When the price goes below $1, the stabilizer will not be buying Hive, and Hive will be inflationary again (as normal). From there, there are two possibilities.
1). As it goes sufficiently below $1 enough to justify the risk of converting, private traders will start converting HBD for profit. All the profit goes to those private investors, and all the virtual Hive behind that HBD goes to the market as inflation.
2). As it goes sufficiently below $1, private traders and also the DHF start converting HBD for profit. In this case, some proportion of the profit still go to private traders, but a not insubstantial (and potentially the lion's share) of the profit goes to the DHF. A lot of the virtual Hive is still released as inflation, but a substantial portion is captured by the DHF, mitigating the inflation.
What is the reason we should choose option 1 over option 2?
Yeah, that makes sense. I would prefer 2 as well. Someone would need to setup a proposal to fund it though, as well as do the work to handle the conversions. IMO, it is outside the scope of the current proposals that are funding @hbdstabilizer. Stakeholders voted on the hbdstabilizer proposals assuming it would work a certain way. To change how the funds are used after the proposals have been approved does not seem like a good idea.
I don't run @hbdstabilizer. My only involvement with it is to create these @hbd.funder posts which send additional funds to the account. @smooth is the one who actually runs the stabilizer. You may want to reach out to him and see what his thoughts are on handling the conversions to add support on the other side of the peg.
No it isn't. The original proposal mentioned a LOW bound and doing conversions. I stated later that it wasn't being implemented right away but might be added later.
Already the stabilizer does use HIVE (mostly from power down of beneficiary HP) to buy HBD if HBD is <$1, and then sends that HBD back to the DHF instead of sending the HIVE. This helps take some HBD off the market and generates a profit for HBD. But it doesn't do conversions for now.
Ah, cool. Thanks for clearing that up!
A reason to prefer (1 ) over (2) is that (2) puts DHF funds at risk, rather than people putting their own funds at risk.
Conversion is not a guaranteed profit. There is a judgement call to be made how much of a discount is needed to be worthwhile, and beyond that, the risk of theft exists too, which increases when the funds are locked up for 3.5 days instead of being returned promptly. None of these issues apply (at a systemic level) when people risk their own money.
I'm not saying we shouldn't do (2). It is included in the stabilizer proposals and can be implemented at any time, and I may well implement it. My actual hope (though certainly not a guarantee) is that we won't need it much because we can attract enough demand for HBD with an attractive but reasonable yield that it rarely (not saying never) goes below $1.