Dippity Dip!
Bitcoin is now potentially in a downtrend as we approach the halving event which was a complete and fully expected outcome. What's unfortunate is that alts got annihilated while BTC itself shrugged it off no problem. This is to be expected as ETF and otherwise institutional buying pressure keeps BTC afloat while alts retreat back into the safe haven. Par for the course really. Hopefully this is just an easy-mode 20% dip into a bullish summer rather than a bearish summer like we'd normally see after such a good Q1.
Hive hit hard
We've sustained basically a 40% dip from peak, which obviously stings quite a bit when the market cap rank of the token sits at #375. It seems like we should be outperforming and catching back up to our former glory but that hasn't quite been the case yet. These things happen: Hive has a pretty heavy history of lagging behind and then spiking out of control right at the end of the cycle.
The more recent 25% dip in Hive sent the HBD peg spiraling down as low as 92 cents. I never personally saw it that low but I have been told it actually happened and wasn't just a reporting error on centralized aggregate sites that are taking our one Korean listing at face value. Regardless of how low it got it's been a couple days and it's still depegged around a 97 cent discount. There seems to be a little confusion and fear-mongering around this depeg, so I thought I'd address it here.
How is this number even calculated?
I'm told there are a few frontends that display the estimated value of HBD but I've yet to view it with my own eyes. Maybe I'm blind but I don't see it listed on https://hivedex.io/ or https://wallet.hive.blog/market. It seems a bit foolish to not list it front and center but there's also a very good reason why frontends shy away from the number, as it requires API access to centralized exchanges and trust for what Hive is valued on them.
Example calculation: equal and opposite
The napkin version is when Hive/HBD on the internal market is lower than Hive/USDT on exchanges >> this implies that HBD is worth more than $1. However much more commonly HBD is less than $1 which means HIVE/HBD is going to be higher than the HIVE/USDT exchange rate. Take right now for example: Hive is 0.324 on MEXC but 0.338 on the internal market. HBD is trading at a discount to the peg because the internal market shows a higher number for Hive than CEXes.
How much of a discount is that?
Well taking 0.324 / 0.338 gives us 0.959. Which means HBD is trading at a 4% discount to the dollar during this snapshot. On a generic level it looks like this:
(Hive/USDT) / (Hive/HBD) = (HBD/USDT)
It's good to remember here that the first crypto within the pairing is always the value we are measuring, while the second crypto in the pairing is the unit-of-account we are measuring it against. HIVE/BTC is measuring the value of Hive vs Bitcoin... so a very small number 0.00000500 (500 sats) because Hive is worth less than $1 and BTC is worth tens of thousands.
BTC/HIVE would be exactly the opposite of this. Measuring Bitcoin in terms of a Hive unit of account would be something like 192k because Hive is worth about a third of a dollar so the USD value gets multiplied by around x3.
Showing the work on unit math:
(Hive/USDT) / (Hive/HBD) = (1/USDT) / (1/HBD) >> Hive cancels
(1/USDT) / (1/HBD) * HBD/HBD = (HBD/USDT) / (HBD/HBD)
= HBD/USDT (the value of HBD measured against USDT UoA)
So why the depeg?
Well we do fund a stabilizer with hive.fund money that is supposed to absorb a lot of this volatility. I don't have the hard numbers available to prove it but clearly the stabilizer has run out of Hive to dump onto the market. In fact we can see that at least one big market maker (the stabilizer itself?) has created a stepladder of liquidity to catch up to $80k worth of dumping.
This has a couple people on Hive spreading the usual FUD around like "OMG what's to stop it from crashing to zero like UST" or "This is what happens when you give the savings accounts 20% yield". Both of these statements are unequivocally false. I'm surprised I even need to have these conversations anymore but here we are.
Ironically the reason why HBD can't crash to zero like UST is a direct result of the depegging itself. Conversions from HBD >> HIVE that peg the token's downside take 3.5 days worth of blocks before they become liquid and real within the economy. Delays in the collateral conversion process are the sole reason for the current depeg (and any depeg on any stablecoin). UST could be converted into LUNA instantly, which is why it never depegged until it systemically crashed to zero. What doesn't bend: breaks.
Blaming the depeg on 20% APR is also absurd.
But at least the logic of it makes a tiny bit more sense. There are two separate reasons why one might come to such an incorrect conclusion. The first is that 20% APR creates more HBD "out of thin air". False logic dictates this fresh HBD would be dumped on the market and depeg it a bit. The second worry is that 20% APR creates an incentive that chokes liquidity and takes liquid HBD off the market, making it volatile.
Debunking
https://hbdstats.com/
https://hive.ausbit.dev/hbd
First off the on-chain data heavily implies that no extra burden has been placed on the network from the 20% HBD (so far). We have been trading in the 5%-7% debt-ratio range for years (this dump actually pushed it from near 5% to near 7%). That is a healthy and tight band that proves 20% APR is working just fine. I've already written half a dozen posts about why this is the case so I won't explain it much here.
