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I wrote a Twitter thread in response to the latest interaction between Andrew Quinn & the Hive community members.

AFAIK, @queenstarr mentioned $HBD & $HIVE under one of Andrew's tweets.

Things took a U-turn when Andrew called "20% APR" a scam. 😮

~~~ embed:1646827385214365696 twitter metadata:QUNRdWlubl98fGh0dHBzOi8vdHdpdHRlci5jb20vQUNRdWlubl8vc3RhdHVzLzE2NDY4MjczODUyMTQzNjU2OTYgfA== ~~~

If you tell me about getting 20% APR for staking an algorithmic stablecoin on the chain that has fast (3s) & feeless transactions, I wouldn't believe it too.

Does that make it a scam? Not necessarily.

Let's focus on what $HBD is & how does it work?

What Is HBD?

Hive Backed Dollars (HBD) is a stablecoin that is native to the Hive blockchain and pegged to USD.

1 $HBD is supposed to be 1 $USD.

It uses a complex array of algorithms and safety tools to maintain its peg & lose it by design to avoid a death spiral.

How Does HBD Work?

Hive BC has two native currencies - HIVE & HBD.

$HIVE being the primary is used for a variety of purposes, including:

• paying transaction fees,
• incentivizing content creators & node operators (witnesses)
• participating in decentralized governance.

$HBD on the other hand is the debt to the blockchain with collateral being $HIVE.

As a stablecoin, it supports the sophisticated, borderless economy of the Hive network.

HBD Printing

HBD is printed in 4 ways:

1. Author rewards: When a user creates a post or comment on Hive, they can potentially earn rewards in the form of $HIVE & $HBD. The amt. of rewards earned depends on several factors, including the # of upvotes (& their weight) received from other users & the hive's price.

2. Conversions: Blockchain has an internal mechanism to convert $HIVE into $HBD by using $HIVE as collateral. Similar to MakerDAO and $DAI. It happens in 3.5 days & a median price is used for conversion.

3. Interest: You get 20% APR for staking $HBD into your Hive Wallet with a 3-day unlocking period. Since staking is done on chain, you always hold the keys to your funds. This is an added inflation to the existing ones. The top 20 Hive Witnesses chosen by decentralized stake-based voting, can set this percentage and they can change in case the circulating supply of HBD increases unexpectedly. It can be set to ZERO as well.

4. DHF Payouts: DHF is a Decentralized Hive Fund, a DAO owned by the Hive community. Funds are consumed based on decentralized voting on proposals that helps in the development of the Hive Network. The funds paid by DHF are in $HBD.

HBD Safety Tools

Now the question arises, is conversion alone enough to control inflation and the peg of $HBD?

Not always, so there are different safety nets employed by the community to avoid LUNAsco like event:

1. HBD Stabilizer: An automated trading bot that trades HBD to create a tighter peg. If HBD's price is inflated, bot buys more HBD to increase supply. If HBD's price is deflated, bot sells more HBD to decrease supply.
2. Haircut Rule: HBD is designed to lose its peg when the debt limit is reached. That limit is 30% rn. This means if HBD's market cap reaches 30% of Hive's market cap, haircut kicks in:
   • Blockchain stops producing HBD
   • Author rewards paid only in HIVE
   • HIVE to HBD conversions get disabled
   • HBD interest & the DHF payouts are always in the stakeholders' control.

HBD loses its peg and blockchain doesn't guarantee $1. As more users start to exit their HBD position near the debt limit, its supply gets reduced putting upward pressure on the price.

Check the live status of the health of HBD here: https://hive.ausbit.dev/hbd

Is 20% APR On HBD Savings Sustainable?

First of all, the 20% APR is not fixed and it can be changed at the discretion of community-voted witnesses. Inflation by this interest rate is only a small percentage. The biggest contributor to HBD supply is HIVE to HBD conversions. Inflating the HBD supply by 100x will have a substantial effect on Hive's price on the upward side because investors will have to convert from HIVE into HBD to stake in their wallets.

Hence there is no point in discussing the percentage of APR. If it becomes unsustainable, stakeholders have the power and mechanisms in place to react & fix the problem. Eventually, to scale the network in the future, we need more HBD in circulation. So there is a lot of room to grow for now.

At the time of writing this thread:

• We have been enjoying 20% APR for more than 1 year now
• More than 1M HBD has been paid out as interest yet the debt ratio is only ~ 5%
• HBD didn't lose its peg in the past three years

After forking from Steem blockchain, Hive has greatly improved HBD & HIVE economics. In fact, HBD is the only truly decentralized stablecoin out there that works. It has always performed the way it was designed to perform.

Summary

1. Is 20% APR sustainable? Yes, for now, and maybe for years to come. We have to wait and watch and probably do more debates on this topic.

2. Is $HBD perfect? No. But it is being improved with each iteration.

3. Is it a scam? No. Hive is open source. You can always verify the claims and do your own research/calculations.

List of References

1. Haircut Rule: https://leofinance.io/@dalz/everything-you-need-to-know-about-the-hbd-haircut-rule-and-the-latest-updates-or-the-biggest-risk-for-the-hbd-price

2. HBD interest rate sustainability: https://peakd.com/hive-167922/@dalz/exploring-the-sustainability-of-the-hbd-interest-rate-in-the-hive-ecosystem-or-realized-and-projected-inflation-from-hbd

3. Everything about HBD: https://leofinance.io/@crypto-guides/what-are-hive-backed-dollars-hbd

4. HBD, scam or not: https://leofinance.io/@taskmaster4450/hbd-a-scam-most-people-do-not-understand-this-at-all

Special thanks to @dalz, @forexbrokr & @taskmaster4450 for sharing the info about HBD and how it works. Everything I have learned about HBD is through their blogs.

And Mega thanks to the Hive community for being the best in all of Web3.

LFG!

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