Introduction:
Hello cryptocurrency fans, aficionados and those who are merely curious.
Cryptocurrency made a small splash on the financial scene over 10 years go with the purchase of a pizza. And it has been making waves in the big ocean of finance ever since then.
But for all it's stated advantages over the traditional finance system, it has by design a frequently expensive weakness, the transaction fee. Remember Ethereum Gas Fees of hundreds of dollars during defi summer of 2023?
While cryptocurrency is a model of simplicity in some ways, such as the initiation and execution of a transaction, becoming the record of that transaction. Which is a simple, but amazingly accurate way to record transactions on the ledger or record of transactions. Which is on many blockchains permanent and unchangeable.
It has this one issue, on most blockchains each transaction costs a fee, and if there are several transactions required to move money to it's ultimate destination, the amount of capitol you started with is not the amount you finally invest, and this is many things; annoying, disappointing and at times a deal breaker.
Body
For Example:
You wish to invest 1000 dollars US in the USDC stable coin as staked USDC for 5% APR..
You need to find a place to exchange USD for USDC, which is transaction #1, and then you need to send the USDC from the exchange to your wallet, which is transaction #2, and then you need to connect your wallet to the decentralized finance website, and stake it, which is transaction #3. All these transactions cost you a fee on most blockchains. Note I said most, not all blockchains.
As you can see, I have performed 3 transactions to get my 1000 USD exchanged for USDC and invested at a rate of return of 5%. However each transaction costs money, and I want to show you how much money, because when it comes to investing, details matter.
Example:
First transaction fee is for purchasing cryptocurrency on an exchange, usually a flat fee of 0.25% per transaction. So I send 1000 US Dollars from my bank to my exchange account, and use the 1000 US Dollars to buy 1000 USDC. But I don't get 1000 USDC, I lose 0.25% of the purchase amount or 2.5 USDC is the exchange fee for facilitating my transaction. So I actually get 997.5 USDC for 1000 US Dollars. This is not painful, but not incomsequential and this is just the first fee.
Second transaction, Now I send 997.5 USDC on the USDC blockchain to my wallet, and now I pay a transfer fee of 1.5% of 997.5 USDC or 14.9625 USDC. The important affect of this is that although I invested 1000 dollars, I dont get 1000 USDC, and although I transferred 997.2 USDC, I don't get 997.5 USDc in my wallet. I get 997.5 minus the 1.5% transfer fee of 14.9625 USDC. So I actually have 982.5375 USDC in my wallet. I haven't made any investments yet and my 1000 US Dollars, which was suppose to buy me 1000 USDC has already lost nearly 18 dollars.
Third transaction is to connect my wallet to the investment website and deposit my USDC into the staking pool where I will earn 5% APR. I pay a third fee for this transaction, called an exchange staking fee. This transaction costs me 0.25% of USDC I want to stake. Since 0.25% of 982.5375 is 2.45634375 in USDC , I pay that transaction fee to the website. Now I have 982.5375 minus 2.45634375 or 980.08 USDC staked , after buying 1000 USDC.
Let us review the effect of these three transaction fees.
So the three transactions cost me almost 20 dollars US.
That means I have already lost 2% of my capitol, just buying it, sending it and staking it.
So I am roughly at a 2% loss for the year to start out, and if I earn 5% of my now 980 USDC investment I earn 49 USDC . However my total USDC at the end of the year is not 1000 plus 49, it's 980 plus 49 or 1029. Which means 1029-1000/1000 equals 2.9% gain for the year, not 5% due to transaction and transfer fees.
Bummer!
Plus in the US I have to pay 20% of the 49 or 10 dollars for taxes.
Double bummer, as my effective yield is now 19 or 1.9% gain for the year.
Hive fixes this.
- You probably wondered why I took the time to explain the costs associated with exchange transaction fees, blockchain transfer fees and staking transaction fees.
I did so because Hive has no transaction fees and now staking fees for staking your HBD in your wallet. So lets review this same investment scenario on Hive.
You send 1000 US Dollars from your bank to the exchange.
You trade 1000 US Dollars for 1000 Hive Backed Dollars or HBD.
You pay a 0.25% exchange transaction fee or 2.5 HBD.
Now you send 997.5 HBD to your wallet on Hive, and you pay zero HBD for the transfer.
Next you stake your 997.5 HBD in your wallet and you pay zero staking fee.
Now out of the 1000 Us Dollars you sent to the exchange you get 997.5 HBD to stake a.
If the APR on Hive was 5% like the APR for staking USDC you would earn 5% of 997.5 or 50 HBD.
Now you add 50 to 997.5 and get 1047.5 total HBD after one year or 4.75% return. Which compared to 2.9 percent for USDC means almost 50% more earnings because you don't pay transfer fees or staking fees.
Now scale this up by 10x:
Go from 980 USDC earning 29 dollars and 997.5 HBD earning 49 dollars, to 9800 USDC earning 290 Dollars and 9975 HBD earning 500 US Dollars. The difference between 500 dollars for the HBD and 290 dollars for the USDC is very significant.
Now scale it up by 100x
If we scale it up one more time to 98000 USDC earning 2900 dollars and 99750 HBD earning 5000 US Dollars the difference because overwhelmingly significant.
Now I should let you know that Hive Backed Dollar Staking doesn't pay 5%, it pays 20%
I used 5% so I could make an Apples to Apples comparison between USDC and HBD.
But in reality at 20% APR your returns woulod actually be :
So on 1000 dollars 200 US Dollars, not 50.
So on 10,000 dollars it pays 2000 Dollars, not 500
And on 100,000 dollars it pays 20,000 Dollars not 5000.
Last Words
Hive features fast, free, transactions.
Hive fixes this fundamental issue with blockchains, transaction fees.
Remember Ethereum, and 1000 dollars 250 dollar transaction fees?
I hope after today you remember Hive has zero transaction fees, so Hive fixes this.
Questions? Ask below.
Did you like this article? Share it with your followers by reblogging it by clicking the circular arrow.
@shortsegments
.
Other articles about Hive Backed Dollars:
- What is Hive Backed Dollar? link
- Hive Backed Dollars earn 20% yield while your crypto is held safely in your wallet. link
.
.
.
.