"Preventing oversupply of HBD
To prevent a risky increase in HBD supply to the point where it could create a price death spiral, the proposed conversion operation would be programmed to fail whenever a user attempts to create an amount of HBD that would violate the global haircut limit. This means that users won’t be able to use this conversion operation whenever the haircut rule is in effect.
The problem with this is the boom bust scenario; in boom years it wont take a lot of Hive to convert into HBD. But we will be printing a huge amount of them (as the haircut wont be near its limit). Then all of a sudden the bear kicks in; you then have collapsing price of HIVE. The haircut is about to kick in but it comes too late; and now all those HBD that were printed at 1/10th of a hive at 10$ hive, are now being converted at 5 hive to 1 HBD (lets assume we drop back to 20 cents). This essentially creates a hive hyper inflation zone when all that HBD comes converting back to Hive (in the 10$ to 20 cent example below your minting 50 times the hive it took to create the HBD when you convert it back). So essentially you reduce inflation in boom years and multiply it out in bear years; meaning the Hive price whiplashes around. We saw this with steem.
The real question is why do we need a HBD? Why cant we just use cross chain (existing asset backed) stable coins via Hive Smart Chain or some other 2nd layer solution? To me HBD adds no value and poses an existential risk to Hive. And for what benefit ?
I think you've made too many assumptions about how HBD has affected the price of Hive (or SBD has affected the price of Steem). IMO the creation of SBD has had little real impact on the price of Steem at any given point in time (and the same of Hive and HBD). Further, I don't believe that HBD poses an existential risk to Hive in it's current form, or with the planned changes.
Crosschain solutions aren't great because they rely on trust. I've seen these go very badly wrong. Not saying they aren't better than nothing, but an onchain stable coin is much better, IMO.
HBD does provide a useful value even now, as a semi-stable coin that gets used for commerce, and it could supply a lot more as a stable coin (which would make it more suitable as a trading intermediary). With the right tuning, I think we can make HBD into possibly the first trustless stablecoin that works well.
Thanks for taking the time to respond. Do you have any verified data on steem inflation in 2018 after the crash and what % was SBD conversion related that we can review? I don't have access to any reliable data; but quick google found found the post below (which I have no affinity with and have not checked the data) and they imply that inflation in 4th quarter when things were at its worst was a massive 2.5 times the set inflation level due to multipliers on SBD conversions happening at lower steem price compared to when they were issued
Also most of the 'new' SBD induced inflation was dumped straight onto the markets not powered up (as people converted their stable coin); compared to the post reward inflation which is under haircut circumstances mostly illiquid (as SP). So you had massive increase in market supply of steem putting downward pressure on the steem price which in turn further increases inflation as the price goes down and the SBD conversion ratio goes up. Aka death spiral of extra supply dumping on markets, just when you don't need it and people race to convert before the haircut kicks in or gets worse. IMO this put steem into a magnified downward spiral well beyond what a lot of other cryptos experienced as people rush to convert their SBD and dump them before the haircut gets worse.
Hive/HBD has the same mechanics; so I expect the same to happen again. Allowing people to produce even more HBD just means a larger debt hangover when its converted; and negative feedback inflation boom just at peak of the main token price collapse will be much worse.
@buggedout always had a view on this ; not sure if he is still active.
Thanks for the shout out. I am active, just working a bit more in the background these days.
I'll have to have a good read of whats being proposed but I just don't have time just now.
I think your opinion would be valued here; but whenever you get the chance.
I was a long term investor in Steem. I saw no indications that it was the SBD conversions that caused the drop in price, when it dropped. IMO most crypto prices are driven by hype and FUD more than anything else, these tend to dominate over normal economic factors of the level created by SBD conversions.