This is a topic that is very intriguing and worth of some discussion.
In the weekly update put out by 
Here is what is on the "to do list" at the end of the article:
Investigate possible changes required to increase haircut limit for Hive-backed dollars (HBD) in hardfork 26. Public discussion is still needed as to the amount to increase the limit (personally I'm inclined to either 20% or 30%, with my preference for 30% to allow for a robust expansion of HBD supply).
Before going any further, we must be clear. This not a discussion about raising the interest payment on HBD put into savings. That is something in the scope of the Witnesses and can be changed at anytime based upon the medium they set.
Instead, this deals with the ratio of HBD-to-Hive which is presently set at 10%. It is a feature that is in place to protect the blockchain from the possibility of becoming overweight with debt.
For those who are not familiar with this feature and why HBD stops printing, read this article by 
The ultimate quest for many is for the Hive Backed Dollar (HBD) to operate as a stablecoin for Hive. It is set that each HBD is backed by $1 worth of Hive (note that it is not backed by USD, that is only a unit of measure). The goal is to get the HBD price pegged to the $1 level so that commercial activity can take place.
For merchants to start accepting HBD as a payment token a few things needs to happen. The first is obviously to have the peg hold, or at least operate within a very tight range. Over the last couple months, we did see the range go from about $.90 to $1.20. This is greatly improved yet still not satisfactory.
One of the key developments was the 
Another key component, if HBD is going to truly operate as a stablecoin on Hive, more needs to be available. For widespread commercial activity to take place, a lot more HBD is required on the market.
At present, there are 28 million HBD in circulation, a number which also includes the 6 million in the 
While 22 million is a healthy number, it is not suitable for large scale commercial activity. Ultimately, if Hive becomes popular, we will need hundred of millions (or billions) of HBD available.
The idea behind increasing the ratio is to alleviate these issues.
As it pertains to the peg, one of the beliefs is that a lack of liquidity is an factor. Since there are so few HBD on the market, traders do not have an opportunity to arbitrage, at least in the numbers required to hold a peg. Also, in any asset class, volatility flattens out as more is available. The fact that most of the HBD is held on one exchange doesn't help this situation either.
In addition to the volatility, we will also see the scarcity of the token reduced. Printing up to the 10% level does put a hindrance on the expansion of HBD. While many in cryptocurrency believe this is a good thing since they look at things like stocks, it is vital to have enough liquidity to ensure the price does not go up. Having HBD priced over the peg is not a good thing. It cannot be emphasized enough this is meant to be a stablecoin. We want people using it for transactions and as a "parking place" when they want to opt out of their speculative tokens. This requires price stability.
A final potential benefit of HBD as a stablecoin is that fact that it runs on the blockchain itself. With all the threat of regulation, we see how some of the major ones are at risk. They are put forth by companies or development laboratories, all of which are a point of vulnerability.
HBD is generated by the blockchain, which is run by witnesses all over the world. There is no single individual or company who is in charge of it. This could be a vital point as we move forward.
The main reason why this ratio was put into the original code was to protect the blockchain from becoming too debt laden. The idea is that as the value of Hive (the asset of the blockchain) moves higher, we can produce more debt in raw numbers and still maintain the stability.
We actually are not changing this concept. What is being discussed is whether the 10% figure, which appears to be pretty arbitrary, can be altered to 30% (or more) without putting the stability of the currency at risk?
Here is what Blocktrades posted in the comment section of the article:
As to the potential risks, even a 30% haircut rule puts a strong limit on just how much Hive can be created via the conversion mechanism, regardless of how far Hive price might fall in a severe crypto winter scenario. After giving it a lot of though, I think we could easily go to even a 50% ratio without significant risk to long term Hive pricing, but in the end I decided it would be best to demonstrate that a 30% haircut ratio poses no real threat instead of proposing an immediate move to a more aggressive ratio.
Viewed through this lens, we can see the 30% is conservative. Is that correct? This is what the community will have to decide. Nevertheless, there is protection in place in the conversion mechanics that does prevent a scenario where someone loads up on HBD during a massive Hive price spike and then converts it into tens of millions of Hive during a crash.
Taking another step, we can mitigate things a bit further:
For example, with a 30% haircut ratio, we could set the print rate to stop around 20%. In this way, we should only expect to see the haircut ratio hit under one of two circumstances: 1) hive price drops significantly on its own after the print rate hits 0 or 2) HBD price is above $1 and therefore encourages conversions of Hive to HBD.
Ultimately, according to Blocktrades, the goal is to avoid hitting the haircut ratio. This is a game of confidence and the belief is the haircut causes people to lose confidence in HBD. If this is truly the case, then it should be avoided. The market needs to know the liquidity will consistently be available when needed. We saw the response when it went into effect a week or two ago. People were truly perplexed. Imagine that same reaction if HBD was truly operating as a stablecoin facilitating tens of millions of transactions.
Part of this discussion has to focus upon the longer term. Certainly, anything done in a hard fork can be reverse in an ensuring one. That said, we do not really want to spend a lot of time flip-flopping back and forth on things.
With the haircut ratio, let us ponder what things look like down the road. For simplicity sake we will forgo the formulas and just take raw USD numbers. It is something we can understand and gives us an idea of what is taking place.
If the market cap of Hive hits $1 billion, then we can see a HBD supply of $100 million at the present level. Raising this to 30% would enable a float of $300 million of HBD to exist on the market.
Again, that might sound like a lot yet is low when we consider there are well over 1 trillion EUROs (let alone USD) floating around. Thus, we can see how much liquidity is require to facilitate global transactions. We also have to account for the amount of HBD that people hold in their wallets as savings.
We can go one step further and push the market cap of Hive to $10 billion. This will enable a "print" of $3 billion HBD. For a comparison, there are almost 69 billion Tether and 32 billion USDC. The potential of 3 billion HBD pales in comparison.
Yet this drives home the point: here we see the level of liquidity that is required to operate as a stablecoin. It is not very effective if people cannot get a hold of it to utilize.
Therefore, it seems to make sense to implement what is being considered. It does not appear the currency (Hive) is at risk of being destabilized by this increase. We also can see how massive expansion of HBD is required if commercial activity is going to take place on a large scale.
Should the haircut ratio be increased? Is the idea of the 30% level with a 20% print rate stop a good move?
Are there other risks that are not mentioned here that are worthy of consideration? It is always best to imagine the black swan scenarios.
Is the 30% rate too aggressive a change or conservative?
Let us know what you think in the comments below.
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