@blocktrades/proposed-hardfork-change-to-stabilize-hive-dollar-s-tracking-of-usd-value
@blocktrades is proposing a quick fix for the HBD pegging issues. This has been something that's been talked about for YEARS.
If there was a safe mechanism for converting one dollar worth of Hive to HBD, then whenever HBD began to be traded for more than one dollar, Hive holders would be incentivized to convert their Hive to HBD, and then sell it for more than one dollar, use that to buy more Hive, and keep repeating the process until the price of HBD was forced down to one dollar.
Why propose this change now?
Note that this isn’t a particularly new idea: using a Hive → HBD conversion as a means of stabilizing the HBD peg has been discussed many times in the past.
It's finally happening
Just need witness approval and we're good to go. I can't imagine the witnesses not approving this, as it is an extremely crucial missing piece of the Hive puzzle.
By being able to convert Hive into HBD, our stable-coin mechanics won't fail during the upcoming mega-bubble. We'll be able to print HBD on demand. This also really incentivizes me to work more on my proof-of-burn game because having that stable asset directly on chain allows cards to be generated without having to worry about price swings.
A high demand for HBD will push the price of up Hive massively. High demand for stability will burn Hive because it can be converted directly into said stability.
This conversion will also cost a 5% fee to stop exploitation and make sure the internal market doesn't become stagnant. Therefore if HBD is ever trading higher than $1.05 it becomes immediately profitable to burn Hive for HBD.
I’m not even saying that some of the other proposals shouldn’t be implemented in the future, since some of the proposed ideas (such as using collateral to create HBD) could allow for more HBD to be safely created than is possible with a simple conversion mechanism.
So yeah that was my idea...
And you know, my idea is a really good idea, but @blocktrade's point remains accurate. The work required to get this done isn't trivial and smart contracts like this open the network up to potentially new attack vectors. The conversion from Hive to HBD is MUCH SAFER and easier to accomplish. Feelin pretty good about this solution.
One flaw:
Preventing oversupply of HBD
To prevent a risky increase in HBD supply to the point where it could create a price death spiral, the proposed conversion operation would be programmed to fail whenever a user attempts to create an amount of HBD that would violate the global haircut limit. This means that users won’t be able to use this conversion operation whenever the haircut rule is in effect.
This is where conversions to HBD are going to fail. Again, I plan on making proof-of-burn games on Hive that destroy HBD (or maybe even LEO if my nodes are in consensus with that network). The demand for HBD will far exceed 10% of the total supply of Hive.
It's ridiculous to think that HBD is solely the debt of Hive, to the point of capping that debt at just 10% of Hive's market cap. First of all, why would we think that the debt of Hive should only be capped to 10%? The fractional reserve banking system can go as high as 500% without failing. By fishtailing into the opposite direction we are making a big mistake.
When it really comes down to it: HBD is not Hive's debt, and it is extremely foolish to think that demand for stability will not exceed 10% of Hive's total market cap in a healthy scenario.
Therefore, what's obviously going to happen is that many factors will come together to push legitimate demand for stability past 10% of Hive's total market cap, and we'll be back in the same boat of the peg spiking to the upside.
To prevent a risky increase in HBD supply to the point where it could create a price death spiral
That is an ironic statement to make in my opinion, because the existence of the haircut rule is exactly why Hive can death-spiral in the first place. The haircut creates a scenario where HBD can break the peg to the downside. The fact that HBD can break do the downside means that HBD holders do not have faith in HBD. Less faith in HBD reduces demand, encouraging using so convert HBD to Hive when they otherwise wouldn't have. If there was no haircut, or if we increase the haircut to a reasonable level, all of a sudden all that fear disappears and demand for HBD remains high.
This isn't a debt issue, this is a supply and demand issue. The haircut reduces HBDs demand. The lack of a cap to the upside reduces HBDs demand. Anything that makes our stable coin not stable reduces its demand, and vice versa. Who decided 10% was a good idea? Dan? I mean Dan is cool but he was wrong about a lot of things. This whole 10% nonsense gonna get scrapped sooner or later: just like we did with competitive curation (aka bot farming).
This is all a process I suppose. This is a great step in the right direction, but much like the change to implement witness vote decay it just isn't a big enough change in the long run.
That being said it's good that @blocktrades is playing it safe rather than fast and loose. There is a lot of responsibility to making these changes, and measured responses are certainly required when the security of the entire chain is on the line.
However, I think in the end what this is really going to all come down to is sliding scale governance voting. The network needs to be able to increase the haircut percentage on demand via governance votes: same as every other variable on this network. Inflation should be a governance sliding scale vote. Number of consensus witnesses and backup witness should be able to be changed on demand.
There are dozens of static variables on Hive that we will be able to change with governance votes in the future: because that's a future that actually makes sense rather than adding these changes and setting them in stone using various hardforks. The biggest advantage of DPOS consensus are the governance votes. These votes are currently being massively underutilized because they only control the ranks of the witnesses and the dev fund. Like I said: there are dozens of other variables we should be voting on. But in the end this is just going to require patience and more devs.
HBD haircut doe
I'm just pointing out the obvious: Demand for stability is obviously going to increase; especially as we head into mega-bubble territory. By adding this value to HBD, demand for HBD will increase exponentially more. So to then put a 10% cap on that demand is absurd in the long-run. You can't cap demand: sorry it doesn't work that way.
Conclusion
Development continues. Good changes are coming. @blocktrades, @khaleelkazi and all the other devs on Hive will continue killing it. The next nine months are going to be a wild ride as we build up the moon castle.
