Room to breathe.
Hive has been somewhat crushed under the weight of its own debt up until this most recent pamp. Or at least that was the perception. I tried to tell the worry warts that everything was fine but they were not having it. I have yet to see a single person come forward thus far and be like "yeah I was wrong it worked out fine". Still waiting on that apology tour.
Hive has essentially made it a full 4-year cycle doing the impossible.
We were told offering high yields on HBD was a fool's errand doomed to failure that would implode the entire network. At first these doomsayers came from outside the network; people that have no idea how any of this stuff actually works. When we started feeling the squeeze in 2024 people from inside the network decided to jump on that boat at the literal bottom. Lot's of discussions about this at the 16 cent bottom. Most of them based on panic and vibes and not rooted to any kind of data or on-chain analysis of the situation.
However...
Now that this is mostly behind us and we've achieved this new milestone, having gone full circle, I'm feeling more confident that I can speak on this issue without getting visceral irrational responses based on the fear that number is going down forever. HBD is in a pretty good place but I'm quite certain we could make a few small changes that make it exponentially better.
Hive/HBD AMM
The main feature that Hive requires is a swap farm to compliment our traditional orderbook model. This would add exponential liquidity to the entire ecosystem which we desperately need because so many tokens are powered up for governance. This would require a hardfork to put in on the main chain and has thus far been a tough sell for whatever reason even though it has remained a proven concept since DEFI 2020.
In fact the tech has already existed on HiveEngine for quite some time under the Diesel Pools brand, but the fact that HE is centralized and we can't move in/out of it without paying a fee to a centralized agent makes it an invalid solution for our purposes. Of course there's still hope on other fronts like VSC, Honeycomb, and HAF. We shall see!
Ideal outcome:
The ultimate goal is to have an AMM on the Hive base layer with a huge amount of liquidity for the cheapest price we can get. There should be a way for witnesses to print inflation into the AMM to further incentivize more liquidity, but on day one that number should be zero while we are testing it out.
The only other source of income for liquidity providers is the trading fee, which should be in the range of 0.1% to 0.5%. 0.1% being extremely low friction and comparable to Binance fees, and 0.5% being relatively large amounts of friction comparable to Coinbase. Again, if something like this were to launch we should set the friction to the lowest level and see how many people will participate in providing liquidity "out of the kindness of their hearts" without needing a large financial incentive. 0.3% would be more on par with what other decentralized protocols are offering.
optional time lock on AMM
Because account recovery on Hive is so important we need to start thinking about implementing optional timelocks on value that's just sitting around unlocked. Traditionally AMM LP tokens are liquid and can be converted back to the underlying asset (in this case 50/50 Hive/HBD) and be available immediately. However there needs to be an option for whales to lock their money in a vault so if their account gets stolen they have time to recover it. Without this feature, big liquidity providers put their bags at risk for no reason.
static vs variable yields
It is unacceptable that Hive provides static yield on the savings accounts and let's everyone farm a base rate no matter how crowded the trade gets. Thus far it hasn't mattered very much because the amount of HBD in the bank accounts hasn't been very volatile and can be easily monitored on-chain.
The problem is doing it this way completely undermines the free-market economy. Either the yield is static and the overall inflation is variable (now), or the inflation is static and the yield is variable. It's very obvious to me that the inflation should be static and the yield should be variable... that way the free market chooses the yield based on how crowded the trade is. This is a self correcting system where if people leave the trade yield goes up and incentivizes someone else to enter, while if it's crowded in incentivizes people to leave. The way it is now we are constantly just guessing as to what supply and demand are and hoping it works out... and basically writing a blank check with variable cost.
In fact providing yield at all to the savings account is a mistake.
There is very little value in rewarding users for taking liquidity off the market and locking it up in a smart contract. Hive needs as much liquidity as it can get. This false idea we have in our heads where if we take all the liquidity away it will make number go up because there's less supply... is a fantasy not based in reality. Whales don't want to buy an illiquid token and trap themselves into a trade they can't escape from. Artificially reducing supply doesn't make number go up because the returns are diminishing while lowering demand at the same time. The system has to have a certain organic materialization in this regard, and a free market system will work best.
The ONLY reason to incentivize a single asset staking pool is to be able to provide elasticity to the market. When price is low we increase the incentive to inject liquidity up and push up the floundering price. When price is high and we want to incentivize selling we take the yield away so we can flush our debt, selling it off at the peaks.
The Hive community has already very much shown they do not have the financial discipline to make Chad moves like this. How many of us were calling to rugpull the yield at the literal bottom? That's exactly the opposite of what needs to be done to provide the elasticity required to justify the existence of this incentive in the first place.
I'm not joking when I say we could have jacked up HBD yields to like 50% when we were sub 20 cents. It would have helped bring in liquidity from the outside and gotten us out of that hole faster. Of course we have to trust that it will be brought back down very quickly after it works... which can be a problem when a handful of people are in charge of it; none of which are economists. We need to create some kind of algorithm using basic statistics to show us how far we are away from the standard deviation so we know what kind of rates we should be setting.
Hive Bonds: terrible idea
I have had over a year to figure out the mechanics of bonds and such. I went from being opposed to the idea, to warming up to it, to snapping back and being sharply opposed to the prospect all over again. Again, locking up stake (especially dollar denominated assets) for longer periods of time not only has zero value: it has negative value, and I'll try to explain why that is as simply as I can muster.
Well what if we have a 1 year bond? What kind of yield should we offer on that? Clearly we can't do significantly more than 20%. Once you realize that you realize we need to refactor this system.
Begging the question much?
I've heard this argument like a dozen times on Hive when it comes to bonds. It's a logical fallacy called begging the question where the question itself assumes the answer to be true. Yes, if 1 year bonds had value what you said would be true. But they have a negative EV and are terrible for all parties concerned.
Hive bonds take power away from both the user and the network.
From the user's perspective the network is asking, "Hey how would you like to lock up your HBD for a year instead of three days? No, I won't pay you a better rate than the current 15%-20%. Deal?" Yeah how about no deal that's a garbage deal that makes HBD worse for the user. It's especially bad for the users with less money, because richer users have more tools and tricks they can use to exploit the timelock with various sources of liquidity that exist elsewhere, again making the timelock totally pointless and nothing but a drag on the entire network.
From the network's perspective the user is asking, "Hey how would you like to offer me a fixed interest rate for a guaranteed amount that you have zero power over?" So bonds are also a terrible deal for the Hive network. It takes the network's power away to manipulate rates immediately on demand given current market dynamics... and then we have to start guessing as to what's going to happen in the future in order to make a decision today. Just awful.
Copying legacy finance is a mistake
It should be obvious but apparently isn't.
The entire reason we got into crypto was to get away from legacy finance.
History of bonds.
Why are bonds even a thing that exists in the first place? Well, institutions like the government needed money to fund things so they asked for a loan and called it a bond. So then people had these bonds that were totally illiquid and not going to be paid back for 10, 20, and sometimes even 30 years!
However the promise that they would eventually mature and be paid back was a good one, so people started trading those promises on a secondary market, which was a much needed service. Everyone got what they wanted. The government gets their loan and the people that buy them can get immediate liquidity whenever they want on the secondary market. Win/win.
Now the question we need to ask ourselves is simple: wtf does Hive need a loan for? What is Hive going to do with that money? Oh, that's right, it's just going to sit there and do nothing. Absolutely nothing and then we have to pay a high rate when the bond matures and we did nothing with the money during the interim.
Hive doesn't need a loan because Hive can just print the money just like it does for everything else that it needs. Unless of course it's the bottom of the bear market and we don't want to print money... which is why we need unilateral control of the interest rate that can be manipulated in real time for everyone all at once to make the biggest splash possible... and not bonds that we've been issuing for months that we have zero control over during the darkest hour.
People on Hive have been looking at that legacy Frankenstein system that's been evolving over 100's of years thinking we should copy it like it's going to magically create more liquidity because that's how it worked out for the greatest military power of the world who just happens to also control the reserve currency. Yeah, that's not happening. Copying the broken legacy system is not a win for anyone. AMM tech is already the superior option for creating liquidity. It's been around 4 years and the equation that governs it couldn't be more simple (k = y * x) and we still don't use it on the main chain. It's embarrassing at this point.
If Hive simply increases its liquidity with a basic AMM it's going to create indirect liquidity on every other exchange. Hive price spikes on exchanges? Well guess what the price on the internal market is still the same and it has better liquidity. Hive will move off the internal market and onto the exchanges to stabilize the price. Especially true because HBD is pegged to dollars, and the LP is half Hive half dollar-denominated.
The opposite is also true. Hive dumps on exchanges? No problem, as our internal AMM market has exponentially more liquidity. Now cheap Hive on the exchanges can be bought and exchanged for HBD at a discount, which can then be converted back into Hive for bonus money that once again stabilizes the price. Again, it's embarrassing we've gone an entire cycle without doing this, and instead opt to pay users to purposefully do the opposite and take liquidity away from the market. It's beyond cringe at this point. I'm over it.
Conclusion
Hopefully this post makes sense because it's the longest one I've written in a while and the topic is complicated... although it's pretty par for the course in terms of my HBD rants. Hive needs DEEP liquidity pools to its own source of debt, and shelling out interest rates to the savings accounts or a bond system is going to be highly counterproductive. The solution has already presented itself in the form of AMM.
Should the witnesses continue to refuse to implement such obviously viable tech it can still be outsourced to the second layer... the only disadvantage being that it can not be directly financially incentivized with inflation and has to rely on trading fees. Maybe that will be enough. Perhaps traders would even be willing to pay a high fee, something like 1% would do the trick if the pool itself could get enough volume without seizing out from the high economic friction.
At the end of the day Hive needs as much liquidity as it can get which is difficult to achieve when our entire governance structure is based on locking liquidity into staking and voting contracts. AMM is the magic solution we can implement to enhance and counterbalance this tradeoff. We should not be doubling down on longer timelocks. That's what Hive is for. HBD needs to compliment the system rather than mimic what's already there.