The **Hive Backed Dollar (HBD)** is going to be a vital part of Hive's future.  This is something that was overlooked for a long time yet we are now seeing how important it is.

In this article we cover how the recent price action in Hive reveals the needs for **HBD** is more crucial than ever before.  When the main token was acting like a stablecoin, the need was not evident. Yet, considering what took place over the last two days, we can clearly see how massive attention needs to go into discussing how to improve HBD and get more of it into existence.

We recently covered some of this in [Hive Backed Dollar Taking Things To The Next Level](https://leofinance.io/@taskmaster4450/hive-backed-dollar-hbd-taking-things-to-the-next-level).  However, when watching what took place, we see a major flaw in our **currency system**.

<center>![image.png](https://images.hive.blog/DQmYdHkND75KkZD4DgoSMgNvbqy9H8fkngBzgA7dDC9F9nP/image.png)</center>

### HIVE Now Acting Like Bitcoin

HIVE has now joined the ranks of the major flaw with cryptocurrency.  It is something that plagues the industry and why many believe Bitcoin will never be used as a payment system.

We can use the recent situation with [Punks on Hive](https://punks.usehive.com/gallery/taskmaster4450).  This epitomizes what how impractical the system truly is.  Cryptocurrency is more often thought of like stock rather than a unit of exchange.  For this reason, Hive will need to change this.

Did you know that if you bought a **HivePunk** during the initial release, and are still holding them, you lost money?  Obviously, this is going to vary from Punk-to-Punk, yet each holder suffered during the price action in Hive.

The reason for this is, the value of each Punk dropped in value in relation to HIVE.  Looking at the market, there are now Punks being sold for less than the original 20 HIVE.  Many will point to the fact that the price is more than triple in USD and that would be correct.  When priced in USD, things are better.  However, when it comes to the value of the assets held, **in the native currency, we see a devaluation**.  

Volatility is great for speculation, it sucks for a payment system.  This is a drawback to Bitcoin as the global payment mechanism.  When there is the opportunity for massive price appreciation, people are going to hold.  At the same time, it will massively affect the purchasing power of the currency and the value of assets priced in that currency.  This can be a positive or negative depending upon which side of the equation you are on at the moment.

Another issue we see is that Hive-Engine uses Swap.Hive as the basis for all transactions.  Now, when making a purchase, there is another layer of volatility that needs to be considered that might not have been evident before.

Obviously, none of this should be the case.  What is one HIVE worth?  1 HIVE.  However, people do not think like this.  We all are watching prices of the token in another currency (USD).  This is simply how we, and the entire world, are conditioned.  It is also something that is not going to change anytime soon.

Thus, we need to focus upon a payment mechanism that is based upon stability and in a denomination most everyone understands.  Here we see the **Hive Backed Dollar** as the ideal solution.

### Removing A Layer Of Risk

There is an added risk when deciding to purchase something using HIVE.  Certainly, this can be an opportunity for those who are astute in arbitrage and playing market inefficiencies.  However, for most people, this is a pain in the hind end.

Simply put, when making a decision to purchase something, one needs to decide whether that asset (token) is going to appreciate more than just holding HIVE.  This is especially true since most of us are valuing, at least mentally, things in USD.

**HBD** eliminates this for the most part.  We know there also is volatility in this token so it is not yet the ideal **stablecoin**.  However, the range is much tighter than with HIVE and it is something that is being worked upon.  A great deal of the volatility will diminish if more HBD is printed and on the open market.

As a tangent, there are still some people who believe that HBD is backed or somehow tied to the USD.  It is not.  The Hive Backed Dollar is backed by **$1 worth of HIVE**.  In this instance, the USD is the unit of measure, nothing else.  We also are tying into the universal pricing mechanism along with lower volatility as compared to other asset classes.

This eliminates the loss that occurs when staying within one currency.  Going back to the Punks, because of how people operate, a Punk both for 20 HIVE is now being sold for 15.  This means the person has 5 less HIVE than before.  Does it matter to the holder if the person has more in USD, BTC, or Mexican Peso?  What if the person is not going to convert into those currencies.  The bottom line is that asset is worth less in the native currency for the blockchain.

