Is 10% APR on HBD Savings Too High?
In one of the weekly missions, 7 months ago, we asked you about the HBD savings APR, and you shared your opinion in the comments... We collected all responses, calculated the average, and updated the APR savings percentage signal on our Liotes Witness!
A lot of things have changed since then, and we think that the general opinion about this important number has changed too... Speaking of which, when we asked the question, the APR signalled from the Top 20 witnesses was much higher, but today, it came exactly to the number YOU shared the most! It's great to see that the Liotes community was on point, with a mature way of thinking! Well done!
So, the question for today is:
Is 10% APR on HBD savings too high for the current state of the markets? Should we lower it or raise it? Please share your "sweet spot" and how much APR you would like to see.
Please leave your answer as a comment below this post. Like we did the first time, we will consider your suggestions and change the Liotes APR signal accordingly...
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I struggle to understand the rationale for changing HBD interest rates. Especially as I can't see any arguments published when witnesses change their rates. Nor have I been able to find any analysis of the effects of rate changes. All of which might be from me looking in the wrong place. But it makes it difficult for me to suggest what the rate should be.
So for the lack of anything that makes me want it to change, I suggest we keep the rate as it is.
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Bascially, the interests on HBD are coming in addition to the natural inflation of hive. The problem is that with low hive prices, these interests represent a lot of hive tokens that are minted out of thin air.
Let's say there are 1'000'000 HBD in savings. This means that 100'000 are minted per year. Which is the equivalent of about 2 million Hive at 0.05 cents if my calculation is correct. By reducing the interest rate, the number of minted hive is reduced accordingly. On the other hand, having low interest rates, encourages people who hold hbd to swap them for hive and thereby really creating the inflation. As long as the HBD is in HBD, it doesn't affect hive inflation but once it's converted it does. So high interest rates means, potential higher future inflation. So there is no perfect solution.
I think 10% is about right at the moment. I remember one objection to lowering the interest rate from 20% was that it might create a run from HBD to HIVE causing the price of HIVE to crash, and we did indeed see a decline in the price of HIVE as the HBD interest rate came down, but I think there may have been other factors influencing the decline, not just lower HBD rates.
However, the good news is that the HBD debt trend has dropped back to just above twenty percent when it had seemed almost inevitable that it would keep on rising and kick HBD off its peg.
Source: https://hbdstats.com/
That was also helped by the recovery in the price of HIVE, so I think it was right to reduce the HBD interest rate from 20% and to do so in a series of steps rather than a straight halving to 10%.
If the reduction on saving interests is too abrupt, people don't have a choice to get out of it and look for better returns. That would have a drastic price impact. On the other hand, every percentage that we pay, means a direct devaluation of hive because every HBD can be converted to hive. So with low hive prices, each HBD represents a lot of hive. Lowering interests is in my opinion the correct way for a long term strategy and doing it slowly is to avoid a big drop in price.
Agreed! I think we managed to navigate the series of reductions from 20% to 10% reasonably well. From here, a gradual reduction in steps of 0.5% seems feasible.
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I think when Hive is low and then there's no rewards in HBD on post's then APR on savings should be less then 10% too even for the shorter time untill Hive gain it's value back.....
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That's a good point in keeping it dynamic. That's the reason we ask the community.
A 10% rate isn't too high in the current conditions, in fact, it sits very conservatively compared to the network's historical returns.
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That's true.
I think 5% is fine. The biggest issue with HBD savings is that it’s not HP, so how does it actually support the platform other than letting you easily withdraw money in 3 days? 🤔🤔
On the other hand, HP requires actual judgment when supporting content and is subject to a 12-week power down, I think there is too much of an imbalance between what each one contributes to the platform.
Instead, I would adjust the withdrawal period from days to weeks; rather than 3 days, it should be split into 12-week portions, just like what happens with HP 😐😐
The interest rates on HBD are a way to avoid everybody converting them to hive and thereby increasing the hive supply dramatically. I totally agree that hbd interests don't bring much to the table, other than keeping people invested in HBD but at the same time the interests on HBD become a potential source for hive inflation...
The control works the Same if the withdraw of HBD obtained by HBD interest rate is obtained with the same 12 weeks structure 🤔🤔
3 days HBD VS 12 weeks HP it is out of proportion 😅😅
I don't know is it high or need be higher at current place. Also people should have possibility to read or look on graphics why witnesses decided to change apr.
I think the issue is that most people don't really understand why it matters. There are 6.3 million HBD in savings. This means that at 10% interests there will be 630'000 HBD printed or 12.6 million hive, since every HBD can be converted to hive. So the interests are basically paid by everybody holding hive and accepting their devaluation through inflation.
If however we reduce the interests too fast, then people swap hbd to hive and sell and the pressure on its price would be even worse.
Every 1% that we save on interests represents 1.26 million hive less printed in a year!
