The Ripple Effects of HBD’s Risk Free Return

1 month ago
6 Min Read
1202 Words

Hey Jessinvestors

I recently spotted a post about HBD now paying out interest, and it got the old noodle percolating on what this means for the ecosystem.

At first glance, it's like yeah, big deal, 3% APR on a stable coin, getting some extra drips into my wallet, and I'll move on with my life. But when you take a step back, what seems like a minor change could have serious implications for the system.

I rarely talk about the HIVE chain and ecosystem in my blogs, enough people are doing that, so when I do, you know it's something I really thought about and not just me shilling my nipples off.


Pressure on HIVE

HIVE has been kicking off passive staking rewards since its inception, its currently around 3.22%. Most people don't know about it because you don't see an active drip transaction into your wallet. It just accumulates with your staked HIVE. Apart from curation rewards, this extra staking reward is meant to encourage staking.

Many people don't take advantage of it because that staking comes with a 12-week power down, so you're locking in 3.22% but depending on the size of your stake, you could have made more arbitraging between HDB and HIVE or trading with other tokens.

The incentive to remain liquid is still pretty high as it should be since your staked rate is your risk-free rate. A rate you get passively simply for supporting the network.


How HBD interest works

HBD, whether it's in your wallet or your savings wallet, will now collect a 3% APR simply for holding this stable coin. Since HBD doesn't have to be staked to earn, your tokens/value is completely liquid and can be moved at any time. The blockchain will calculate your rewards based on how much HBD you hold, and everything is managed on-chain.

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Comparing it to other stable coins

HBD is by no means the only game in town. Naturally, there is still SBD which has a massively broken peg. There are also a host of US dollar-pegged stable coins on the market right now; as the world reserve currency, the US dollar has the widest demand and acceptance rate, and it makes sense to peg a digital asset to it.

There are tokens like:

Fiat backed stable coins

  • USDT - Tether
  • USDC. - USD Coin
  • TUSD - True USD
  • PAX - Paxos Standard Token
  • GUSD - Gemini Dollar
  • RSV - Reserve
  • BUSD - Binance USD

Algo collateralised stable coins

  • DAI - MakerDAI
  • nUSD - Havven

The reason I bring this up is that HBD surely has a lot of competition. All these stable coins are minted on different chains, most of them being Ethereum. However, stable coins like USDT, for example, are a multi-chain asset and exist on Ethereuem, TRON, EOS and BSC.

However popular and large in market cap any of these stable coins are right now, none of them is offering you a risk-free return on your capital hosted in a native wallet.

Getting a return on your stable coins

Sure, you can get up to 10% APR on CE-FI apps like BlockFI or Celsius, but you will have to give up ownership of your coins as these are custodial services, which carry considerable risk.

You can opt for on-chain smart contracts, submit your coins to a dapp like Compound and get a variable interest rate based on their loan book demand.

The issue here is that smart contracts aren't perfect and aren't validated by the chain. They are also high fees on ETH, which make certain transactions impossible and not worth attempting.

You could try putting your coins in a liquidity pool on Ethereum or BSC, but you will suffer impermanent loss, and you're at the mercy of the variable rate that comes from calculating your share of the pool versus the fees earned.

As with any dApp and smart contract, they can have vulnerabilities, and they are not ironclad. The rate you getting comes with a sizable risk.

Given what I've listed above, HBD's on-chain liquid risk-free return rate might sound low compared to other options for stable coins, but it short of the entire chain going down, the risk is very low.

If we consider that US banks are giving their citizens around 0.50% and foreigners holding dollars don't often have the means to earn interest having a rate of 3% is more than generous given the current market conditions.

What a risk-free rate means for tokens

Now that we have liquid staking via HBD, any hive investor has the luxury to park their money in their wallet and wait for a good investment opportunity. Your HIVE wallet has effectively become a high powered brokerage account.

If a HIVE based project wants to secure funding, be it a dapp, community or second layer token, it needs to return a higher APR than the 3% hurdle rate or become a dead project.

This provides a safety net, and project's that cannot beat the hurdle rate won't survive for very long, flushing out poor projects and pushing them to be even more innovative to secure capital from investors.

HBD and diesel pools as an example

As diesel pools roll out their incentive structure this month, if those providing liquidity in HBD does not get a better return from the pool, it would make no sense to provide liquidity.

It will be interesting to see the pool's returns what the spread will be versus the hurdle rate we now get.

Next phase for HBD? A risk rate and stable coin interoperability

If the logic of a 3% return on a non-custodial, fee less stable coin catches on, more people will want to use it. So I think that interoperability with other stable coins is a vital next step in the process.

If I can convert my USDT/USDC/PAX/BSUD or any other stable coin to HBD easily, you could see a flood of liquidity move into the token. Once they're in the HIVE ecosystem, it will then be up to the Dapps and other projects to convince those holders to invest in their projects for a better return.

Having HDB available on other chains could also be an option, so instead of converting it to USDT to get a riskier rate somewhere else, I can use the original asset. Wrapping the token on other chains also means HBD can be added to multi-asset liquidity pools like Curve or have a trading pair on other chains, which brings with it new arbitrage opportunities.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

Let's connect

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