It is true interest payments ultimately come out of overall Hive inflation and dilute stakeholder vests. The same is true for all Hive payments & rewards: witness rewards, content rewards, HDF, etc. When we look a the numbers we can see HBD interest payment for the month of March was only $26,500 HBD. If nothing changes and approximately this much is paid out every month, this will cost Hive about $300k HBD a year. Also, the entire point of increasing HBD interest is to increase demand for HBD savings, the expectation should be that making HBD savings more attractive would increase the amount we pay out in interest. The more successful, the more inflation.

The difference between the inflation caused by post payouts, witness rewards, staking rewards and the DHF versus inflation caused by HBD interest rate, is that the former are all subservient to the base rate of Hive issuance. They all combine to form the "7% per annum" or whatever the rate is now. HBD interest is an entirely separate source of inflation unbound by the rest of the consensus rules around inflation. HBD interest creates inflation at a rate which can change based on market factors and witness decisions, it can increase or decrease based on changing demand for HBD savings (which can also happen suddenly, there is no theoretical limit on how quickly the $2.8 million UpBit HBD could be put into savings) and changing witness policies.

Under current conditions, with sufficiently low savings rates, inflation from HBD is still low, but that can change quickly, and the compounding nature of HBD savings interest is likely to increase HBD savings rates over time. I do think 20% interest as things stand is not likely to substantially increase inflation in the short term, my concern is if it will be reversed when it may happen in the future.

Particularly I am concerned because there is a lot of ponzi-ish thinking in the crypto space, including in Hive. The supply of HBD is effectively a loan being taken on by the entire Hive community (both liquid and staked holders). We are currently getting a nice benefit that the vast majority of HBD has 0% interest, which effectively means HBD speculators are providing a loan for free. Since USD depreciates in value over time, it can be fair to think of it as a negative interest rate loan (HBD speculators are paying us to take their money).

The economics of 20% or higher interest are very different. To justify taking such a loan, the money loaned must provide value that matches a 20% gain over a year. A company can justify that if it can be invested into producing products which generate sufficient value (eventually revenue from selling the products) to justify the cost. The justification for Hive stakeholders paying that rate is much less clear - in principle growth in the network increases the value of the network, and perhaps the underlying token - but the mechanism by which taking on a 20% interest rate loan gets us that growth has not strongly been laid out. Comparing us to the corporate bond market, the index of junk bond yields (ICE BofA US High Yield Index) rarely go above 10%, currently only 4%. This is what companies rated as "junk" are paying on loans.

By paying more than the rate of inflation, we are subsidizing the growth and network effect of what could itself be a valuable product if it is more widely adopted. But the higher a rate we pay for that growth, the more we are moving into Ponzi-ish territory where we can't actually justify the rate we are paying.