Earlier I read a post by dragosroua which discussed HBD and the price appreciation. I have seen a number of other posts related to this topic so I feel compelled to write about it to clarify a few things.
https://steemit.com/steemit/@dragosroua/are-you-really-playing-the-steem-long-game
There appears to be great confusion surrounding HBD.
To start, Hive Dollars are debt. Hence, they are a liability to the Hive ecosystem. Each HBD entitles the holder to $1 of $HIVE. This is similar to convertible notes which are often used to fund projects.
The amount of coins outstanding is not limited like $HIVE. They are issued when someone creates content. In other words, they are paid to content creators. This can come in the form of an article when the individual opts for the 50/50 split or when commenting which is always paid in that manner. Curation is paid in Hive Power (HP).
I will use the time frame in the article to show how the expansion of SBD is not a problem. In fact, it is a very good thing for the ecosystem.
The Debt Actually Went Down
It is crucial to understand how HBDs are converted.
A HBD entitles the holder to $1 worth of $HIVE. However, the holder is not paid $1; this is crucial.
In November there were roughly 3.5M HBDs outstanding. At the time, I recalled buying some $HIVE for about 80 cents.
Today, there are 10.2M HBDs outstanding with $HIVE at $3.25.
Most would say the ecosystem had $3.5M in debt in November and it jumped to $10.2M today.
That would be incorrect.
There is no way to convert HBDs to dollars. The USD as a peg is nothing more than a ratio. HBD is really worth 1/whatever the price of $HIVE is priced at. Each HBD entitles one to $1 worth of $HIVE...a token that fluctuates in dollar terms.
So what does the debt work out to in $HIVE?
November: 3.5M HBD divided by .80 = 4.375M $HIVE.
Thus the outstanding debt had claim to 4.375M $HIVE.
Today: 10.2M divided by $3.25 = 3.138M $HIVE.
Thus the debt today lays claim to 3.138M $HIVE. In other words, the Hive ecosystem owes 1.2 M LESS $HIVE than it did 4 months ago.
The fact that people are paying a premium for HBD above the $1 value in $HIVE makes no sense. Yet, it is not relevant either. Markets pay a premium above face value for assets all the time. Initially, it looks like HBD were pumped. The fact they remain elevated for such a prolonged period of time shows that there are a lot of buyers who probably have no idea what they are buying.
@dragosroua hit the nail on the head when he said markets will figure it out. I cannot tell you if the price of HBDs will go up or down from here. What I can tell you is there is a point, if the price does go up, where there will be too many HBD created for the market to handle. I do not know if it is 20M, 30M or 50M but at some point, the price pops.
A crash in the price will cause those who trade on the open market to lose money. Yet Hive will be protected unless they are sitting on HBDs. Powering up means HBDs are turned into $HIVE. Also, if the price gets to parity with the $1, people will opt for the 100% payout in HP, thus reducing the number of HBDs created.
The other advantage is that while the price of HBD is above a dollar, no interest is paid on it.
Helps Distribution
It is a great time to be powering up. Payouts are higher than normal. On a 50/50 split, 1/2 the payout is receive about 3.5 times what it should. This is enabling people who power up much quicker.
As noted, HBDs are only paid to authors, not curators. Hence, the ones profiting are those who actually create content.
Why is this important?
Hive has a distribution problem. Over the last month, I wrote about how this is changing. One of the central premises is that as more people join and post, the reward pool is diluted from the bigger players. In short, they cannot churn out enough content to maintain their percentage of the overall holding.
Therefore, the ones who are benefiting are the smaller accounts who are posting more content. Collectively, they make up a greater percentage of the whole than they did before.
Another factor in this is many of the bigger holders are using the increase in HBDs to minimize their risk. There are many who tied up a lot of money into this blockchain. These people are taking the HBD payout and moving it elsewhere. There are a lot of them who are not powering up since their accounts do not really need it. Looking through some of these accounts, you find a lot of HBD that is sent to exchanges, which, I presume, means they convert it into a different currency.
Regardless of what they are doing with them, they are not turning them into HP.
Evening out the distribution is a great thing for the blockchain. I believe, at the moment, the increased payout on posts because of the break from peg by HBD is helping this significantly.
At some point, the market will figure out it is paying a premium on SBD. When it does, the price will move downward. Until that time, however, my answer is still the same...power up.
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