Most of the Hivers by now have seen that the witnesses are going for 20% APR on HBD. But what this means? Where does the new HBD come from? Is it sustainable?
I have been following the Hive inflation and supply for a while now, with a special focus on HBD. Let’s take a look at some numbers.
First to answer the question where the HBD interest comes from? It is a new additional inflation on top of the regular one. The thing is the Hive inflation and supply have always been a challenge to follow because of the dual token system and the conversions between them.
At the moment the regular inflation is around 7.3%, but for example Hive inflation for 2021 was deflationary -2.7% because of the conversions. In the past conversions have also pushed the inflation above the regular one, like in 2019 when the regular inflation was around 8%, but with conversions it ended more than 12%.
How Much HBD Is Created From HBD Interest Payouts?
HBD is created from HBD in savings. To get the data we need two things. The amount of HBD in savings and the interest rate that is paid.
First the chart for the HBD balance in savings.
As we can see the amount of HBD in the savings has increased overtime and now it is almost 3M HBD, with a tendency to grow. Note that in the past a few large accounts were holding a lot of HBD and when they moved it created disbalance and sharp moves.
The above is the principal for the HBD interest.
What about the HBD interest rate?
Here is the chart.
The changes for the HBD savings interest rate:
- Mar 2021 – 3%
- Jun 2021 – 7%
- Jul 2021 – 10%
- Dec 2021 – 12%
- Apr 2022 – 20%
The latest change is by far the most significant increase in one step. For just a little while it was at 15%, but this didn’t last even one day.
Now that we have the principal and the interest rate, we can calculate the interest in HBD.
Here is the chart for the daily HBD interest.
Note that prior to July 2021 all HBD was eligible for earning HBD interest and there was some big amounts paid in that period.
After July 2021 only the HBD in the savings is eligible for HBD interest and we can see that the amounts were small, at first with a few hundred per day and in the last period it has reached a 1000 HBD interest per day. I have added one day with the HBD interest rate and we can see that the number is now at 1600 HBD per day. As more HBD is put in savings this will grow and I expect for it to reach 2000 soon.
The monthly chart looks like this.
Again, we can see the large amounts of HBD paid at first due to all HBD receiving interest and then smaller amounts gradually increasing in time. In the March 2022, there was 30k HBD paid. This number will be above 50k for April most likely.
This is the all time chart for the HBD created from HBD Interest payouts.
A 230k in HBD was paid in a period of a year. In the first months there was more HBD interest paid at once because all the HBD was eligible for interest, and after the introduction of the savings accounts HBD interest only the payouts were more gradual over time.
Inflation From HBD
Ok so we got the absolute amount of HBD paid daily, monthly and overall. But what this means when we compared it with the overall HIVE supply and inflation.
Here is the chart for the HIVE supply starting from Jan 2021.
Hive is still deflationary at the moment if we compared March 31, 2022 with Jan 1, 2021. A 380M HIVE back then to 377M now.
We can take that the HIVE supply at the moment is 377M. The 235k HBD interest is equivalent to around 200k HIVE when converted in HIVE with the feed price at the day when earned. 200k in 377M is equal to 0.04% more inflation added in the past year.
A 0.04% inflation from HBD interest in one year
This is obviously insignificant number, but it is for the past year. What about the next year? Especially now when we have 20% APR.
The main thing for this will be how much HBD will be put in savings. At the moment there is around 3M, with the total HBD in circulation 9.5M. Not all the HBD will magically move to savings that is for sure.
The white is HBD in circulation, the light transparent is HBD in the DHF.
While it seems that the HBD supply has been constant with around the 24M in the last months, the available HBD supply was actually decreasing all the time, while the HBD supply in the DHF/DAO was increasing.
Because of this we now have just 9.5M in circulation, out of which 3M is in the savings, another 3M on the Upbit exchange and 3M more in other places.
Is This Sustainable?
