Is The HBD Stabilizer Frontrunning Everyone Else For HIVE to HBD Conversions?

in #hbd3 years ago

There is a 5% fee for converting HIVE to HBD. Meaning this is getting profitable only if the price of HBD is at $1.05 or more. Plus there is a 3.5 conversion window that add market risk on top of it, so to be on the safe side you really want the price for HBD to be up a lot.

Meanwhile the stabilizer has a bunch of HBD from the DHF (130k per day to be exact) and it is selling it to a small premium of 1% or less, meaning 1.01 price. What this means that the stabilizer is the only one that can profit for a HBD price in the range of 1.01 to 1.05.

What this means that for this price range the stabilizer is the only one that will keep profiting and growing the DHF balance and locking HIVE in the process. Now the DHF is not a single entity and it serves the whole Hive ecosystem, but I think it still needs to be on a same level playing field with everyone else, meaning selling HBD for the same premium as the fee for conversions. At the moment that will be 5% premium or more preferably we change the conversion fee from 5% to 1%. This will most likely make HBD to scale more easy as well. Maybe there is still room in the next HF for this?

Any thoughts are welcomed :)

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Let's decentralize conversion process. Not simply to make field equal, but for the stabilisation to be made more efficient.

or the stabilisation to be made more efficient

How?

Arbitrage made by a free market should work better than with one entity. And we are not strangled by a size of DHF funding limits (which might be a case in the future)

Arbitrage made by a free market should work better than with one entity

But it's working pretty well right now. If it wouldn't be enough to keep to the upper peg, the price would raise enough to make the conversions profitable for average users and it only happened once for a longer period last year.

I have to objections to how conversion works RN. It's a matter of principle and future growth. I don't know however if that might be changed according to needs or HF is necessary?

Edit: I have NO objections

What kind of objections do you have and what kind of changes you would like to introduce?

Comment edited, misspelling happened.

I 100% agree with brining down that conversion fee, 5% means it's a non starter for most people.

I don't know about this but bring the fee down will be great. Have been hbd alot recently I will welcome that change

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I'm also in favor of changing the conversion fee from 5% to 1%.

And what is the difference between the liquidity swap? Because I can trade Hive for hbd or the other way around instantly. And if I was part of that liquidity pool I would also get a share of the fees...

Is The HBD Stabilizer Frontrunning Everyone Else For HIVE to HBD Conversions?

No, frontrunning is a different phenomenon that you are conflating with the actual process (which for the most part you describe accurately, so I hope you understand the difference without further discussion).

so to be on the safe side you really want the price for HBD to be up a lot.

I disagree with this somewhat. An important factor being ignored here is "how long is the price staying above 1.05?". If I saw price of HBD sustained at just 1.07 or so for a few days, I'd be quite happy to convert, wait the 3.5 days, and likely profit. It would also be useful to take into account how many other people had already initiated conversions (to see how much HBD will likely be created to counter the price change).

What this means that the stabilizer is the only one that can profit for a HBD price in the range of 1.01 to 1.05.

You are correct that only the DHF can profit by HBD arbitrage using conversion mechanism in this range. But this has been discussed several times in the past (I think smooth was the first one to point it out and I think I've discussed it as well). But someone can profit from HBD just by holding it in savings or by normal arbitrage between exchanges where the price differs (this happens all the time).

Now the DHF is not a single entity and it serves the whole Hive ecosystem, but I think it still needs to be on a same level playing field with everyone else, meaning selling HBD for the same premium as the fee for conversions.

Sorry, I 100% disagree with this idea. For small variations in price peg, I think it's much better to have everyone in the ecosystem benefit, rather than a few "savvy" traders.

At the moment that will be 5% premium or more preferably we change the conversion fee from 5% to 1%. This will most likely make HBD to scale more easy as well. Maybe there is still room in the next HF for this?

The 5% premium was set to discourage someone attempting to profit from the conversion mechanism by manipulating the price of HBD (correction: price of Hive). I think it is very prudent to keep it at this level.

The point of adding the Hive->HBD conversion wasn't to make a profit for traders, it was just to prevent breaking of the HBD price to the high side of the peg. And it has proven very effective at doing so, I think, by introducing easy liquidity of HBD when the price starts to rise too far.

This will most likely make HBD to scale more easy as well.

It's not at all clear to me how this would make HBD scale better. The stabilizer is already offering quite a lot of HBD for sale at a small premium and the amount offered exceeds demand.

