Introduction: Hive Backed Dollars
"Teach a parrot the terms 'supply and demand' and you've got an economist" [Carlyle, T. AZ Quotes. (Accessed April 11, 2022)]. Damn, if it was only that easy!
And for years, Hive Backed Dollars faced the the dual dilemma of a low demand and low available supply. No wonder why the HBD was stagnant in the area of growth and adoption. However, now, finally, the HBD may be seeing some light at the end of that dark tunnel. In fact, steps are already in place to rectify these dilemmas which should operate to make the HBD a bigger player in the current favorable stablecoin DeFi environment.
Review: What are Hive Backed Dollars and Where Do They Come From?
Hive Backed Dollars are, in fact, algorithmic stablecoins. "Hive Backed Dollars (hereinafter "HBD") are decentralized stablecoins pegged to the United States Dollar (generally 1 HBD = $1 USD). HBD is one of the native tokens existing on the Hive blockchain. While the HBD is pegged to the United States Dollar, it is not backed by that fiat currency and the use of the USD is merely a valuation mechanism for the token. The HBD is backed by $1 worth of the Hive token [Nagoda, K. How do Hive Backed Dollars (HBD) work? [Including The HBD Stabilizer, The HBD Debt Limit, and The Haircut Rule]. (Accessed April 12, 2022)].
The actually (sic) backing is the code on the blockchain that converts HBD to Hive. Thus, we have a stablecoin that is convertible into Hive yet is really backed by the code on the blockchain.
[@taskmaster4450. Hive Backed Dollar (HBD) Becoming A Stablecoin?. (Accessed April 12, 2022)].
But, as noted above, the HBD has been long mired with demand and supply deficiencies which have stunted this stablecoin's growth and development, especially within the current DeFi environment.
Is 'The Fix' in for Hive Backed Dollars?
Fixing the Hive Backed Dollar Demand Deficiencies
HBDs found it very difficult to compete in a DeFi environment when they yielded rates non-competitive with other instruments available in the market. As such, HBDs were allowed to languish as being a Hive asset with the hidden potential to be so much more.
Well, the witnesses move to raise the yield on HBDs held in savings to 12% was a move in the right direction months back, but it did not fix the demand deficiencies. This 12% was still too little to make the HBD a viable competitor with other stablecoins in the market. Indeed, it was basically impossible for the HBD to compete when it was held up against Terra's UST which through Anchor Protocol was yielding 20%.
But now, Terra is dealing with problems with its yield reserve and offers yield at 19.46%, still a very nice return, however, this rate is subject to a 1.5% rate change per month dependent upon the situation with its yield reserve.
However, within the past several days, consensus was reached by a majority of the Hive witnesses to raise yield on HBDs held in savings to 20%. Bingo! This move at this point in time is a perfect catalyst to spawn HBD growth in the market thereby bringing value to the Hive ecosystem.
Just to spell it out, the effect of this rise in yield on HBDs operates to make the HBD a more attractive investment option for investors. As the investment vehicle becomes a more attractive option for investors, market demand for that option increases.
But, but, but...wait a minute. What good is this increased demand if investors cannot acquire HBDs due to a lack of liquidity?
Fixing the Hive Backed Dollar Supply Deficiencies
To answer the question immediately posed above, the platform creates its own liquidity pool. And having PolyCub available 'in-house', this logic pans out through the long run plan to create a $5 million + pHBD-USDC liquidity pool for HBD. pHBD will work in the exact same fashion as pLEO.
Implementation of this liquidity pool is needed as the underlying concept is to get as much HBD liquidity in the pool to support the demand created by the yield rise to 20%. It appears at this time that the 'Team' has been testing pHBD and that the project is close to deployment. This will be a welcome addition to Hive and will provide the growth mechanism necessary to make Hive great (and valuable).
But Doesn't PolyCub Benefit from this New Hive Backed Dollar Liquidity Plan?
You better believe it does!
What the 'Team' has contemplated is the creation of an interdependent relationship between the HBD and PolyCub. A recent article by Leofinance details the features of pHBD that will add value to PolyCub, as follows:
- pHBD Wrapping and Unwrapping Fee: a 0.25% fee is accumulated when wrapping and unwrapping. This fee is paid to PolyCUB's Protocol Owned Liquidity and PolyCUB will deposit it back into the pHBD-USDC Vault (meaning that it adds to permanent liquidity for HBD while also bolstering PolyCUB's reserves)
- pHBD-USDC Vault Fee: a vault fee will be taken when depositing pHBD-USDC. This vault fee is paid entirely to Protocol Owned Liquidity and backs the value of POLYCUB
- xPOLYCUB Governance xPOLYCUB is adding governance in the near-term roadmap. This means that xPOLYCUB stakers will be able to vote on how much yield is allocated to certain vaults. How does this have anything to do with pHBD? Well, the Hive community is likely to dump lots of HBD into the pHBD-USDC vault and want to earn more than 20% APY on it. The governance system will cause Hive whales to fight over xPOLYCUB stake so that they can allocate more yield to their HBD position. Other whales in something like Aave Kingdom or WETH-WBTC may try to wrestle control and push yield into that vault. This can create a "Curve Wars" style battle for control and ultimately drive the POLYCUB price higher which in turn drives the yield higher on every vault.
[Leofinance. HBD Interest Rates Are Now 20% | We're Building a $5M Liquidity Pair for HBD-USDC. (Accessed April 12, 2022)].
What the above three pHBD features combined mean a massive build in the value of both HBDs and PolyCub. And, the POLYCUB token price is likewise bolstered through this interdependent relationship. This increased liquidity provides the opportunity for creation of huge HBD holdings positions which by virtue of the trading fees and required incentive payments to the PolyCub PoL are thereby supportive of increases in POLYCUB token prices.
Final Thoughts on the 'Fix' for Hive Backed Dollars
With the 20% HBD yield in place, the past demand deficiencies of HBDs have been 'fixed'. Once deployed, pHBDs and the pHBD-USDC liquidity pool, will 'fix' the past supply deficiencies of HBDs.
If promoted properly, this is huge for the entire Hive ecosystem. And time will be the arbiter as to the success of this endeavor.
However, it appears that all of the appropriate mechanisms are present. If successful with the build of this huge liquidity pool the positive ripples therefrom will be felt throughout the entire Hive structure and value will be added at each turn.
Bullish on Hive - Damn right. And with good reason.
What about you?