The haircut ironically creates the need for HBD to be destroyed in the first place. The demand to hold HBD dwindles to pathetic levels when the network doesn't have the spine to eat the loss. We've already experienced this "death-spiral" effect even with the haircut in play, and more likely ironically because of it.
The haircut is an abysmal failure. It was meant to act as crutches in the case of black swan events, but instead became a prison that we were trapped inside for months at a time. There's no reason to think that demand to hold HBD is going to drop off a cliff during a bear market unless continue haircutting the value of stability. That's precisely why it exists in the first place: to hedge against losses during the bear market.
The haircut is clearly too low. MakerDAO liquidates collateral at 150%, and Hive begins the haircutting process at 1000%. It's ridiculous.
It will become much more obvious that HBD is far more than Hive's debt when it can be minted and destroyed with additional smart contracts. It's only a matter of time before this network is essentially forced to allow HBD to be minted using CDP smart-contract loans. Literally every Defi coin is going to have a stable coin in the future. This lets you give yourself a loan permissionlessly, the value of which is too great to ignore.
Therefore, if/when HBD is backed by both the conversion rate and CDP loans and whatever else, we can see that the haircut is just going to stand in the way and be an annoyance that fucks everything up just like it has been this entire time. It won't be hard to maintain the $1 peg when $2-$10 worth of Hive is being locked to maintain it in CDP smart contracts.
Also, the biggest reason why we experienced extra inflation due to HBD in 2018 was because we didn't have a peg to the upside. HBD didn't start getting liquidated for over 6 months of bear market. We had to wait for HBD to crash from $13 to under $1 before we could even start mitigating this bullshit. The haircut is just going to stand in the way and push the value of HBD above $1.05 even after Hive >> HBD conversions are in place. History will repeat.
When MakerDAO liquidates CDP loans it doesn't create more collateral...that is a huge difference. The game theory for HBD and DAI is not the same...apples to oranges. HBD has more similarities to FEI Protocol (although if you ask me they fucked up the lower side of the peg and we did it at the other end).
In order to make a valid comparison between MakerDAO and Hive you need to start by determining what is the equivalent to the collateral of CDP loans in the hive world. The collateral in Hive is the difference between the virtual and the total supply. When the value of that collateral reaches 100% of the value of the HBD supply (minus the balance in the DAO) the haircurt rule is triggered...it is not 1000%.
The haircut rule does limit the size of the HBD supply IF the price of Hive does not go up in tandem. I find it difficult to believe that the value of Hive will not go up if the market starts to buy it in order to mint HBD.
The debt ratio (aka the "haircut") is not a measure of the liquidation point of the collateral, rather it is the cap on the supply of HBD given a certain price feed. Given the fact that the collateral for HBD is not a "fixed" amount (unlike DAI's) it would be unwise to get rid of it. Probably it is worth exploring what would be the optimal ratio.
The optimal ratio: is no ratio.
The haircut is a last ditch attempt at preventing a death-spiral and should be implemented manually by witnesses in real time, if at all, just like price feeds and HBD APR. Probably not even then because the haircut itself massively incentivizes holders to dump it and make the problem worse. The haircut was an abysmal failure that didn't help us at all.
Show me the math on how much inflation we prevented by allowing the peg to drop to 60 cents for months at a time. Now factor in all the people that dumped just because the peg was broken: making it a completely worthless asset. We likely printed more inflation BECAUSE of the haircut, not the other way around. Allowing the peg to break to the downside did the network zero favors.
You have to admit that your statement is not backed up by any data (I am not saying that it is untrue, just that it's an assumption). It sounds to me that your premise is that when the debt ratio reaches or gets close to 10% it triggers HBD conversions. I only have data after the split from steem so here it goes.
Here you have the deviations from the expected production of new hive per day. Most of the positive deviations were caused by HBD conversions. The negative ones are either burns or the result of the hbd stabilizer.
And here you have the evolution of the debt ratio. Only between 4/8/20 and 4/24/20 (17 days) was the haircut rule in place, yet we had conversions year round. Something else is at play here. My conjecture is that conversions are mostly triggered by market fluctuations below the peg unrelated to the haircut.
Just to complement the data here is the historical HBD supply.
You can even see a massive reduction in the HBD supply at the end of May accompanied by a surge in the extra hive created when the debt ratiio was no where near the haircut.
Wow... nice analysis.
Good shit.
I am impressed.
This is a hard topic to navigate because we are in the Wild-West phase and one false move could send us hurling off a cliff.
Oh yeah also I was totally bullshitting you because Tether market cap has a history of rising and falling with the bull/bear markets. You'd think demand for Tether would increase during a bear market... but it does not. Seems like the liquidity tidal waves of these mega-bull runs wash away any kind of rational theorycrafting.
Actually your kind of right about that. Think about it, what happens during a bear market? People trade their crypto for fiat and/or stablecoins. So in other words, compared to regular crypto there was more demand for Tether. The supply for it remained relatively flat during the last bear market while the marketcap for the whole cryptoverse went down. It even had a brief moment when it traded around 1.20 (according to Coingecko).
So the demand for stability does increase in relative terms during those periods. Check the logarithmic chart for its marketcap.