A Relatively High Rate of HIVE Inflation Is A Good ThingsteemCreated with Sketch.

in LeoFinance •  2 months ago  (edited)

The total inflation rate is currently about 8%. I've heard some people argue that the high inflation rate is bad the the token price and that it should be cut down to much smaller rate. I disagree on that for a number of reasons I'll explain below.

Extreme volatility in the altcoin markets

First and foremost, even if the content created or development done were nowhere near as valuable as to make up for the dilution of the value of existing tokens through inflation, the volatility of HIVE or STEEM before it completely dwarfs the annual rate of inflation. Consider the facts that STEEM's all-time low was $0.07 (March 10 2017) and that its all-time high was $8.57 (January 3 2018). In less than ten months, the price went up by a factor of 124! What is an annual inflation rate of 8.5% or even 17% as it was thanks to the large SBD debt created by the spike compared to that? Absolutely nothing!

Onboarding new stakeholders boosts network effect

Printing new tokens and giving them to content creators increases the number of people involved and holding the coin. What use is a currency without people in possession of it? The value of a network is proportional to the square of the number of its nodes according to Metcalfe's law.

Inflation creates liquidity

@theycallmedan pointed this out in one of his videos. There needs to be liquidity on the markets for large investors to be able to invest in the first place. Too little liquidity means that it will be impossible for a large investor to invest any significant money without spiking the price. If everyone just powers up, then trading on a very small number of liquid coins on exchanges will completely dominate the price.

Decentralization is vital for network security

Collusion by whales is much less likely to happen if Hive has a strong middle class in control of the chain. Its decentralization is much easier to sell if it can be backed up with hard figures when it comes to stake distribution.

Some fear that the inflation rate of HIVE, which is officially about 8% right now - but may get higher if the price spikes and a lot of HBD is printed during the spike, will guarantee a low token price forever. That position has already been proven wrong. Also, there are theoretical reasons it will be proven wrong again.

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The inflation argument is often dominated by people who know a few punchlines that come from outdated (and disproven) theories.

You nailed it....the inflation rate of HIVE does not require changing. People mistakenly believe that if the inflation rate was, say, 2%, then people would suddenly be buying it.

People are not not buying HIVE because it has an inflation rate of 8%.

Posted Using LeoFinance

Such a theory might be true for fiat currencies. But crypto and altcoins in particular work entirely differently.