The regular HIVE inflation at the moment is 7.25%, or around 80k HIVE equivalent daily. It is equivalent because not all the inflation is paid in HIVE, 50% authors and DHF inflation is paid in HBD. The only HIVE inflation is around 50k daily and all of it is paid as HIVE power.
So 80k HIVE equivalent daily inflation and now additional 2k from HBD interest. Since the price of HIVE is around $1 this is approximate atm. If the price of HIVE drops to 0.5, it will be 4k more HIVE daily, and if it increases to 2$, then it will be 1k more HIVE daily.
Right away we can see that at the moment these are insignificant amounts. But how high they can go and at what levels it will be sustainable. This is a dynamic process with more then one variable, but for the sake of simplicity lets just look at the amount of HBD in savings.
If the HBD in savings increase to 6M (double) from where it is now and everything else remains the same, especially the HIVE price, that will mean we will have an additional inflation of 1.2M HIVE per year or 0.32%.
If the amount of HBD in savings goes 10X to 30M HBD then we will have an additional inflation of 6M, or 1.6%. 30M HBD in savings is not that far away. At the peak in September 2021 there was 23M HBD in circulation outside the DHF.
How will this affect the HIVE price? 30M in HBD savings will mostly have an effect of the HIVE price. Not sure how significant it can be, but there will be some affect.
The 10X scenario is still in the reasonable numbers and something the blockchain can handle. What happens if we push it for another 10X, or a 100X from where we are now?
This means 300M HBD in savings, or around 160k HBD/HIVE more daily on top of the current 80k. This is a more then X3 for the inflation, or in total 22% inflation.
What is remarkable is even in this scenario, the inflation doesn’t spiral out of control even with the same price for HIVE.
But, for a 100X for a HBD in savings, the impact on the HIVE price will be very visible. A big share of it will need to come from HIVE conversions, this will most likely significantly push the price of HIVE, that will reduce the inflation in HIVE terms, because the conversions will most likely make HIVE deflationary at that point.
Conclusion
What can we see from the above is that in the past year the inflation from HBD interest was 0.04%. But now the amount of HBD in the savings has increased and the interest rate as well. With the current amount of HBD in savings the added inflation will be around 0.16%. If the HBD in savings increases double then 0.32%, and if it goes a 100X, then we will se a 16% more inflation a yearly basis, if everything else remains the same, especially the HIVE price. The thing is a 100X increase in the savings is impossible without increasing the HIVE price and reducing the HIVE supply with conversions. There are more variables to consider.
On a daily basis at the moment there is around 1.6K more HIVE added on top of the 80k HIVE equivalent regular inflation. The numbers are extremely low, meaning there is a lot of space for expanding the HBD supply. It will be nice if this expansion happens at some moderate rate and not to be so volatile. But this is crypto, and we will see how things go.
When printing new money, one should be always careful not to overdone it, but at the same time it is an extremely effective way to incentivize growth. Interest rates are one of the basic tools that the FED has in the traditional economy. Now we are applying some of it here. Still early days, but we will see how it goes.
Hive Debt
Another very important thing to look at is the hive debt and the debt limit. If the Hive debt increases above the allowed debt limit of 10% that is now, the blockchain doesn’t guarantee the HBD price anymore when conversions happens. We are now incentivizing the expansion of the HBD supply, and if it grows fast (without the HIVE price increasing) it can hit the debt limit and HBD will no longer valued at $1. The debt limit should be increased at 30% with the next HF, somewhere in May, and this will give us more safe zone. The current debt is around 2.5%, so most likely it won’t go to 10% till then 😊, and it will be very hard to increase the HBD supply without pushing the HIVE price.
A nice tool to follow HBD and the debt data live from @ausbitbank here
https://hive.ausbit.dev/hbd
Without any extremes happening, and I mean real extremes (100X up and down), the inflation from HBD is totally manageable in the next year, and maybe the next few years. But this is crypto, and a year is a lot. If at some point in the future we come above 20% debt I would consider adjusting the HBD APR, but even this is up to debate.
All the best
@dalz