As we all probably know, a Stablecoin is a currency backed by and pegged to something else of value. This something else is usually something with very low volatility.

The most popular Stablecoin, the USDT, for example, is backed by and pegged to the US Dollar with a 1:1 ratio, which means 1 USDT would always be 1 US Dollar. In order to achieve this reserves were created where 1 USD is deposited for every USDT issued.

This same system is what is used by a number of other Stablecoins like the USDC, TrueUSD, BUSD, etc. This is the most straightforward system of pegging a cryptocurrency to something else of value.

The next system is called Collaterization. In this system, reserves are not created to back the cryptocurrency but systems are created where you can always get a particular amount of the commodity the cryptocurrency is backed by/pegged to in exchange for the cryptocurrency.

For example, Pax Dollar (USDP) can be exchanged for USD at the ratio of 1 USDP for 1 USD anytime through the Paxos-owned US bank accounts. DAI is another example, collateralized by ETH and other cryptocurrencies.

The interesting Stablecoin that would be talked about today uses a form collaterization too but has a lot of features that make it interesting. This Stablecoin is called Hive-Backed Dollars.

Hive-Backed Dollars (HBD)

The HBD is one of the native tokens of the Hive Blockchain. And the Hive Blockchain is a Blockchain founded by various communities on the 20th of March, 2020. It has monetized social media built on it, defi, games, and an array of Dapps.

The HBD is pegged to the USD but it is backed by another cryptocurrency, the major native cryptocurrency of the Hive Blockchain called Hive. So the collateralized backing means you can always get 1 USD worth of Hive for 1 HBD.

How This Works

Anyone with an account on Hive can always go to its internal market and convert their HBD to Hive based on this rate. A reverse exchange can also be done from Hive to HBD. The exchange takes 3.5 days to complete so that quick advantage cannot be taken from price movements. With this set in place price is set.

Furthermore, Hive has a fund called the Decentralized Hive Fund (DHF). This fund holds money in the form of Hive and HBD and this money is meant for sponsoring development and proposals on the Hive Blockchain.

Money from this fund also goes into keeping the HBD at 1$. Whenever the HBD goes below 1$ Hive from here goes into buying HBD in order to take the HBD price up to 1$ again and whenever the price of HBD goes above 1$, HBD from this fund is sold for Hive to bring the price down to 1$ again. Very smooth process.

The Most Interesting Things About This

1. It’s Been Successful for 2+ years Notwithstanding The Bear Market

The most intriguing thing here is the fact that this has been working smoothly since it was perfected in 2021 and it has kept the price of HBD at around 1$ since then even though the crypto bear market even to this day.

Throughout 2022, its lowest low was 0.95$ and its highest high was 1.2$.

To me, this whole process of buy when low and sell when high to stabilize price seems like something that looks really good on paper but would probably not make it when applied in reality, and I don’t think I’m the only one it seems this way to. But look at it making it in the real world already! Even with the bear market and all.

2. It Kills Three Birds With One Stone

Take note of the process and you will see that keeping the price stable is not the only function it serves. That is just one of the birds it kills. The second bird it kills is that it also helps the price of Hive (the other token). When HBD goes above 1$ it is sold to buy Hive and this helps boost the price of Hive.

The third bird, then, is profits! All of these buying and selling rake in profits for the DHF. And from the 2022 reports, the total profit was $600,000! That is a whooping sum! These profits belong in the DHF and are used to fund development and proposals on Hive. What a win-win-win situation this is.

Conclusion

Models like these are such a joy to watch go into action. A lot of times we read about very good models that haven’t been implemented, these models promise a lot but we can’t help but feel like it only looks good on paper and fear that it’d probably be a lot more cumbersome and unruly when applied in real life.

Seeing one like this work this perfectly gives a lot of hope that some over-promising tokenomics might just deliver on their promises, spurious as they might feel.