This is frustrating, because you love the leverage on the upside, which is limited by the peg, and still intuitively believe the leverage on the downside is limited by the peg too.

The leverage on the downside is not limited by the peg. The leverage on the downside is infinite and depends on market timing mainly.

I see the leverage ratio is small enough to not be alarming

Again, the size doesn't matter, we explicitly went over why.

unless you are just strongly attached to zero leverage.

I am not, I am just attached to an equal leverage in both directions. Which we DO NOT have.

Leverage means exactly that, when the price goes down, as an existing equity (stake) holder, you lose a bit more, when it goes up you gain a bit more.

That's a good definition of leverage, but not a good description of HBD.

To put it more concisely, HBD is not just small leverage. HBD is small leverage on the upside and big leverage on the downside. It is skewed.

I believe after my post you will get the full intuition and why it is negatively skewed. Where your intuition fails you is that you are considering the system as thermodynamically sound, as if there is conservation of energy. Market caps don't respect conservation of energy, it is a weird metric calculated using the last price and total supply. The amount of money represented by a martketcap isn't truly there, which I am sure you know.

All the problems with HBD arise because of the fact that the haircut ratio defines the HBD maximum marketcap as 10% of hive's maximum marketcap. Putting conditions on the existence of a marketcap by defining it through another marketcap breaks physics. This is even harder to understand intuitively, but you don't need this to understand that HBD's leverage is negatively skewed.