HBD would effectively be pegged to 95 cents worth of HIve...
Completely untrue.
This applies only to conversions, it has nothing to do with the peg. The peg is freely floating and set by the market.
Arbitrage, as stated repeatedly, still occurs throughout the different LPs and exchanges that have HBD (or wrapped versions).
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At 20% interest rate, the problem doesn't seem obvious. But lets say the interest rate is 5% and the fee to convert from HBD to Hive is 5%. You buy HBD for $1 USD but you would have to keep that one HBD in savings for one year just to break even if you wanted to convert that HBD back to $1 worth of Hive.
In such a scenario, in a liquity pool like PHBD/USDC, people who need liquid funds would almost always choose converting PHBD to USDC, which means the PHBD would never be able to hold at peg of around $1 but be around $0.95. This means that eventually the pool would empty of USDC or conversely PHBD would always be around $0.95.