"For HBD to grow in market cap (circulating supply) more HIVE has to be used as "collateral" to back the HBD. So it is not just HBD inflation but also HIVE inflation."
No. HBD inflation = HIVE deflation. This is how we reduced more than 21 million HIVE from circulation in September last year. 1 million HIVE also got burned in the process. I think more than 8% deflation. (this is only from September 2021)
Also, this is a marketing push to draw more interest in the Hive blockchain.
Edit: HBD printing as interest is not the same though. I considered HIVE -> HBD conversion in this comment since the HBD supply is low enough that we can ignore it in comparison to the newly printed HBD from conversions. So overall more HIVE is burned creating HBD than the newly created HIVE from HBD to HIVE conversions. This is true if we can bring on enough users. Then we can adjust the interest rate later to not have inflationary problems.
Interesting, so are the witnesses willing to increase that apr, I thought that having it 20% would be harmful but with your explanation seems that doesn't need to be like that.