Hive's Debt Above 20%

And Still Rising

Back in November I pointed to Hive's Debt ratio quickly rising. Back then it was at almost 12% with the price of Hive being around 12 cents and the Hive debt support price being around 5 cents.

Today Hive's debt has risen to almost 22% with the price of Hive being at around 7 cents and a Hive debt support price of around 4 cents. It goes without saying that this is going to be a major test for the chain since it is definitely possible that Hive could break under the support price.

{279C0E9E-39C3-4B04-8DB2-E42495D8B019}.png

While this has happened before (the thresholds were much lower in the past which is why it hasn't happened yet albeit the ratio being much higher), it's not something we would want to see again. If you are not familiar with the exact mechanics, I'd recommend the article from Arcange which does a very good job at explaining things.

So what happens when we reach the debt ratio thresholds?

Essentially, there are two thresholds. A soft limit of 20% and a hard limit of 30%.

{2B126EB7-1142-4C36-B00B-AE11A5A89431}.png

Author rewards get paid out in Hive Power + Hive only. When we pass over the 20% soft-limit HBD won't be paid out, even when selected since we don't want more HBD getting paid out to authors to overburden the chain with more debt.
Conversion from HIVE to HBD: When the debt ratio is higher than the soft-limit, the conversion requests are rejected by the blockchain to avoid printing new HBD. In other words, we cannot convert into or create HBD anymore.
Conversion from HBD to HIVE: When the hard-limit is reached, the HIVE price used for the conversion will no longer be the median price feed but a corrected price feed. In other words, HBD depegs and isn't worth $1 anymore. This is bad since we cannot use HBD as a stable store of value anymore to buy more Hive should we want to "buy the dip". It is also problematic for people having large amounts of HBD who could potentially lose a lot of value. Another big issue is that HBD's reputation as a whole gets a big dent as it is seen to be less trustworthy.

Conclusion

It's not looking too bright for Hive and HBD atm. But that is also true for essentially all other ALTs out there. Going above the hard-limit of 30% would be a big hit for our chain and I hope we can avoid it. Unfortunately the support price is only at 3.5 cents which is "only" another 50% correction. In a bear market this is almost guaranteed to happen... But then, we are already at such lows that I am somewhat hopeful that there are no more sellers left. Yes, I know that seems very naive! In any case, I think the key is to simply endure this market since it is about survival now and any project being able to make it to the end of the tunnel should come out stronger than before.

As a general reminder: Please keep in mind that none of this is official investment advice! Crypto trading entails a great deal of risk; never spend money that you can't afford to lose!