Sold to the gentleman in the front row for 12%
HBD is a very strange asset with an ever-growing importance within the ecosystem. How many other algo stable coins can boast 20% yields for over a year without imploding? None that I know of.
Degenerates Allow 20% HBD
It's a bit funny because everyone that wants to lower HBD yields below 20% doesn't actually farm the yield. Makes sense right? Why give 'free money' to users who are only risking a three day timelock? That's nothing compared to the 13-week powerdown structure of Hive itself. There's a lot of salt in the wounds when HBD holders get to sit there earning a guaranteed 20% while HP holders get less yield and more volatility. On the other side of this coin no one would even be bringing up this issue if number was going up.
Point being that the only reason why 20% works and is in fact sustainable right now is that Hive degenerates aren't taking the bait. If they were we'd essentially be forced to lower the rate at gunpoint as the debt-ratio skyrocketed. That's not happening. Why isn't it happening? Because 20% is not the overpowered cheat code that many are making it out to be. If it was more of us would actually be capitalizing on it.
This is basic math.
The numbers are right there. Telling us everything we need to know. And yet the data gets totally ignored for "this sounds right to me" logic. With absolutely no evidence to back it up.
But now I'm spiraling again.
I've already made my position on this issue abundantly clear but I can't seem to stop myself from hashing and rehashing the opinion over and over again across separate iterations. I believe the main reason for this is that I keep trying to get onboard with the whole bond logic and increasing the timelocks, but the more I think about it the more I wonder, "Why would we do it that way?"
Because it "sounds right"?
There isn't a whole lot of data to suggest that forcing users to lock their HBD for a longer period of time is actually going to generate any extra value for the network. What we do know for a fact is that increasing the timelocks is an obvious extra burden imposed on HBD holders, which will certainly make them less likely to take the deal.
In the end it must be proven that longer timelocks result in more HBD being locked up on aggregate. I'm unconvinced that this would actually happen given a new system. I think it's far more likely that we are leveraging this "that's not fair" logic in order to punish HBD holders without receiving any kind of gain in return.
Think about it
If you hold HBD for 20% yields, then you get 20% yields. Doesn't matter if the money is timelocked for 3 days or five years. The second the money leaves the savings account it's no longer earning 20%. It does not matter when a person removes their assets if someone else is lined up to take their place.
Example: 5-year bond
Alright so lets say we issue a bunch of 5-year bonds and we even have a secondary market to buy and sell those 5-year bonds like NFTs. For simplicity let's just say the yield is 20%. What happens when we are 2 years into the timelock and those people want to sell? Well, they sell at a discount and push the yield of the bond to 21%.
Guess what happens? Nobody is going to buy 5-year bonds from the network anymore because there are 3-year bonds for sale at a higher interest rate. The yield curve will constantly be inverted and we will have no power over the free market. That puts the network in a quite powerless position and then when 5-years actually passes all that debt gets plopped onto the network at a totally random time. Will it be a good time to pay back debt, or a bad one? Better just hope it's a good time I guess.
The free market must decide.
Ultimately I would say the problem with HBD yield is that it's a static number decided by the witnesses. This is the equivalent to the government manipulating markets and doing price fixing. It's not a good idea. Rather the amount of HBD we print should be the static number that gets decided and the yield is determined by the free market. Meaning if everyone piles into HBD during the good times the yield is low and incentivizes exit, and as money bleeds out during the bad times the yield is high and encourages people to stay. Elasticity.
Permabonds
For me bonding only makes sense if the HBD is locked forever. That's a business model I can get behind. There's only one problem with this: if permabonds never get unlocked then it's like writing a blank check that could bankrupt the network. So unlike a traditional bond with a set APR, permabonds would have to be dynamically adjusted based on market sentiment just like the current setup we have now.
Taskmaster: Stop thinking like a central bank.
Taskmaster says this a lot in terms of talk that revolves around manipulating interest rates to get a desired result. I do not necessarily agree with this sentiment. Some of the greatest minds in this space are telling us to be our own central bank. Shouldn't I be thinking like a central bank if I am a central bank?
However I vigorously agree with the idea that we should be thinking outside the box at all times. The concept of bonding itself is ten times older than the Internet. We do not have to play by these same rules. Bonds are not inherently digital assets, but crypto certainly is on a native level. Often times the comparisons we make to the legacy economy and the way we think about crypto is akin to jamming a square peg in a round hole.
What is the ultimate purpose of all this?
This time it really is just about the money. The only reason to create demand for our debt is to make number go up. The liquidity event of purchasing HBD inevitably leads to Hive itself being taken off the market. Hive getting taken off the market makes supply go down. Supply down: price up.
What is the definition of a bond?
A bond is a loan. Except instead of a normal loan where an institution gives an individual the money, it's reversed. The individual gives the institution the money. In this case Hive is the institution and the users are the lenders.
However, unlike a normal bond where the liquidity is controlled by a single centralized agent, all that liquidity instead materializes as a higher Hive price. This is a very important distinction, as it means that any Hive holder can capitalize on the liquidity event by selling Hive into the demand that was created by the loan.
Buy low sell high
It becomes painfully obvious that Hive should only want to take these loans when the spot price of Hive is low, and should only want to pay them back when the spot price of Hive is high. How can we accomplish this task with bonds that unlock completely randomly at a future date? Certainly we could issue more bonds to pay off the old bonds in times of need, but is that really better than just maintaining that control using the 3 day timelock? Unclear.
Thinking about it from a bull market perspective:
The price of Hive has just gone 10x. Everyone is happy; we have no reason to artificially inflate our demand for debt with high interest rates. In fact, everyone collectively decides that this is a great time to deleverage and pay down the network's debt. This is a fantastic time to rebalance.
But oops! We can't do that because the bonds are locked in with a static APR that can't be changed. We can't deleverage the debt during the good times because the code literally does not allow it. Does this sound like a good system? To me it sounds more like how a legacy government operates, which is to say 'not well'.
The first iteration will be "worthless"
As Taskmaster has already pointed out a dozen times over, bonds of this nature don't have any real value unless there's a secondary market in which they can be bought and sold on the open market to create the needed liquidity and prevent stagnation of locked assets.
I can almost guarantee this is not how it will work on the initial implementation. Instead it will just be multiple savings accounts with different timelocks and different associated yields based on those timelocks. Surely this is a step in the "right direction" assuming that bonds are in fact the right direction, but it will still just be a small step that could make things worse before they get better.
Conclusion
You can tell by the title of this post that once again I did not mean for this conversation to head into the direction that it did. I believe there's a lot of promise with a bonding system but every time I talk about it I seem to be vehemently opposed to the idea. It's a weird position to be in to be sure.
I think one thing we can all agree on is that HBD is a very important asset that will only continue to improve going forward. It wasn't that long ago that half the network said we should just scrap it entirely. Think about how long we've come in just a couple of years. Now it's hard to imagine the network without access to such a critical asset.
Ultimately the interest rates for our debt need to be determined by the free market rather than consensus witnesses just guessing at how to manipulate economic policy. The system likely won't work any other way on a long enough timeline. Hopefully the bonding system will heavily lean into this concept.
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