Happens every time.
When I start discussing HBD I write a long post I get it all out there and I think I'm done but then I get reeled back in because it's such an important topic and those who disagree with what I'm saying tend to disagree very strongly because the ramifications of such action have far reaching consequences.
The risk of guaranteed yield
If Hive is running around guaranteeing users x percent on a locked bond... it completely removes the ability for Hive to rugpull that yield. Under the current system we can rugpull the savings accounts anytime we want... in both an emergency and in the ideal situation.
The ideal situation is something like Hive price at $5+. In this case we can rugpull all the HBD yield in an attempt to flush network debt and sell the highs. Users who had positions in HBD for the farm will remove that farm and covert it back into Hive at a 5:1 ratio in Hive's favor. For every 5 HBD that get destroyed in this way we only have to mint 1 Hive, which would be pretty awesome for the network because the HBD in question were mostly printed at much much lower price points than $5.
The emergency situation is something like 5 cent Hive. In this case we're drowning in debt, the haircut has been triggered, and we are worried about systemic threat to the network's existence. With the haircut in play we would be able to capitulate here and cap the total amount of Hive inflation we were willing to print, flushing out the debt during the network's darkest hour.
Neither of these options are possible if we have a bonding system where the network promises to maintain the yield and allow bonds to mature organically no matter what situation we are in. So not only does the timelock make it so the network has no options, it's also something the user doesn't want either as it locks the liquidity up while under the current system it's only a 3 day wait.
inb4
The natural counter-argument to something like this is going to be, "Well the secondary market will have gobs of liquidity so don't worry about it." Not only is this a blatant assumption, but also only covers the very final point being made while ignoring the glaring main point (guaranteeing yield is bad).
Timelocks do not decrease risk, they increase it.
I already somewhat explained this fact above but there's even more to it than this. What is the difference between locking a bond for a year and locking it for 3 days? People in crypto seem to think that locking assets into a contract creates security because the stake can't be sold during the lock.
This is false, as this dynamic creates even more risk to the network in a counterintuitive way, part of which I have already explained (the yield is locked in and we can't move to change it given the current economic climate). It's also false because liquidity, especially Hive's liquidity, is razor thin and can be pushed around by a mere tiny fraction of the liquid supply. The timelock does nothing to push the price up. That's not what it's for; the whitepaper is wrong.
Example:
Every year the network issues 1M HBD worth of inflation to locked bonds. Say these bonds are locked for one year. We have to pay out the bonds when they mature. The timelock is completely irrelevant and does not protect Hive from dumping. A year will pass quickly and we are right back where we started.
More than this, a year will pass and we will then move to issue more bonds in the exact same way. So bonds are maturing at the exact same time they are being issued. Once a year goes by we are back in a situation where the timelock is actually mathematically meaningless because for every timelocked bond we issue another one is maturing and creating the exact inflation we were trying to avoid with the timelock.
User's don't want the timelock because it's an extreme inconvenience, and the network doesn't want the timelock because it doesn't help anything and actually takes power away from the network and the user at the same time. The idea that a magic secondary market is going to come along and create exponential liquidity like it's a world-reserve currency should not be taken seriously.
HBD is not "pristine collateral"
I love HBD all the other Hive permabulls love this network and what we've got going here. You know who thinks HBD is a scam? Every person we have ever had a conversation with outside the network. Perception is reality, and we are falling victim to our own hubris thinking we can jump into the world economy and random users are going to trust it. Projecting our own feelz onto Hive onto people that don't know anything about it is not good optics. Avoid.
Eurodollar Shmeurodollar
And then there's this false dichotomy where we are trying to for some reason compare a bonding system to the Eurodollar system. These are two completely different things. The Eurodollar system was a global network of banks. Hive is one bank, and we have connections to zero other banks. Hive also does not issue loans, so arguably not even a bank. In fact a bond, by definition, is Hive taking a loan from the user... which is the literal opposite of what we are discussing. Comparisons like this make it look like we have no idea what we are talking about.
Well obviously you can't create a secondary market with 3 day locked contracts.
I've heard this argument as well and didn't even think to challenge it. Yes, "obviously" if a contract is only locked for three days why would we even consider creating a secondary liquidity market for people who wanted immediate liquidity? But if we actually think about this statement it is also inherently false.
Markets are created when supply meets demand.
If there is demand for a secondary market on 3 day timelocks then we can supply that demand and create the market. It doesn't have to make logical sense, crypto is a highly irrational space, but it in fact does make logical sense. Crypto moves very quickly, and if someone holding HBD in savings feels the extreme need to cashout liquidity right this second, they should be able to do it. It's just a question of how much that's going to cost them.
This could be such a rare event that liquidity providers won't take the deal unless the HBD holder is willing to give up like 5%-10% of the amount they are trying to withdraw instantly. This becomes a pure math game where users providing liquidity for instant withdrawals need to be making more than what they would earn if they just put their own money into the savings account. Or (more likely) the liquidity provider to this market is holding their value in an asset that doesn't even earn yield (like on-chain Bitcoin or Hive/HBD on a centralized exchange) and they are looking for a way to put that money to work instead of just sitting there idle.
How do we know that a secondary market for 3-day locked HBD could be viable?
Because people have complained about the 3-day lock time many a time.
This is not really a serious idea but rather a challenge to look at this stuff outside the box and realize that crypto doesn't have to make sense in an irrational environment.
Another example...
I've keep hearing this argument:
What's better for the network:
- Issuing 10% yield on a 1 year bond.
- Issuing 15% yield on the savings accounts.
And first of all I would say that obviously if users get to choose between one of these two options they're going to pick #2. What's being implied is that there will be enough demand and competition in the market to make #1 happen, which is not necessarily true... but let's assume it is true for simplicity and sake of the example.
Let's put a nice round number on the principal.
Say 10M HBD.
- Paying out a guaranteed 1M HBD after 1 year.
- Paying out a variable 1.5M HBD after 1 year.
So which deal is better for the network? Obviously #2 is better because that yield can be rugpulled whenever we want. #2 is guaranteeing 0 HBD will be printed because witnesses can rugpull immediately whenever they want, while #1 GUARANTEES 1M HBD will be printed NO MATTER WHAT. This example only works in #1's favor if that side pretends as though the 15% yield is locked in and guaranteed just like the 10%.
It is not.
We know it isn't.
Why are we pretending?
Oh whatever we'll just do it on the second layer
Bonds literally derive all their value from the yield allocated to them.
They can't be put on the second layer.
Anything else... ???
I'm already well over 1000 words and I promised to be "brief".
I think I've made my point well enough that I can stop talking about this for a while.
So I will unceremoniously kill it here without even my traditional "conclusion".