Maybe I have it wrong, but isn't market liquidity what matters in that case? Thin liquiditiy creates conditions for volatile moves.

Yes, that is generally true.

The mechanics of $HBD require purchasing $HIVE to create new $HBD. That means any significant increase in $HBD supply will only come via a modest rise in the $HIVE price.

The mechanics also ensure adequate near instantaneous $HBD liquidity, via conversion from/to $HIVE. And, the $HBD stabilizer facilitates that, at relatively stable prices.

When I refer to “volatility” I’m really referring to volatility in the $HBD / $HIVE debt ratio. The $HBD mechanics and stabilizer will be able to keep the $HBD price itself stable. What we want to avoid are volatile swings in the debt ratio.

If the debt ratio remains stable, then $HBD remains a stable and attractive asset.

Allowing high APY on $HBD with no lockup could precipitate volatility of the debt ratio. With $HBD investment locked up for a year or more, changes to the price of $HIVE due to $HBD conversions will be significantly tempered on the downside, creating a ceiling, of sorts, for the debt ratio.

What we want to avoid, at all costs imho, is a precipitous rise in the debt ratio due to a massive sell off of $HBD bonds.