And people especially newscommers should understand this numbers and where from it comes i think
I dont think so it needs to keep at 10 right now…. Especially if hbd is so close yo depeg lately
You are right to mention the depeg. Too little interests and people convert HBD into Hive and sell, creating lower prices of hive and increasing depeg danger. Too high interests and we increase the potential hive supply by minting more hbd. Which could turn on us in the future for the exact same reasons. I believe that we would need to tighten the interests little by little.
Great question, and one worth thinking about carefully. My take is that 10% is actually a fair "sweet spot" right now — high enough to keep HBD savings attractive and encourage people to hold rather than sell, but not so high that it puts unsustainable pressure on the fund long-term.
As someone running a small agricultural business, I've learned that sustainable growth always beats aggressive short-term numbers. A rate that can be maintained through different market conditions builds more trust than one that spikes and then has to be cut. I'd rather see 8-10% held steady than 15% that gets slashed to 3% a few months later.
Thanks for running these missions and actually listening to the community's input — that's how good governance should work. 👏
🌾 Matteo
Ca' Paradiso | Cagli (Marche)
www.caparadiso.com
The thing with the interest rates on HBD is that it's something that we all pay in the future. The interests are in addition to the organic hive inflation and it's bascially money printed out of thin air. Since every hbd can be converted to hive, every hbd in interests represents 20 potential hive tokens that could increase the supply and push price down. That's why we need some interests to keep people invested, to avoid to supply shock and at the same time every interest point we pay, increases the future potential of inflation. It's a difficult line to walk.
10% is pretty decent, in my opinion. Not high and not too low either.
We kind of got used to it :-)
I don't have an answer to this. Either way has its own set of trade off (based on my understanding), but if I have a magic pen to decide, I would revert to the good old days of 20%. Haha.
Too high interests and we explode the hive supply. Too little interests and we incite a supply shock today by people converting hbd for hive and selling. there is no good answer to be honest.
Given how long we have been under the debt ratio, I would say it is probably a bit too high. I think 8% or so sounds ok right now, and then we see if the debt ratio can be improved.
I quite agree with your position. We should reduce the interests step by step to avoid a one time exodus from people holding hbd.
This sounds like a good middle ground to me. :)
That's quite true :-)
I think 8% would be more reasonable considering the debt, and the risk of the de peg of HBD. It might even have to go lower if the situation worsens and the de peg is looking inevitable
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I agree with you. Every percentage of interest that we pay increases the potential supply of hive, since every hbd can be converted. Dropping rates too fast, would create the danger that a lot of people dump hbd for hive and then sell hive and we would have a depeg and crash of hive price.
we have two side of a coin here. On one side, 10% is a bit decent for me, 15% is the bare minimum for any investment to be accepted called as attractive.
however, we have overprinted HBD. I do not know why the big boys believe that DHF's HBD should be counted out. I believe anything that is printed, is on circulation, regardless it is blocked, locked, hidden or whatever, which means DHF's HBD should be counted as circulated HBD too.
so cutting down HBD is not for investment, but more on trying to save HIVE price
Exactly, reducing HBD interests slightly reduces the supply that is generated because of it. Each HBD representing around 20 hive, every interest point lower can represent a big number.
i have both my witnesses on 7.5% , my witnesses are still to low on the ranking list to make a difference anyway :)
Yes but I think in spite of that, lower interest rates on lower ranked witnesses have a psychological impact on the higher places ones. If they see lower interest rates below them, they feel less bad to lower them I believe.
that is a possability indeed .
I think the better question would be, would you park this amount of funds (which I'd consider high risk) for just 10%?
But we don't look at it from a investor perspective because these 10%, we actively finance them by the devaluation of the hive price. From our perspective that's what needs to be our focus. Every HBD paid in the form of interests is 20 additional hive in circulation. The problem is that if we lower the interests too much, we will have people selling of HBD and creating a hive supply increase that leads to even lower prices. So we need to find the balance between what hive prices can bear and what investors are willing to sacrify without selling everything...
I don't know much about HBD, except that it's trying to be a stablecoin. Whether it's 10%, more, or less—well, I have no idea. I'd rather ask: what about the 4.40% for HP? Is that too much or too little? Maybe something needs to be done about that. But since I'm not a financial expert, I don't know the answer to that either.
The return on staked HP and bascially all the reward pool is programmed on the blockchain but hbd interests are not. They come above this inflation. We can't modify the 4.4% on HP but it's up to the witnesses to define how much hive we print over hbd interests.
I wouldn't say fine, but it's quite decent anyway.
Thanks for the feed-back!
No worries.
I would lower it to 8%. I think less than that would not be attractive to invest either.
You are exactly right to point out that we need to find a rate that is still somewhat interesting to investors but that don't print too many HBD :-)
10% is fine. You can still earn more with curation than savings.
10% looks like a rate that we got used to.
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