By @Zestimony
We recently noticed an increase in the price of Hive Backed Dollars (HBD), and this is not the first time that this has happened, nor will it be the last time that we notice something similar. When this occurred, I saw a lot of users writing about how to make the most of the circumstance, and I can't help but feel sorry for them. They couldn't have been more wrong! I imagined.
To appreciate why HBD is not like other cryptocurrencies, you must first acknowledge that it is a stablecoin, and then you must acknowledge that it is an algorithmic stablecoin. Only then will you be able to comprehend why HBD is not like other cryptocurrencies. If you are aware of these significant facts, you will be better prepared to deal with HBD should its price suddenly spike.
Stablecoins Maintained by Algorithms
Since its inception, the concept of a stablecoin has remained consistent and basic. To put it succinctly, a stablecoin is a coin that is pegged at the value of one dollar, with the intention that it will always remain in that state and will always be adjusted so that it is equivalent to one dollar.
A backing is required for a stablecoin in order for it to maintain its stable status. This backing can be thought of as the foundation upon which the stablecoin is built; however, a stablecoin cannot achieve its stable status in the absence of this backing. A value-backing system is something that every stablecoin uses. The majority of stablecoins use a commodity value-backed system, which means that their total value is pegged to a commodity such as gold. The majority of other stablecoins use a fiat value-backed system, which means that their total value is determined by the amount of fiat currency that is held. Although the preceding backing options make the coins they are associated with more stable, it is impossible for them to run a decentralised system in its entirety with this form of backing. As a result, algorithmic stablecoins were developed in order to meet the demand for a truly decentralised stablecoin.
Decentralized stablecoins with a value that is maintained algorithmically are known as algorithmic stablecoins. This means that the value of these coins is kept stable through the use of lines of code that have been prewritten in computers to ensure that these coins continue to trade at a level that is comparable to one dollar.
Being an algorithmic stablecoin and a decentralised stablecoin at such doesn't mean that it is not backed, but it does imply that it is backed by an asset that is not under a centralised control (like gold and fiat), such as Hive and other cryptocurrencies. I n addition to any financial backing that may be present, the algorithms make sure that there is a balancing act.
The Instance of the HBD
The most important thing to take away from this is the fact that HBD is an algorithmic stablecoin. The algorithms guarantee that the value of HBD will always be relatively close to 1 dollar no matter what. Therefore, the algorithms are made to adjust themselves in order to return HBD to a value of one dollar if it falls below that threshold, and the same balancing act is carried out if it rises above that threshold.
So, in your view, what does this mean? Trying to take advantage of a spike in the price of HBD may not always result in the huge financial gains you expect, especially when HBD is not in its liquid form and ready for instant use.
This is due to the fact that HBD must have rebounded to its pegged value before the completion of the 3.5-day period for converting HBD to Hive (to trade on exchanges), which is the most common utility for HBD. Therefore, it's possible that you won't make any significant gains from it.