Quora Hive Awareness Initiative, Question Answered: "How the HBD print rate is decided in Hive Blockchain?"

The HBD print rate as author rewards depends on a variable called the HBD Debt Ratio. HBD (=Hive Backed Dollar) is a debt instrument in the sense that the holder of a non-zero balance of HBD can always initiate a conversion process that converts a number of HBD into HIVE tokens whose external price is exactly one USD. It should be noted that the Hive blockchain code always assumes the external price of HBD to be exactly one USD, which means that you lose out if your HBD converts at an external price above one USD. If you convert your HBD when its external price is below one USD, you win. The purpose of the conversion mechanism is to help maintain the external price of HBD above one USD by allowing it to be converted into HIVE at that rate.

Any author can choose to receive their author rewards split 50/50 between Hive Power and Hive Backed Dollars. However, if the total USD value of all HBD in circulation exceeds 10% of the total value of all coins on Hive, then a fail safe mechanism kicks in where the printing of HBD as author rewards stops completely. In fact, the printing of HBD as author rewards starts to decrease already when the market cap of HBD goes above 9% of the total. The proportion of HBD is cut in linear proportion to its market cap between 9% and 10%.

After Steem’s hard fork in September 2019 (Hive is itself a hard fork of Steem), a new source of HBD (SBD) was introduced: payouts to the recipients of funds from the Hive Proposal System are always 100% in HBD. 10% of the total token inflation on Hive is allocated to SPS fund payouts. That is prone to weaken HBD as is only starting to pay author rewards chosen to be paid out 50/50 as HBD/HP partly in HIVE from 9% as opposed to the 5% cutoff point prior to the September 2019 hard fork.

I believe the motive for increasing the printing of HBD (SBD) was to prevent runaway speculation on the price of HBD, which happened with SBD starting from November 2017. There was a crazy spike from below $1 to $14, which peaked out in December 2017. SBD remained firmly above $1 for the following six months. I think the average was somewhere around $2–$3.

During that time SBD wasn’t a very good stablecoin.

My personal belief is that it wasn’t taken sufficiently into account before HF21/22 in September 2019 that the price of STEEM (and later HIVE) could also go really low in which case SBD (later HBD) could completely fail due to not being sufficiently backed by STEEM (later HIVE).

I think getting a stablecoin to work on a platform with a very small market cap and high volatility like Hive is quite difficult. At any rate, even if HIVE’s market cap were to grow significantly and the price of the token stabilize, I think redesigning the stablecoin would be a good idea. DAI on ethereum is 100% crypto-backed and seems to work fine.

Hive can be used with front ends such as:

https://hive.blog - https://peakd.com - https://3speak.online etc.

For more info on HIVE: Hive - The Blockchain & Cryptocurrency for Web 3.0

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