There seems to be more discussion surrounding the Hive Backed Dollar (HBD). This is a good thing.
We saw a post about front running HBD that triggered a pretty good discussion in the comment section. There were some points worthy of noting in the broader context of what is taking place.
There is some confusion pertaining to HBD. For this reason, let's delve into some of the issues.
Internal Exchange
Here we see one of the most overlooked features of the entire HBD discussion. It is, however, one of the most important.
Before going any further, we have to clarify a few things. The Internal Exchange has nothing to do with the HBD-HIVE conversion mechanisms. When a trade takes place on the exchange, neither the amount of HIVE nor HBD is changed. This is similar to any other exchange.
With the conversion mechanism, we see the amount of both coins change. When someone is converting HIVE-to-HBD, HIVE is reduced while HBD increases. In theory, no value was created, only moved from HIVE, in this instance, to HBD.
For some reason, when discussing arbitrage which we will get to in a second, the focus is solely upon the conversion mechanism.
With that said, everyone needs to start utilizing the Internal Exchange and acquiring some HBD. Each day, the HBD Stabilizer offers up over 140K HBD for sale. This carries a 1% premium which some might object to. However, keep in mind there are no trading fees. So, what is a premium is greatly offset by not having to pay like one would on a Binance or any other exchange.
The reason why all on Hive need to focus upon this is the HBD needs to get into the free float. Having it in the DHF is not an advantage. Even small amounts, over time, will start to add up. We all believe more HBD will be required in the future. To get there, it has to be on the open market. If we can start acquiring more of the HBD the Stabilizer is selling, it will increase the amount outside the DHF.
Of course, most won't be able to apply big numbers. That is perfectly acceptable. Even grabbing 10 or 20 HBD, once a week helps out. The other night I took about $40 worth of Hive-Engine tokens that were laying around, swapped them, brought on-chain using Hivepay, and purchased HBD.
Arbitrage
This is something that is improving.
As stated, most believe that arbitrage has to come from converting HIVE-to-HBD or vice versa. Certainly this is a possibility yet not likely the best one. Many point to the 5% penalty going when converting HIVE as something that offsets the expansion of HBD.
That point is likely accurate. Few are willing to incur that simply to convert HIVE. However, while it is a setback in that area, this is a security feature. It is designed to reduce the incentive to manipulate the price of HIVE, thus being able to get a deal on HBD. With the 3.5 conversion time (another security feature), we see how a major drop in the price of HIVE would result in a deal being made.
Up to this point, the holding of the peg was dependent upon the HBD Stabilizer. It is now receiving some assistence.
As noted, we have the Internal Exchange, which some believe, lacks liquidity. That said, if people focus upon trading there, we could see that changed.
We also now have the pHBD-USDC liquidity pool on Polycub. This is another area which can set up arbitrate opportunities.
One of the most frequent ways to arbitrage is between exchanges. When the price differs, one has the option of selling on one exchange while simultaneously buying on another. The net result is a profit because the first exchange would register a sale price that is higher than the buy price on the second exchange.
The Leofinance team is going to duplicate this pool on other chains. We are likely going to see the next one reside on BSC. That will provide a third opportunity to arbitrage.
Under this scenario, trades could be made using either the Internal Exchange as well as the LPs on Polygon and BSC. We already have the HBD Stabilizer on former. If things get out of kilter, there will be opportunities for traders to jump in.
As the number of liquidity pools grow, we will see more of these situations arising. This should increase overall trading volume.
Of course, to get there, we require more HBD being distributed. That is why the suggestion above.
HBD - A Lack Of Demand
We still have a lack of demand when it comes to HBD. The markets are telling us that.
It is nothing more than a simple supply/demand equation. If there was massive demand for HBD, the amount put out daily by the HBD Stabilizer would get eaten up. At the same time, we would see the peg break to the high side, most likely on both the Internal Exchange on the Polycub liquidity pool.
That is not taking place. Thus, we can conclude the demand is still not there.
For now, that is acceptable. The emergence of HBD is a process. We are building out key components to it while also ensuring the stability of the network. Security is still a priority.
Harkening back to the supply of HBD, if we simply look at the HBD Stabilizer putting out 140K HBD per day, over the course of a month that is 4.2 million. While that is not going to keep pace with UST, it is a significant jump from the free float of about 10 million we see at the moment.
There is another factor in this. We could see that amount increase with another proposal. If the community found it necessary, we could fund a proposal for an additional, say, 50K per day.
Buy Hive
In the end, the easiest way to get into HBD, from the outside, is to get HIVE off one of the exchanges, bring it on chain, and swap it to HBD on the Internal Exchange. This might not work for hundreds of thousands of dollars but small amounts, a couple grand, could see this done easily. A lot more Hive is available on exchanges as compared to HBD.
Of course, we are still looking for the liquidity pools to step up. While the one on Polygon is expanding, it is still light in terms of the amount of available. Here too, we can see transactions in the thousands of dollars easily handled. Someone looking to get $50K worth of HBD, it is still a challenge.
At some point, the conversion mechanism will become a vital component and is going to be required. If demand increases to the point where the HBD price pushes through the 5% penalty limit, then we could see a lot of people swapping HIVE-to-HBD. It is where we see natural market forces in operation.
For now, we have to use the tools available to us. If you have an account on one of the exchanges that carries HIVE, take $500 or $1,000 and buy it. Then use that to trade on the Internal Exchange and acquire the HBD. That is a level of transaction that will go through easily.
In the end, when people ask the question HBD in savings or into the liquidity pools, the answer is both. We need expansion in all areas. There is no one or the other. For HBD to be fully accessible, we need to get all areas increasing.
What are your thoughts regarding the Hive Backed Dollar HBD). Please let us know in the comment section below.
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