While 20% APR does create this incentive to horde HBD in a timelock, simply getting rid of the APR makes it even worse. Imagine trying to claim that you're going to make HBD more desirable to buy via making the token less valuable. It's childish logic borne through ignorance of how the system actually works.
Too many users start with the assumption that 20% is bad and then try to work backwards from the initial assumption. This is quite literally the definition of "begging the question". We can't derive any real insight from a critical thinking session if we assume we already know the answer from the beginning.
Upon further review it's clear that this false logic is provably wrong. Even if 20% APR on HBD makes it illiquid, that's completely irrelevant. We don't need HBD to be dumped on the market; that would make the depeg even worse. What we need is Hive dumped on that market. That's the core problem.
And who wants to dump Hive after a 25% dip?
Again this false logic pops up with people wondering why nobody is "buying the dip" on an HBD discount. Very few seem to realize that buying the dip on HBD means selling the bottom on Hive. That's how it works: Hive must be sold on the internal market in order to prop the peg back up to $1.
So while I do agree that 20% yields on HBD are wasteful and instead should be allocated to an internal AMM HIVE/HBD pairing to create liquidity... that still doesn't solve the depegging problem... although it could help.
HIVE/HBD AMM EXAMPLE
Let's say a deep HIVE/HBD LP finally exists. Perhaps it has a 0.1% trading fee for LPs and there is some kind of contract that allow HBD to sweeten the deal (meaning HBD from 
Sooooooo...
For simplicity let's say this AMM has $10M worth of Hive in it and is paired to an equal amount of $10M HBD. To simplify it further Hive is worth $1 at this time and HBD is fully pegged, so 10M Hive paired to 10M HBD. So what happens in this case when Hive immediately flash-crashes 10% on centralized exchanges?
Well that would mean that the 10M Hive in the LP is now only worth $9M USDT. This also means that the HBD is worth $9M because that's how AMM LPs work, both sides are always equivalent. So a 10% drop on centralized exchanges immediately creates a 10% discount on HBD and depegs it to 90 cents immediately without any trading whatsoever on the internal market. Users can still buy HIVE with their HBD at the old price, but the old price is 10% higher than the new price. That's a problem.
However market makers will immediately capitalize on this opportunity via buying cheap Hive from the exchanges and dumping it into HBD knowing they can convert it over the 3.5 day period. The deep liquidity AMM can stabilize Hive by sucking cheap Hive off exchanges using this expectation of 3.5 day conversions. Of course the HBD peg will not get back to $1 immediately because there's a certain level of risk with the conversion process. So even an infinitely deep AMM pool isn't going to completely solve the problem but it can mitigate a lot of the short-term volatility.
So what's the actual solution to depegging?
Well if you want your asset to be pegged to USD then holding a reserve of USD is the easiest way to guarantee the peg. Again, nobody wants to sell Hive after a 25% dip to get a 3% HBD discount. But if one sells USDT into Hive and then Hive into HBD this is a much more viable solution with lower risk.
The problem?
None of we degenerates actually wants to hold USD or derivative stable-coins. Everyone tries to say the 20% yield on HBD is a godlike deal after all our competitors crashed to zero from systemic failure. 20% yield went from "the standard" to "a scam" overnight on the sentiment scale. Nothing has changed since then except for the irrational fear of a bear market that crushed all the unsustainable business models. Here we are two years later and all these fudsters still insist that it's unsustainable. At what point do they capitulate and admit they don't understand it? Probably never.
Potential solution?
There's another "risk-free" scenario that I came up with last month after doing research on perpetual futures markets and the associated funding fee that goes along with it. Of course "risk-free" in this context has nothing to do with counterparty risk and everything to do with price volatility. If the exchange fails you're still boned... so perhaps as DEXes improve these connections become more viable.
In any case it is possible to hold BTC collateral on an exchange while going x1 short to turn the BTC collateral into a stable-coin derivative that farms the funding rate from the long degenerates. A position like this would be earning yield constantly and can then be shuffled off to HBD when the HBD depeg is higher yield than the funding rate. But again this puts us in a position where nobody wants to hold stables during a bull market, so it's not easy to navigate.
Conclusion
Well I think I've rambled long enough. HBD will always depeg given a Hive flash-crash because users are inclined to buy dips, not sell them. A lower value of Hive on exchanges immediately results in a lower value of HBD without any money trading hands on the internal market. It's up to the market makers of HIVE/HBD to shift that liquidity accordingly in response to the external exchange rate.
This is the main counterintuitive point that most seem to not be fully grasping. This will continue to be the case as long as external markets dominate in terms of volume and liquidity. Hopefully these VSC contracts give us a strong pair to both HBD and BTC so we can nullify a lot of this volatility.
Other than that the only way to maintain a cleaner peg is to lower the 3.5 day conversion period to a shorter time. It is possible that a 1 or 2 day average would be perfectly fine, but this never seems to come up whenever we get a depeg. This leads me to believe that everyone complaining about the depeg doesn't understand it; while everyone who understands it doesn't complain. Classic Crypto.