I appreciate the wave of comments on my recent post, and the tsunami generated by the post by @liotes. It seems that many Hiveans don’t think much about matters that may be considered the elementary governance of this network. I don’t blame anybody but ourselves – we, a self-governed community, are responsible for sharing knowledge and raising awareness of such topics. Nobody would do that on our behalf, so we shall not suffer from the bystander effect. On the bright side, the extensive discussion inspired me to write this post. I share my point of view and would be happy for any insights and arguments, especially those proving me wrong. I am still for lowering the $HBD interest rate. In addition to the four reasons from my previous post, here are more thoughts inspired by the discussion.
Where Does the Interest Come From?
Like it or not, we have shared history with Steem. And getting back to the basics – browsing its Whitepaper – cannot harm, except for evoking memories. The idea introduced there is rooted in the good old Metcalfe's law – the value of a network grows proportionally to the number of its active users. Metcalf went as far as claiming it was the square number of the users. Anyways, the Whitepaper suggests that the additional value should be distributed among those who created that value through their participation. Namely content creators, curators, and witnesses who confirm blocks and make that possible. A Reward Pool with a stable, predefined inflation of Steem arose to fund this giveaway. As it was a common cryptocurrency tradable at exchanges, the market tells the actual value, or at least the price, as price does not necessarily always relate to value.
With the creation of Hive, the DHF fund was introduced to fund further development based on community support, and a part of the Rewards Pool was redirected there. I am more than okay with that; it’s hard to imagine a better principle of funding decentralized community development, regardless of the type of the projects – be it structural funding helping to cover running costs of our favorite front-ends, projects aimed at developing new tools and functionalities, or marketing and onboarding projects that would bring attention and new users. According to the Hive Whitepaper, the newly minted $HIVE distribution should be:
- 65% is used to fill the reward pool (which is split into equal portions between content producers and curators);
- 15% goes to HP stakeholders;
- 10% goes to the witnesses for block signing;
- 10% goes to the Decentralized Hive Fund.
Can you spot the HBD interest there? Nope. It is not a part of the 15% distributed among the HP stakeholders. Yet anyway, it’s emitted as a debt “in exchange” for a portion of Hive. I believe it is important to realize that.
Feeding a Monster
Debt is not necessarily a bad thing. It is a tool that can help you develop your skills faster (student loans to fund university studies) or businesses. For many, a loan may be the last option to get through a difficult period. Or it could be the stupidest option, like lending money to afford fancy Christmas gifts or an expensive vacation in a tropical paradise. Yes, people borrow money for all those reasons and various other purposes. Now, why do we, the Hive community, borrow money at such an interest? To feed a monster!
One of the reasons for keeping the current interest rate was that if we lowered it, some of the Savers would dump their HBD, which would effectively dump Hive. Yes, it's a perfectly rational prediction. However, we are not working on a solution (protecting Hive from such a dump). On the contrary. A monster wanders around, a threat that could slaughter us. And we feed it day by day, making it stronger. Currently, there’s nearly $8 million in Savings. If the interest rate remains (and nobody deposits more), it will make us feed the monster with an additional $1.5 million in one year. Yes, the monster gets 20% stronger each year, and I don’t count on the extra deposits.
But let’s say that feeding a monster is fine because somewhere out there, a hero is coming to slay it and save us all. We keep feeding it to protect ourselves in the meantime. Who (what) is this heroic savior? And even if there’s one, does paying the interest out really make sense? Are we just waiting for a mythological Bull? And when it finally arrives, then what? The predicted dump wouldn’t suddenly matter?
Or Rather Becoming a Country?
Our current debt ratio hovers around 7%. That’s amazing compared to any country. However, countries may not be the best to compare with. It was their rigged fiat economies, where high mandatory spending must end with generating debts and printing more money, that brought many people into crypto. Unlike most countries, we have a threshold that should protect us from over-indebting – at the debt ratio of 30%, the network would cease emitting HBD as rewards, and replace it with liquid Hive instead. But that is an emergency brake.
Let’s simplify the HBD interest issue to the very core – this year, we will pay $1.5 million. Consider it a public spending of a virtual country, the Users Federation of Hive, which consists of a semi-autonomous and self-governed Republic of Lions, Neoxian Polis, the Realms of Splinterlands, and dozens of other places. Anyways, $1.5 million is quite a lot of money we’ll have to give away. The question is: What do we get in return? Is there a profit for any of the communities or the network itself? And if it is paid out just to keep the monster calm, how about cutting it by bits every week or month, so it would starve to death rather than slaughter us in rage?
I would happily offer this money to anybody who could onboard active users for, say, $200 per person. That is 7,500 newbies, of which about 2,000 could stand the test of time and survive for at least a year. Does it sound too little for too much money? Those 2,000 authors would easily add more value than we spend on their acquisition, unlike people who only stake HBD.
Using HBD as a country-issued bond is a retreat to the very basics. Consider it spending money we don’t have yet. It is fine as long as the risk/reward ratio is in our favor. I am sure that currently, the risk/reward ratio is in favor of those who Save HBD, not in favor of the community. Let’s discuss that matter openly and come up with better ways to invest these bonds smarter!