A lot of attention was placed upon HBD over the last few months.  This was a step forward to try and rectify the "peg that wasn't".  A lot of effort is going into to try and solidify this token, providing Hive with an important component going forward.

Since the start of the chain, the backed dollar caused a great deal of controversy.  At the center of the issue is the fact that the peg was totally non-existent.  To serve as a stablecoin the price needs to be somewhat stable.  That was not the case for the longest time.

At present, we are looking at a token price of .959 according to Coingecko.

<center>![hbd.png](https://images.hive.blog/DQmYcSYBgBoW23dNTumJBnwEn63C5bob9MLskEYToRybon7/hbd.png)</center>

This is not exactly what we want but it is getting closer.  If we look at the chart, again using [the information from Coingecko,](https://www.coingecko.com/en/coins/hive_dollar) over the last month, this is what we see.

<center>![hbd.png](https://images.hive.blog/DQmVeMViBUXp33H9JHTiTbu3SbGw9ujTVq6xJDDptMcrd7j/hbd.png)</center>

We are starting to see some stabilization.  The price of the token is certainly flattening out which is vital.  A stablecoin that skyrockets in price is no good.  Nor is it beneficial to have it falling on the downside either.  Hence the goal is to have as tight a range as possible, perhaps a couple cents on either side.  It appears we are moving in that direction.

# Why Hive Having A Stablecoin Is Important

Many asked why should we bother?  The entire concept should be scrapped.  Over the years, it proved itself to be anything but stable.  Hence, we should code it out and move on.

To this my response is simple: nobody attempted to stabilize the token price before.  There were a few minor attempts but nothing that compares to the dedication that was put in of late.

As for the answer to why it is important, [there was a post](https://peakd.com/hive/@blocktrades/some-speculation-on-hbd-price-movements-and-how-it-impacts-proposals) by @blocktrades a couple months back that summed up a lot of what is taking place with this entire situation.

Here is an excerpt from that article:

>When you want to contract for any kind of long term work, it’s important for your contract to be formed with a relative stable payment value. This is because an unstable payment value leaves either the buyer or the seller unhappy because an originally fair agreement (fair from the perspective of the buyer and the seller), becomes unfair. And if either party is unhappy, it causes ill will, and discourages further contracts.

This makes a great deal of sense.  When entering into commercial agreements, having a stable currency is vital.  People want to know what they are being paid (or paying) for products or services.  After all, do you want to pay twice the amount for a product if the price of the currency fluctuates wildly?  The answer is no.

We also have another point to consider: **Code Is Law**.

Here is a statement that many espoused throughout the blockchain/cryptocurrency world.  It is a basic tenet according to many in this space.  

With HBD we see the issues with some of the other stablecoins removed.  It is now being asked how much of this USD backed tokens are actually backed by USD?  Is there really a justification for the peg or is it just smoke and mirrors? 

So what is HBD backed by?  Basically the code which says that **each HBD can be converted for $1 worth of HIVE**.  This is in the code and will not fluctuate one iota.  Anyone can take advantage of this at anytime.

Hence we see the ideal stablecoin.  This can allow for commerce on Hive since each HBD will always net out $1 worth of HIVE on the conversion.  

# Market Action

In spite of coding providing a situation where each HBD is convertible for $1 worth of HIVE, we see the price fluctuating greatly.  Here is how markets have a mind of their own and can do as they see fit.  It is also what opens up opportunities for traders who see the misaligned of things.

Markets, among other things, are based upon supply and demand.  Traders look at this as having an impact upon price.  Simply, the less supply, the higher the price and vice versa.

With the release of the next hard fork (HF25), we will see a feature implemented that will allow for a better "correction mechanism" if the price of HBD moves to the upside. 

Again, from the linked post:

>This new operation will have more power to pin the price of HBD than the current stabilizer bot, mainly because it will enable faster creation of more HBD. As mentioned previously in the section on the stabilizer, this is the main limitation on its ability to fight a pump in HBD (the budgetary limits imposed on the DHF when it comes to distributing HBD to the stabilizer)

The simple idea is that when the price moves up, people can "mint" more HBD, thus increasing the supply.  This occurs because traders see arbitrage opportunities by using HIVE.  

Presently, we have the feature on the downside.  The conversion feature allows users to convert HBD ---> HIVE, thus limiting the supply of the former.  However, there is no way to go in the opposite direction.

Both of these should allow market forces to help stabilize the price of the token.  

# Why Does The Price Move To The Downside?

Of course, one might ask, if the downside conversion mechanism is already in place, why do we see a HBD price below a dollar?  Doesn't this show that the feature is not working?

We can see how this is something that obviously was considered. 

A lot of HBD is not resident on Hive.  I would presume that most are keeping it on exchanges whereby it is traded like any other token.  The conversion mechanisms are only available on Hive through the internal wallet.  Hence, exchange wallets will not likely engage in this behavior.

It is also safe to surmise the larger traders of HBD (if they exist) are not doing so on Hive's internal market.  They are going where the liquidity is.  Therefore, the lack of attention to this matter is playing a role.

The solution is simply more HBD and activity on Hive.  This was addressed, at least in part, by the recent decision to pay interest on HBD held.  This was something that started at 3%, moved up to 5%, and **now sits at 7%**.

<center>![hbd.png](https://images.hive.blog/DQmbt7bbJ2x8Uo5SLGwocc7oUpGHV5dGjauNJsykXNnDRf5/hbd.png)</center>

It makes sense to pull the HBD in from the exchanges.  This should help to feed into the market mechanisms for HBD stabilization when the features are in place.

Presently we are on the downside of the peg by about 4%.  This presents an arbitrage opportunity.  Those who specialize in this stuff can help to stabilize the price by making themselves a profit.  Ultimately, this is what will keep a peg strong.

According to the market pricing, 1 HBD is, at the time of this writing, available for $.959.  Thus, someone can take $.959 worth of HIVE and buy 1 HBD.  However, the conversion rate tells us that 1 HBD will pay out **$1 worth of HIVE**.  Hence someone could make 4 cents per HBD.

The conversion will reduce the amount of HBD available, a move that should close the gap.

When the HIVE --> HBD converter is in place, the same ability will be available if the price of HBD starts to drive over $1.  People will then be able to transact in the opposite direction.

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*It might be worth to mention that Hive has no transaction fees on the internal market, making arbitrage situation more profitable since the margins tend to be slim.  Try doing that on Ethereum without a huge pile of money.*
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Here is where market players enter the picture.  If a small traders is doing this, little impact will be felt.  Converting a few hundred HBD is not going to do much.  However, if there are some major players who are leveraging the opportunity, we could see tens of thousands of HBD converted in a short period of time.  This would likely have the impact of moving the price up closer to the $1 area.

In a few weeks, after the hard fork, if the price overshoots to the upside, traders will be able to reverse course and start "printing" HBD, thus pulling the price down towards the $1 level.

This is the theory anyway so we will see how it works out.  In the meantime, enjoy the 7% return on holding HBD.  That is not a bad payout for "parking" some money for a while.  It sure beats the money market returns that brokerage accounts are paying.




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