I learned something new and interesting about directly converting HIVE to HBD (Hive-Backed Dollars). 😎
- Half of the HIVE is instantly converted to HBD which assumes that HBD costs exactly $1.05 regardless of the current HBD price and future changes in HBD price. The 5% extra HBD is burned.
- The worth of (the half of) HIVE to be converted to HBD is taken from the 3.5-day median HIVE price.
- After 3.5 days from initial time of conversion, the rest of the HIVE is returned (as HIVE, not as HBD), whose total amount is determined by the median price of HIVE for the past 3.5 days (which is technically the period from the start to end of conversion).
To make it easier to think about, the blockchain "loans" us half the worth of HIVE as HBD pegged at $1.05 per HBD, then sends back more or less the unconverted HIVE depending on the median price of HIVE during the conversion period. 🤓
The three facts above mean that it is best to convert under the following scenarios (though #NotFinancialAdvice):
- The price of HIVE is predicted to increase or at least remain the same.
- The price of HBD is higher than $1.05.
- You need the HBD for some reason and are okay with waiting for 3.5 days to get more or less half of the HIVE back.
- HBD is significantly higher than $1.05 and you want to earn by converting lots of HIVE.
Note that starting below, we get theoretical with lots of mathematics. 🤓 You have been informed ahead of time! 😂
Let's first assume the following:
- The price of HBD is at $2.
- The price of HIVE has been stable at $0.50 for the past 3.5 days.
- The price of HIVE will continue to be at $0.50 for the next 3.5 days.
- You have 100 HIVE (worth $50) and want to earn by converting to HBD.
- The Hive internal market allows you to swap 1 HIVE for 0.5 HBD without fees.
- The prices above won't change whenever you make a conversion or a swap.
Let's then assume that we will do the following steps:
- You convert 100 HIVE (worth $50) to HBD. You instantly get 23.75 HBD which is 25 HBD (100 HIVE * 0.5 HBD per HIVE * 0.95 / 2) minus the 5% fee which is burned. 23.75 HBD is worth $47.50.
- You use the Hive internal market to swap 23.75 HBD to 47.50 HIVE (using the ratio of 1 HIVE to 0.5 HBD).
- You convert 47.50 HIVE (worth $23.75) to HBD. With the same equation as on the first step, you instantly get approximately 11.281 HBD. (This is approximately 47.5% of the HBD instantly obtained in step 1.)
- You repeat steps 1 to 2 until you have so little HIVE remaining that it would no longer be worth the time to repeat.
Since you get 47.5% back for every trade, we can use the infinite geometric series formula (math, I told you 🤓) to determine how much USD worth of HIVE we can get by repeating steps 1 to 2.
sum = (first term) / (1 - common ratio)
The first term is $50 and the common ratio is 47.5% or 0.475.
sum = 50 / (1 - 0.475) = 50 / 0.525 ≈ 95.238
The end result is that for a $50 capital in the form of HIVE, you get at most $95.23 after all the conversions and swaps using your $50 capital, which will go back to you after 3.5 days, in the form of HIVE. That's only the theoretical limit of repeating the steps. The reason why you can't get exactly $95.23 regardless of how many times you repeat is because the blockchain will round down every conversion and swap to the nearest thousandth (0.001 HIVE or 0.001 HBD).
Note that this is assuming that the price of HIVE does not change. If HIVE increases in price, then you get more of the remaining half of HIVE after 3.5 days; if price decreases, then you get less HIVE when the conversion completes.
What if the price of 1 HBD is idealistically at $3? What if more realistically, HBD is at $1.17 which is the current price at publish time? Maybe you want to comment them out and use the infinite geometric series formula. 😂
Why not convert your unneeded HIVE if the price of HBD is high? You will also help the Hive community this way by helping stabilize the price of HBD. 😏
Please note that this is #NotFinancialAdvice. ⚖️👍
Thanks for reading!
Posted with STEMGeeks