The HBD peg is also holding in a "nice range" from my point of view.

it was just to prevent breaking of the HBD price to the high side of the peg

I am no savvy trader :) at least not in Hive ecosystem. However, I must say that HDB have been stable for a while now. Also hive is deflationary due to smooth's mechanism, which have been reflected in the price.

It's only deflationary when there is high demand for HBD, which there was in 2021, but so far we haven't seen a lot of demand in 2022, despite offering a very attractive APR, and also despite a third party system (polycub) adopting it and offering an even higher return. But sometimes these things take time, so we will see.

Yeah, if anything, demand should be higher this year for the reasons you mentioned.

The 5% premium was set to discourage someone attempting to profit from the conversion mechanism by manipulating the price of HBD. I think it is very prudent to keep it at this level.

What do you think about lowering the fee in a few years, when we print much more HBD and therefore (hopefully) increase volume traded every day? Price manipulation would be much harder than in the current situation.

Personally I think 5% upwards variation range for the peg is completely fine, so I don't see any need to lower the fee further. Many "healthy" fiat currencies vary with each within this level relative to each other and still function fine for commerce.

Also, I think most of the couple percent variation we occasionally see now is just loose tracking with BTC pricing volatility due to low trading volume in the reported markets used by coingecko/coinmarketcap. I suspect if there was a HBD/USD pair, we'd see much tighter tracking of the peg on such markets.

Thanks for the detailed explanation.

I agree frontrunning is not the 100% accurate wording here it was just meant as a situation where the stabilizer has advantage.

It's not at all clear to me how this would make HBD scale better.

At the moment the demand is not outpacing the supply of the stabilizer. But it can happen as it has happen in the past, more than the 130k then the stabilizer can provide per day. In that situation conversions will start to happen after 1.05. If the fee were lower conversions will start earlier and faster.

The 5% premium was set to discourage someone attempting to profit from the conversion mechanism by manipulating the price of HBD

Not sure what will be this scenario ... if the blockchain always gives you a fixed rate for HBD, the only variable will be the price for HIVE....

Overall HBD is in much better place now then beffore hive to hbd conversions. The DHF is also in a good place in terms of funding and can support nice volume for the stabilizer. Overall I'm all in for the work of the stabilizer. Just not that sure of that 5% fee ...

It's manipulating the price of HIVE that is the bigger issue. Temporarily pushing up the price of HIVE means you pay less HIVE for the HBD. Also profiting from natural fluctuation since the collateral is only 2x. If HIVE decreases by more than 50% during the conversion period you still got the HBD but didn't post enough HIVE to pay for it. The blockchain then takes a loss. The fee helps the blockchain come out ahead on average. With no fee, the blockchain would lose on average. With 1%? I dunno, maybe. Under some situations 5% could potentially still be a loss. This was deemed acceptable.

Ok these are some extreme situations.
I have seen price manipulations for profit on defi, but those are usualy a flash loans attacks that happen in one block. In the case of Hive and the 3.5 days feed price it is not possible for flash loans attacks. It will be needed some serious capital to do this manipulation, but this been crypto cant exclude anything, even the 50% drop from regular market moves.
The end game will be to much debt, debt limit reached and hbd worth less, meanining it cant last long. Also not sure will any fee save us from this scenario :)

The end game will be to much debt, debt limit reached and hbd worth less, meanining it cant last long. Also not sure will any fee save us from this scenario

It will if it deters it from happening in the first place. Too much debt and HBD being worth less isn't a desirable equilibrium.

It will be needed some serious capital to do this manipulation

With small enough or no fee you don't really need to move it a lot. Any imbalanced price fluctuation turns into profit. It may be small but the time period is also small so the rate of return may be significant. With fee the possibility of this decreases. In part for similar reasons I would like to see some of the fee moved to the HBD->HIVE conversion.

In part for similar reasons I would like to see some of the fee moved to the HBD->HIVE conversion.

Well, if there is a fee on the HBD->Hive conversion, then HBD is no longer always convertible (by the blockchain itself) for $1 worth of Hive, so that would break the solid foundation which makes HBD a secure place to hold your money. The HBD stabilizer is a very good extra, but the real security comes from knowing that the blockchain itself offers you $1 worth of Hive for each HBD you hold. These assurances are what people look for.

