When you say "initiate a conversion", what exactly do you mean? Do you mean sell HBD for HIve?
No, I don't mean to "sell" HBD I mean to initiate a conversion operation. @timcliff has a great post that he published some time ago where he explained how SBD works (that post applies to HBD also). Here is an excerpt:
The primary mechanism that is built into the Steem blockchain in order to help keep SBD close to $1 USD is that the blockchain supports a "conversion" mechanism, which allows anyone to convert 1 SBD token into "approximately 1 USD worth of STEEM".
The way the conversion process works is that when someone initiates a conversion of SBD, it removes the SBD from the user's active/available balance, and moves it into their conversion balance. It sits in their conversion balance for 3.5 days. At the end of the 3.5 days, it takes the median price feed value from the 3.5 days (the price of STEEM supplied to the blockchain by the witnesses), and uses that price to create $1 worth of STEEM in place of the SBD token.
In other words, the conversion operation can be thought of as the HBD holders acting to enforce the "contract" that guarranties that their hive dollars are worth one USD.
Also what is a virtual supply?
The virtual supply is what the actual supply of Hive would be if the total HBD in existence is instantly converted to Hive via the conversion operation described above. It is also used to determine how many tokens are minted every block and to calculate the debt ratio (see Tim's post for a detailed explanations).
Me too! I doubt it though. Good ideas tend to die around here.
You are responding to someone else's comment, I have a good enough understanding of how derivatives work. HBD is a derivative because its value is backed by the virtual supply. If you subtract the current hive supply from the virtual supply you obtain the amount of hive tokens that are backing up the value of HBD at any given time.