent results, because I was not fully persuaded by the Hive token. But now here I am, pushing every day with contents and comments. I think that further reducing inflation or making it deflationary would be the definitive win
Your major currencies are just printed without limit either. In a credit based monetary system, like the USD, dollars are created only when lending takes place. It is the essence of the fractional reserve system.
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This year it very well could hit some next level decreases based on the lockups or sinks for Hive such as 3spk has. I could see other applications on hive start to do something like this as well in order to build capital to fuel their projects and on board new users. As crazy as it sounds the amount of tokens is actully becoming very limited as more people start using hive as users and applications launch on it.
Doesnt seem crazy to me. Been writing about it for 4 years. Just waiting for the day to arise.
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I would certainly expect HIVE to continue being deflationary over the next couple of years as HBD gets it's various improvements. The pHBD alone is a huge deal, liquidity pools are the defacto way to trade these days. So much easier.
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I am looking forward to pHBD and the impact that makes. It will be interesting to see where things go from there.
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What is pHBD? I have not heard of it.
It's a wrapped version of HBD on the polygon blockchain, it's not currently available but LeoFianance are building it into the PolyCub system, This'll mean there will be liquidity pools available for HBD on the polygon network which is a big plus.
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Will this break Hive at the time? Or will this keep Hive strong? Only time will tell. I think that when that time comes the thing that will determine Hive's strength is loyalty of witnesses and the active voting of the community. Can the witnesses change Hive Power for the users at this time, or will the infrastructure for level 2 hive be fleshed out? The key aspect is to balance the base Hive chain, the DLUX sidechain, and the Engine side chain. This is really interesting to see happen and I would like to see it.
The more time passes the lower hive inflation is going to be. This means that curation rewards, the main income source for staking hive, will go down with it. At the moment the curation APR of Hive Power is around 9.5%. This means that with 12% APR HBD is actually giving a better return. So even now some people might thing about swapping their hive for HBD and getting more in return (in addition they don't need to be voting with HBD). So we could witness a decrease of Hive supply just because of that.
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As you said if HBD can get some use case then it's quite possible.
Thank for sharing all the news with us. Just great work.
Thank you for this great analysis. You really done a great job.this is the first time I heard about it.
Do you recommend delegating to the projects or the curators accounts? What do you suggest if delegation is good or something we should do for our own hive growth or maybe it's good for whole blockchain? What's your take on HP delegation and staking?
The 12% HBD is a bigger deal than most realise as it has to impact on Hive. With added use cases for HBD there is no other alternative other than converting Hive for HBD and this will impact Hive liquidity.
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The other thing to keep in mind is the basic HIVE inflation rate declining by 0.5% per year.
That's right! It was 2.73% to be exact
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Wow, I never realized that there was that effect on Hive. Just wondering, when one swaps Hive to places like Hive Engine, is Hive burned or is it just increasing the liquidity to Hive Engine and the Hive Engine team gets it?
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Interesting thinking as always when @dalz and @taskmaster4450 are involved
Question: