I remember playing Stock Ticker board game
When I was much younger I remember playing a game called "Stock Ticker". If Monopoly is about real estate investing then Stock ticker is about stock market investing.
Image created by Dall-e
Now the above image looks absolutely nothing like the actual Stock Ticker game but I hate using copywrite images so you get a Dall-e version :)
In the game however you choose to buy "stocks" and there are 5 representative types:
- Grain
- Oil
- Bonds
- Gold
- Silver
They all start off at a $1 par value and go up, go down, or pay dividends depending on a dice roll.
You buy shares and if they go up, you get richer. If they go down, you get poorer. If they pay dividends. You get richer BUT dividends are only payable if the stock is worth more than its $1 PAR value.
In the game what happens is just the luck of the dice.
In the real world things are much more complicated.
Unfortunately what happened with the $SURGE token reminds me very much of Stock Ticker in the worst possible way.
The $SURGE token
Now the leostrategy / leo community created the $SURGE token as an investment which you purchase with HIVE and you get a weekly payout in HBD.
In theory it is a very simple investment.
- Own ONE $SURGE token and get 15% or 0.15 HBD annually (split into weekly payments)
I wanted to think of it as a teeny tiny Preferred Share.
Without getting into a lot of detail when a company wants to raise capital they usually take one or three routes:
- They issue a bond which is like a loan with interest paid regularly and if they can't pay the debt they go bankrupt
- They issue a share which is a tiny portion of the company and the shareholder gets a say in how the company is run.
- They issue a preferred share which is kind of a mix. It has a PAR value, a fixed INTEREST/DIVIDEND payment but if the debt isn't paid they don't go bankrupt they just have go give the holder a say in how the company is run (like those who own regular shares).
To me $SURGE was like a preferred share because it was originally set to have a value and a set return. Simple
.. Then things changed. The "Par" value was originally set at 4... then moved to 7 as the price of HIVE changed. Ok. I accepted that because it really was a huge change in the value of HIVE.
.. Then tings changed again. The weekly HBD distribution was cancelled. That's the real world equivalent of a dividend cut and is usually death to the underlying stock. Or at least a huge price shock to the stock.
However, I'm in the crypto world so my recourse is nothing. I purchased $SURGE with the purpose of using the regular HBD distribution to shore up the GLD token and allow for weekly minting of the coin without diluting its value. As long as the $SURGE paid out weekly I had a viable way to mint without dilution to existing holders. I thought it was a great idea until the token stopped paying.
Very sad. Something that I purchased with a great use case is no longer useful.
... But I do understand the position of the $SURGE token issuers.
Tough decisions
With the insane drop in HIVE value compared to HBD the original 4 HIVE paid was worth $1.00.
Right now you would need over 17 HIVE tokens for a single HBD. The original 4 HIVE would be worth less than $0.25. A 75% drop in value! Can LEO realistically payout 0.15 HBD annually on $0.25 value? No. It simply isn't going to work.
What did they decide to do? Instead of payout out HBD they are using funds that would have been used to pay dividends / weekly payout to instead prop up the value of the token. The idea is that it is better to see the value of your underlying investment go up rather than kill it by payout out money it can't afford. Paying the HBD back into the ecosystem preserves the token value and keeps the project alive.
But it totally changes the token's usefulness.
Honestly I'm disappointed that the token didn't forsee a severe bear scenario and plan for it. I'm disappointed that my investment won't be useful in the way I had hoped it would be. But I'm still holding on to it. I don't believe that the issuers intent was to rip anyone off or to pull the rug out from under those who bought it. Crypto isn't a solid foundation and some things are just out of the control of those who start the project.
Why I used the stock ticker analogy
In real life many stocks actually keep paying dividends even when they are having financial distress. Even cutting the amount of a distribution is done with a lot of discernment because it really upsets the holder of the stock. However, many times that may not actually be best in the long run.
Stock Ticker made it easy. Companies that have made money (over PAR value) are in a situation to pay out dividends. Those companies that are losing money (under PAR value) can't afford the payment. $SURGE was in a situation where it was far under its PAR value and it took the route of NOT paying dividends. Just like Stock Ticker would suggest is prudent.
Do I like it. No
Do I understand it. Yes
Do I hope that HIVE rebounds and the SURGE token can resume its weekly HBD dividend? Absolutely
But for now I'll just finish my rant about how bummed I am that I'm not getting a regular drip of HBD. I'll go back into staking my HBD for the 15% dividend it pays out monthly. But I'll also be thinking that there is a value of HIVE/HBD where the HBD takes a haircut and doesn't hold its peg.
If/When that day comes it will be even more sad than when the $SURGE token had to make the decision not to make its weekly payout. However, the fact remains.. payouts and distributions are never truly guaranteed, sometimes things happen.
But the day when HBD loses its peg or stops paying a distribution?
Here is to hoping that day never comes.
And thanks for reading my little rant. Appreciate the eyes on the post :)