I think at some point you have to recognize that the original design had weaknesses (which we have done repeatedly) and that includes the "always convertable to $1" thing. The result of the original floor-only-at-$1 design was often breaking the peg on the upside. That hasn't happened recently but is likely to happen again, even if sort-of capped at $1.05 now. The goal is to peg AT, or at least AROUND $1, even the original white paper says this (suggesting that HBD, or SBD at the time, would fluctuate between 99 cents and 1.01, although with the benefit of hindsight we can say this is likely wrong). To do that effectively means moving some of the fee to the other conversion, otherwise we are pegging AROUND $1.025, which is silly.

As @blocktrades said elsewhere, the goal of the conversion operations isn't really for people to use them for personal gain, it is to establish and maintain a peg. As long as they do that, they are serving their intended function. I also agree with his point about a peg with a band being perfectly reasonable (though the size of the band is pretty arbitrary). I just think the band should be around $1, not around $1.025.

I do think when this change is made it should be with sufficient notice, so anyone who wants to "convert into $1 of HIVE" has the opportunity to do so. In practice this won't be a problem as all of our hard forks except those for critical bugs, take months to actually get finalized and activated.

I would take a better-pegged HBD over a blockchain conversion to "$1 worth of Hive" any day. If adding an HBD->Hive conversion fee helps create a better peg (not just on the upside but on the downside also), then great - I think that is far more valuable.

The challenge has been that we haven't had a way to create a better peg on the downside. You have created one way with the HBD stabilizer, so the peg works much better now, but it has also introduced a reliance on a single-person-controlled feature, so this puts a limit on adoption. (How would we go to our friends and tell them to move their money from the bank to HBD if we aren't confident that the peg can hold?)

Very often, a network effect creates things that would be very difficult to achieve without it. So companies are willing to invest funds in subsidizing adoption in order to achieve a network effect, and after a certain level of adoption they remove the subsidy. In the case of Hive, will we see a stable peg that maintains itself (with little regulation mechanics required) if there are hundreds of millions of HBD in existence? If we think this is a pathway to creating a stable peg, then things like a 20% APR and a blockchain subsidy on HBD->Hive conversions can help adoption by creating both incentive and security.

On the other hand, if we see a way to maintain the peg on the downside even at current levels of HBD in existence, that would be terrific. As long as it doesn't create an increasing reliance on a centralized function that maintains the peg. If the decentralized assurance (the conversion subsidy) is removed and only the centralized left in place, I'm not sure we have made progress. But if we have a way to decentralize the stabilizer, that would be a much better thing than subsidizing the conversion.

Thanks, those are really useful points i didn't consider. I don't think we should make any changes for easier speculation of HBD, it is a stabilisation fund after all.

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I was doing the test myself a few days back trying to figure out the math around it…

Did a few types of exchange market and 3.5 days trying to get to a point…

But didn’t get much far…

I still have no idea how all this works and I just stack HBD and don't worry about anything else. Makes no sense

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That is acctualy the proper thing for a user to do :)
Dont wory for all of this to much

haha! yes that's right. I let others worry about the intricate details I will just focus on Building

Well, anyone can do the same thing, but they have to be donating to DHF. Most people aren't willing to donate to DHF just to get a small profit on HBD, but stabilizer is!

Yes that is true as well.... also not everyone is getting their hbd from the dhf :)

Anyone can. You need to make a proposal that is persuasive to the stakeholders. Donating the funding, potentially with profit, is reasonably persuasive.

They can only do that on HBD that are in the system. Once it gets out (PolyCUB -- cough cough) it will likely not come back in easily.

Of course HIVE does control the supply and down the road there may be a situation where most HBD is traded off chain. Maybe that is the goal. I don't know and don't have the chops to game out the scenarios. Maybe @smooth could speak to this ;-)

I personally think having HBD out in the world trading and being spent would be a great thing for the future of the coin, but what do I know.

Oh. Yes I think it would be good if they came off of the fee somewhat :-)

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People using HBD to trade both on and off the chain is great. Either way it is using the product as intended.

Thanks for the reply. I hope I am not being premature, but I feel that several catalysts are lining up for us to capitalize on Actifit, LEO, new games, Defi.

The move by the witnesses to up the interest has fanned all of these small flames into bigger ones. Now I just want outsiders to come and sit by our fires, take our money out with them, and get others excited :-)

Keep those HBD coming.... as long as it is wise anyway...who knows the real answer to that one :-0

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