The 20% return on HBD savings was a significant move made during the bull market. It positively impacted the Hive price and contributed to the recognition of HBD. When the rate of return of HBD was increased to twenty percent, alternatives such as Terra Luna were in the stablecoin market. After the collapse of Terra Luna, the bear market began, and stablecoin yields dropped dramatically. HBD investors have been the happy minority of the bear market. They kept their capital and achieved more than 20% annual returns at a time when the price of Bitcoin dropped to one-third. HBD remains an attractive investment tool today. On the other hand, I think the 20% return should be reduced. I will explain my reasons under the headings below.
Too Good To Be True?
Community members with in-depth knowledge of Hive may consider the 20% return normal. After all, we all know how fertile the land of the crypto is. For the average investor, the promise of a 20% return is not credible. Because they don't know as much about crypto as we do, searching for a flea should be considered normal behind such a tempting offer.
When we evaluate it in terms of finance technique, we may find it challenging to explain the 20% return. Who is willing to pay high interest? It indicates that a firm is struggling to accept borrowing at high-interest rates. Similarly, a bank that pays significantly more interest on deposits than others is in poor financial condition. Being willing to pay interest much higher than the market average can be perceived as a sign of insolvency. If the HBD yield were 15%, we would have presented a more reasonable offer to the investors.
No Alternative In Terms Of Return
As I mentioned above, stablecoins provided high returns when the 20% return to HBD decision was taken. I remember writing about a basket of stablecoins with an average annual return of 17%. After entering the bear market, yields in the stablecoin market dropped dramatically. There are still high-yielding stablecoins in the DEFI world, but they are not comparable to Hive regarding security and reputation. The return of stablecoins is usually below ten percent. For example, yearn finance provides a 6.7% return on its DAI vault. The returns on stablecoin pairs of USDC, USDT, and BUSD on Pancakeswap range from 8% to 12%. So if HBD had yielded a 15% return, it would still be advantageous.
HBD Interest Cost Increased Over Time
Giving 20% interest on HBD contributed significantly to the promotion of Hive. The balance of the HBD saving account has doubled in the last year, reaching over 6 million. These are welcome developments. On the other hand, the amount paid as income increased at the same rate. What about demand elasticity? Will the growth continue if we reduce the yield, for example, to 15%? I think the growth will continue as there is no more attractive alternative.
TL;DR
The HBD balance can be treated as debt in the Hive blockchain. The nature of this debt is quite different from borrowing in traditional currencies. Because Hive produces HBD, some may oppose my proposal to reduce the HBD yield. Crypto ecosystems have the advantage of being able to create their currencies. And thanks to the high interest in HBD, we benefit more from this potential. The argument I am defending is that a return of 15% could serve a similar function.
How many years does an investor who funds the Hive ecosystem through HBD regain their capital? HBD yield payments are made monthly, meaning there is a 22% annual return. And thanks to the compound interest effect, in just 3.5 years, investors are getting as much return as their principal. Investors interpret the HBD return as "too good to be true." Especially when no solid alternative in the crypto market offers high returns.
Are there aspects of the issue that I missed? Maybe. I suggest reducing the 20% rate as soon as possible.
Thank you for reading.
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