Alright so after my light rant yesterday... my 'light'... 2000 word rant on how we shouldn't change things based on the market cycle... there were actually quite a few points I missed and also many good comments were made in the wake of the discussion.
For starters I take extreme offense (not really) to everyone that took this opportunity to cry about how the witnesses control everything and how they lord over us like plebs and how everything is centralized and fucked. I saw a comment earlier today that was like, "We should be having town-hall meetings and discussing these things in a public forum." Great idea, bruv. What in the actual fuck do you think is happening right now? lol. Cut the shit: you're not a victim.
Voting with our money.
On Hive, setting interest rates is a political debate. Which is nice when you think about it. Who sets the interest rates at the FED? Who controls that? I mean technically it's a private bank so... in all likelihood we don't even know how many powerful people can pull strings in that direction. Certainly the American people get zero say in the matter. Hive is a huge step up from that on a political level, so to call it an oligarchy is standing on shaky ground at best. I can personally guarantee everyone on this network that my voice has been heard many times, and sometimes is even acted upon, which is pretty cool when you think about it. Everyone has their part to play.
Voting with our money.
This is a political discussion, and DPOS is very much a new age digital version of what we would call a republic. We elect representatives with our votes and those representatives are supposed to 'represent' our interests on the political matters we find important.
So yeah if setting the interest rate to a certain level is really important you could go around telling people to vote this or that witness based on what rate they are signaling, but the thing about republics is that they are a comingled bag. Like I would never remove my witness vote for Deathwing over something as trivial as the interest rate on the savings account. That is below my line. There are too many more important things to consider when voting for block producers to get hung up on trifles.
With regards to HBD
Starting at the beginning.
| APR | Witness Count |
|---|---|
| 20% | 12 |
| 19% | 1 |
| 15% | 4 |
| 12% | 2 |
| 7% | 1 |
So we can see that 20% is still the OVERWHELMING majority.
So when I see people commenting that Hive is this abysmal dictatorship because one witnesses gave a justification for signaling a lower number it's just like wow I guess this is what you get when you throw down with a bunch of anarchists, libertarians, and conspiracy theorists. Funny to think that anarchists have a strong political compass. Want to make an omelette gotta break a few eggs I guess.
To say that Hive is not "decentralized" because 20 elected representatives are making the decisions is... pretty much absurd. Would you rather be a Bitcoiner? They are super decentralized. In fact they are so decentralized that they don't even get to have a governance structure at all. We can see how that's going in real time.
Even 7% is pretty high.
If we compare these numbers to what you could get from a legacy bank account or even the bond market these are wildly high yields: all of them. Compared to yields offered by crypto they are pretty standard, but we also have to remember that crypto doesn't know what it's doing and plenty of DEFI projects crashed themselves to zero because of their own yields. That wouldn't happen on Hive for several reasons (haircut) but obviously we want to thrive, not keep barely scraping by the skin of our teeth.
19%... nice.
Shoutout to 
The Federal Reserve moves rates less than 1%, sometimes a quarter of a percent, every 6 weeks or whatever at a maximum. They know how to not make waves, and we should take a lesson from the entities who have been doing this stuff for over a hundred years. There's no reason to make the same mistakes as the fossils that came before us.
15%
It should also be noted that Deathwing changed his from 12% to 15% in the wake of all this discussion, so again making the claim that users are powerless on Hive is totally ridiculous and simply not based in reality. Also a lot of people have commented on the fact that Blocktrades is signaling 12%, but none of these people seem to realize that Blocktrades never stopped signaling 12%. He's been at 12% ever since we changed it to 20% in April 2022. That is certainly not wishy-washy behavior.
HBD holders are getting a free lunch
During a bear market people start to panic. Just like a corporation everyone is trying to come up with ways to tighten the belt and save money. The idea here is that HBD holders aren't taking any risk but they are getting a pretty hefty reward. In fact a flat 20% is better than investing in the stock market, because while you might make 20%-25% on AVERAGE in the stock market over time HBD is stable and the 20% is guaranteed no matter when you enter or exit the market.