With HBD that is not a problem.  Buy something for 20 HBD and sell it for 30 HBD.  Here we see a 10 HBD profit.  If this currency is the payment mechanism, this move could pay for one's 10 HBD per month subscription.  

This is the value of a pegged currency to a universally understood unit of exchange.

Does this all sound like a mental exercise?  At the same time, does it seem rather complicated?  The answer is yes on both parts.  That is why those who have the acumen to navigate this can arbitrage situations for even greater financial gain.  The reality is that complex systems, which economies are, rarely break down to a simple stimulus-response scenario.  There are always many variables in play as evidenced here.

Few discuss **stability as a main criteria for an economic system** yet, as we can see, this is something that Hive needs to concentrate upon.  HBD helps greatly on this front.

### A New Convertible Bond

The Hive Backed Dollar is becoming a completely different asset class.  Essentially, we might be remaking the **convertible bond**.  This is going to revolutionize how funding mechanisms works while expanding the overall value of the entire ecosystem.

To start, let us look at the [definition of a convertible bond from Investopedia](https://www.investopedia.com/terms/c/convertiblebond.asp):

>A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond's life and is usually at the discretion of the bondholder.

>As a hybrid security, the price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's credit rating.

We can quickly see how this is instantly improved.

**HBD** is blockchain-coded debt security that yields interest payments and can be *converted at any time* based upon market prices.  There is no concern about credit rating or interest rates in terms of the value since it is a pegged asset.  The interest that is paid comes in the form of more HBD, not another currency.

Essentially, we are looking at a pegged fixed-income security that is convertible at any time.  The asset can be held for the long-term income stream which can provide the resources for other things.

Does anyone see the potential with this?  @theycallmedan did and he solved perhaps one of the biggest equations in #Play2Earn gaming.

Without stealing the thunder from his announcement, which more information is on the next **Community Token Talk episode**, we can see how this can be implemented.  By creating a sink for HBD, one where it goes in but does not come out, we see the funding mechanism for in-game payouts in place.  HBD is used to purchase whatever is needed for the game, the money placed into savings, thus generating an income.  The later is then used to reward the players in whatever manner is established.

Obviously, as the game grows, more players equates to a greater number of purchases, thus increasing the savings.  That means larger reward pools for the game over time.

Just think of what communities can do with this concept.  They start to develop an economy around whatever topic brings them together.  As they engage, the size grows, meaning more HBD is being utilized.  They could start to lock some into savings, generating a return for the community.  Here we see how projects could be funded at no expense to the community itself.  This provides a greater benefit to each member.

What this means is that we are going to require a lot more HBD printed.  The numbers truly do get ridiculous when we think about it.  For this reason, the 10% interest rate is not going to suffice for long.  

Just looking at USDC, from the [Circle website](https://www.circle.com/en/usdc), this is what we find:

<center>![usdc.png](https://images.hive.blog/DQmT67wS9xtjT6CEjbwXP6nsXnaMvDKB7EidxdTmxMPh6cn/usdc.png)</center>

Let us compare this with HBD:

<center>![hbd.png](https://images.hive.blog/DQmcEJykd5VTJN2UwWmwrYKgS4wziaAhLQpqr4fvCJKdFw3/hbd.png)</center>

It is evident there is quite a difference.  To be a major player in this arena, the amount of HBD needs to expand greatly.  Of course, we need to keep in mind this is a truly **decentralized stablecoin** since there is no company who is behind it.  Also, with no ties to the USD, or claims to be backed by them, the regulators cannot do much about it.  

As our present regulatory environment grows, do you think this will be a value asset to the cryptocurrency community?  

The opportunities presented by HBD are enormous.  This is something that is going to truly benefit the Hive ecosystem if we focus upon it.  We are treading upon new territory with this asset.  It can truly revolutionize the way things operate.

Our next step is to start getting utilization in place so that we can start to generate demand.  This will force the creation of more HBD, which can only be done with HIVE.  What happens when the demand for something increases while the supply is actually decreasing?

I hope people are starting to connect the dots with how massive this can be.



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