<center>![](https://steemitimages.com/DQmbg5PCLtcJVfCyFSYQ2BAFAfJC8i2LTa7bFQXifutMSEM/image.png)</center>


Earlier I read a post by dragosroua which discussed [HBD](https://leofinance.io/@leoglossary/leoglossary-hive-backed-dollar-hbd) and the [price](https://leofinance.io/@leoglossary/leoglossary-price) appreciation.  I have seen a number of other [posts](https://leofinance.io/@leoglossary/leoglossary-post-hive) related to this topic so I feel compelled to write about it to clarify a few things.

https://steemit.com/steemit/@dragosroua/are-you-really-playing-the-steem-long-game

There appears to be great confusion surrounding HBD.

To start, Hive Dollars are [debt](https://leofinance.io/@leoglossary/leoglossary-debt).  Hence, they are a [liability](https://leofinance.io/@leoglossary/leoglossary-liability) to the Hive [ecosystem](https://leofinance.io/@leoglossary/leoglossary-ecosystem-digital).  Each HBD entitles the holder to $1 of [$HIVE](https://leofinance.io/@leoglossary/leoglossary-usdhive).  This is similar to convertible notes which are often used to fund projects.

The amount of [coins](https://leofinance.io/@leoglossary/leoglossary-coins) outstanding is not limited like $HIVE.  They are issued when someone creates content.  In other words, they are paid to [content creators](https://leofinance.io/@leoglossary/leoglossary-content-creator).  This can come in the form of an article when the individual opts for the 50/50 split or when [commenting](https://leofinance.io/@leoglossary/leoglossary-comment-hive) which is always paid in that manner.  Curation is paid in [Hive Power (HP)](https://leofinance.io/@leoglossary/leoglossary-hive-power-hp).

I will use the time frame in the article to show how the expansion of SBD is not a problem.  In fact, it is a very good thing for the ecosystem.

##### The Debt Actually Went Down

It is crucial to understand how HBDs are converted.

A HBD entitles the holder to $1 worth of $HIVE.  However, the holder is not paid $1; this is crucial.

In November there were roughly 3.5M HBDs outstanding.  At the time, I recalled buying some $HIVE for about 80 cents.

Today, there are 10.2M HBDs outstanding with $HIVE at $3.25.

Most would say the ecosystem had $3.5M in debt in November and it jumped to $10.2M today.

That would be incorrect.  

There is no way to convert HBDs to dollars.  The [USD](https://leofinance.io/@leoglossary/leoglossary-usd) as a [peg](https://leofinance.io/@leoglossary/leoglossary-peg) is nothing more than a ratio.  HBD is really worth 1/whatever the price of $HIVE is priced at.  Each HBD entitles one to $1 worth of $HIVE...a [token](https://leofinance.io/@leoglossary/leoglossary-token) that fluctuates in [dollar](https://leofinance.io/@leoglossary/leoglossary-u-s-dollar) terms.

So what does the debt work out to in $HIVE?

November: 3.5M HBD divided by .80  = 4.375M $HIVE.

Thus the outstanding debt had claim to 4.375M $HIVE.

Today: 10.2M divided by $3.25 =  3.138M $HIVE.

**Thus the debt today lays claim to 3.138M $HIVE.  In other words, the Hive ecosystem owes 1.2 M LESS $HIVE than it did 4 months ago.**

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The fact that people are paying a [premium](https://leofinance.io/@leoglossary/leoglossary-premium) for HBD above the $1 value in $HIVE makes no sense.  Yet, it is not relevant either.  [Markets](https://leofinance.io/@leoglossary/leoglossary-market) pay a premium above face value for [assets](https://leofinance.io/@leoglossary/leoglossary-asset) all the time.  Initially, it looks like HBD were pumped.  The fact they remain elevated for such a prolonged period of time shows that there are a lot of buyers who probably have no idea what they are buying.

@dragosroua hit the nail on the head when he said markets will figure it out.  I cannot tell you if the price of HBDs will go up or down from here.  What I can tell you is there is a point, if the price does go up, where there will be too many HBD created for the market to handle.  I do not know if it is 20M, 30M or 50M but at some point, the price pops.  

A crash in the price will cause those who trade on the open market to lose [money](https://leofinance.io/@leoglossary/leoglossary-money).  Yet Hive will be protected unless they are sitting on HBDs.  [Powering up](https://leofinance.io/@leoglossary/leoglossary-power-up-hive) means HBDs are turned into $HIVE.  Also, if the price gets to parity with the $1, people will opt for the 100% payout in HP, thus reducing the number of HBDs created.

The other advantage is that while the price of HBD is above a dollar, no [interest](https://leofinance.io/@leoglossary/leoglossary-interest) is paid on it.

![](https://steemitimages.com/DQmdoCwX15gH3kiJa4BABvze2gLoCHDAmhKUgjEff5HqcZP/image.png)

##### Helps Distribution
It is a great time to be powering up.  Payouts are higher than normal.  On a 50/50 split, 1/2 the payout is receive about 3.5 times what it should.  This is enabling people who power up much quicker.

As noted, HBDs are only paid to authors, not [curators](https://leofinance.io/@leoglossary/leoglossary-curator-hive).  Hence, the ones profiting are those who actually create content.

Why is this important?

Hive has a distribution problem.  Over the last month, I wrote about how this is changing.  One of the central premises is that as more people join and [post](https://leofinance.io/@leoglossary/leoglossary-post-hive), the [reward pool](https://leofinance.io/@leoglossary/leoglossary-reward-pool) is diluted from the bigger players.  In short, they cannot churn out enough content to maintain their percentage of the overall holding.  

Therefore, the ones who are benefiting are the smaller [accounts](https://leofinance.io/@leoglossary/leoglossary-account) who are posting more content.  Collectively, they make up a greater percentage of the whole than they did before.

Another factor in this is many of the bigger holders are using the increase in HBDs to minimize their [risk](https://leofinance.io/@leoglossary/leoglossary-risk).  There are many who tied up a lot of money into this blockchain.  These people are taking the HBD payout and moving it elsewhere.  There are a lot of them who are not powering up since their accounts do not really need it.  Looking through some of these accounts, you find a lot of HBD that is sent to [exchanges](https://leofinance.io/@leoglossary/leoglossary-exchange), which, I presume, means they convert it into a different [currency](https://leofinance.io/@leoglossary/leoglossary-currency).

Regardless of what they are doing with them, they are not turning them into HP.

Evening out the distribution is a great thing for the blockchain.  I believe, at the moment, the increased payout on posts because of the break from peg by HBD is helping this significantly.

At some point, the market will figure out it is paying a premium on SBD.  When it does, the price will move downward.  Until that time, however, my answer is still the same...power up.

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* [What is Hive](https://leofinance.io/@leoglossary/leoglossary-what-is-hive)

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