This is seen as unfair in the eyes of HP holders, who get less yield than 20% and are subjected to the wild volatility of the Hive governance token. Of course nobody complains when Hive goes x10 and they're sitting pretty, but in the exact opposite scenario, IE now, all of a sudden it's a problem. We need to kick those freeloaders to the curb, dagnabbit!
Let me be one of many to say that this is the completely incorrect mindset.
It is rooted in scarcity and the old ways of doing things.
Go ask 
How much growth do you expect HBD to get year over year?
Supply & Demand
Do we really expect that HBD growth is going to be less than 20% a year? I mean... really think about it... as far as I can tell it is the best algo stable coin on the market. Not only did it just survive a bear market, but it survived a bear market without even breaking the peg below 95 cents and we were at 20% yields the entire time. Considering the history of HBD/SBD this is a huge milestone for us and nobody seems to be giving it any credit. Liquidity on the internal market continues to increase. Everything about HBD is impressive right now.
If the target growth rate for HBD is 20% a year then we should automatically be printing at least 20% a year to offset the growth with new money coming into the system. That is a net-zero situation, meaning that because the demand for HBD has increased by 20% it doesn't matter that we printed 20% more. Zero Hive was minted as collateral in this situation. Zero Hive was dumped on the market. We basically got to print money out of thin air for free with zero downside. This is a huge variable that many people seem to be completely dismissing as vapor.
Personally I think that HBD will grow faster than 20% a year in this environment because crypto is bonkers. Do I think yield should be even higher than 20%? Hm, not yet, and considering that HBD can be minted by burning Hive we can easily make up for surplus growth-rates in that manner, which has shown the ability to make Hive go fully deflationary (which isn't something I think is good but other people love it, especially the people who think we should lower HBD yields, which heavily implies that some of the logic being employed here is contrary to itself).
Inflation
It's no secret that the dollar loses some amount of value every year. This loss of value also offsets Hive's debt and allows us to mint more HBD if we want to. Some argue that inflation is very high right now. I don't, but it's certainly a number higher than 2%. If you think inflation is high then you should be more willing to print HBD to offset this loss of value and keep HBD even more stable than the dollar it's pegged to.
Marketing
Many have pointed out that we did a very poor job of marketing 20% yields to the outside world, especially in the face of UST crashing to zero. As an extreme introvert I don't put too much stock into marketing of this nature, and I think we should be going viral from merit and word of mouth type stuff, but still it's a valid point that has been made. It seems a bit hypocritical to jack up yields to 20%, do a very poor job of advertising, and then lower it under the premise that, "I guess that experiment didn't work." "Chalk it up to bad luck I guess."
There's a very real possibility that 20% yields on HBD have prevented Hive from absolutely cratering back to 10 cents like it usually does during the bear market. No one seems to consider this. Consider it.
Doing the maths
Because most people completely ignore the critical variables I've explained above their math on HBD ends up being completely wrong. For starters people are like 20% is too high: that's unsustainable because 20%: and 20% is 20%. I have pointed out many times that the debt ratio on which HBD is founded and collateralized upon is less than 10%, and thus the actual cost to the Hive network is currently less than 2% of our total market cap a year.
Math that is even less considered:
So even if someone gets the above bit correct they'll end up coming to the conclusion that keeping HBD at 20% yields is going to cost the network between one and two million dollars a year at this level. I've already explained why this is wrong: as it assumes that 100% of all yield gets dumped on the market and that HBD has zero percent growth year over year. Oops! Yeah that's what happens when we try to calculate these things in a bubble. Wrong answer is wrong. Try again.
The real threat is the bull market.
Or rather the real threat is the debt ratio. The current debt ratio for HBD is under 10%, and is not cause for alarm. Ironically it would not be surprising for the 'death'-ratio to go up if we lowered yields at this time. Imagine if the lower yield caused HBD to be dumped on the market; the peg breaks to the downside and a million dollars worth of Hive gets minted and dumped onto the market.
It's no secret that Hive has low liquidity.
In the situation above we might only liquidate 10% of Hive's HBD debt but the spot price of Hive ends up cratering 50% or more, not only from the million dollars that just got dumped, but also from the speculators who can see it all coming three days in advance. That's the easiest short in the world. Get wrecked. So it's possible that lowering the rate at this time could actually jack up our debt ratio by x2 and put us into an even more dangerous position.
The real threat is the bull market.
The actual problem Hive needs to lookout for is exactly what happened to Terra Luna and the UST derivative. The stable coin gains massive adoption because of the juicy 20% static yield, and this creates an unsustainable flywheel that jacks up the value of the governance token like x100 on low liquidity (from Hive being bought and burned) that will eventually be shorted into the dirt with an epic squeeze.
Basically if we are in a bull market and the debt ratio goes up while Hive is mooning: that's a very VERY bad sign, and we should immediately move to reduce yield to HBD to mitigate any potential leverage within the system. We can think of this as the network "taking gains" during a bull market and making sure we don't get wrecked during the downswing of the market cycle.
One final maths
Say you're still convinced that 12% yield on HBD is the way to go. Did you actually do the math to calculate how much money that saves over time? Or was that conclusion reached just because it "sounded right"?
If we are paying interest on 8M HBD then 8% of that is only $640k. And even then a year has to pass for that amount to be "saved". Can you really guarantee me that HBD can't gain $640k in demand over the next year? Of course not. It would be shocking if we didn't meet that target. 20% yields are much more enticing than 12%. I can almost guarantee that holding our ground here and not capitulating will create the confidence needed to get that level of extra adoption. Again, the debt-ratio dictates all of this, and the debt-ratio is small right now meaning we can get away with a lot for very little implied risk.
Manipulating rates to force money on and off the chain.
Hive is a very unique network in that we can manipulate interest rates in very beneficial ways. Lowering rates will push money off of the platform and force users to find another stable-coin alternative (or maybe Bitcoin), while increasing rates pushes money onto the platform and gives us a boost. Of course we've never actually attempted to flex our power in this manner, but perhaps one day we'll understand how it can be done and what the numbers need to be to achieve these goals.
It would be highly useful to be able to incentivize money off the platform and 'force' users to hold that value outside the system during a bull market. Why? Because it spring-loads our ability to bring that money back into the system when we need it most. Many will whine, "But we need that money now!" Yeah well, we can't have it now because we never did the thing. It's only possible if we take the gains off the table during the bull market, which we did not do.
To be fair this entire system was put into place and officially tested at the tail end of the bull market (or rather the beginning of the bear) so we never really had the opportunity to pull these moves in the first place. These are definitely tactics we should consider making during the next cycle.
If anyone recommends we INCREASE yield to HBD during the bull market because "we can afford it" I highly recommend this person be ignored. This is exactly the opposite of what we should be doing, just like we shouldn't reduce yield now because "we can't afford it". That logic is wrong: we should be doing exactly the opposite: printing money during a recession and tightening during the good times to rebalance. This is basic economics 101 type stuff.
However anyone can see that printing money during the recession is easy. The hard part is convincing people to stop being greedy and dial it back during the bull market and play it safe. 99% of the time this is where the error gets made, and then it leaves people scrambling wondering how everything went wrong during the bear. The concept that we need to make number go down during the bull will be completely foreign to the general population. The average person never gets smarter: count on it.
Conclusion
I probably forgot to say some things but this silly post is already way too long. At the end of the day manipulating interest rates on Hive is a powerful tool and we very much have no idea how to actually use it because we have zero experience with this newfound power. We need to be making small calculated moves and monitor the outcome very carefully.
Giving yield to HBD holders using Hive collateral should not be considered freeloading during a bear market. In fact if we want number to go up during the bear we need to increase yields on HBD to make it even more attractive with higher demand. Just like injecting a stimulant or a steroid into a person to give them a boost of performance in the short term, the bad effects of printing money only happen long after the money has been printed. These moves need to be planned a year or more in advance to actually work the way we want them to. Where will Hive be in a year?
The ultimate variables to consider for HBD:
- What is the growth-rate target?
- What is the debt-ratio?
- What is the supply vs demand ratio?
- How much volatility does the system have in a given market cycle?
- How much collateral does it take to backstop the system?
- How much leverage is masked by low-liquid spot markets?
- How much purchasing power is USD losing per year?
- What is the value of an unchanging stable yield that users can count on during uncertain times?
- How much will lowering yield lower demand in the short-term?
- How long will it take for lower supply to actually materialize?
See? So simple. lol