RE: Hive Haircut Rule: Will It Ever Need To Be Changed?
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The potential for a ratio of 125% existed. How could a backing coin hold if the market cap of what it was supporting was worth more? The answer is obvious as we found out.
And chance for that still exist on Hive. You can't really compare both or write about HBD haircut ignoring value drop on "collateral". You just described one side of the deal, pretending it's all safer than UST, and ignoring main risk.
This 30% can be 125% very fast. Someone could say there is no limit for that. Even if you stop printing hbd, hive value still can go down.
Which factor have higher impact on mentioned ratio, hive price or people?
I think however you approach this matter price change is more important.
This might be even measurable, you can compare activity based changes on ratio to price based changes to ratio in time. Like: take ratio some time ago, could be date of mentioned change, compare it to actual ratio after time, and compare influence on change by activity -> printing hbd, burning hbd to change caused by hive price.
If we reach 30% ratio at 3$ Hive and hive price will drop overnight to 1$ it's not 30% anymore, right? You can imagine all the events following this scenario, printing hive to drop price even more to print more hive, etc...
So, Hive price amplitude is probably most important factor on the topic you describe, but you missed it. Possible any number above 10% creates risk, not necessary we will see it now at low hive price, but eventually with next bull period if people start cashing out to HBD and we will get closer to 30%, eventually price will drop and some funny events may occur.
Take a look at Hive chart, think about something like max possible value drop on Hive. Maybe 3 - 0.3?, 10x ? Then simulate how this will affect ratio at 30% :)
Worth to mention is that I know nothing about hbd itself. Wrote it based on your post and basic math knowledge.
If the debt ratio is at the maximum of 30% and the value of Hive drops the blockchain will stop paying one dollar's worth of Hive. In the scenario that you described, HBD would be worth 30 cents. So the debt ratio cannot go above 30% by design.
In fact, the blockchain starts printing less and less HBD when the debt ratio hits 20%.
He literally demonstrated how that happens, nothing you can do if HIVE price falls.
Fun fact: If we changed the haircut debt ratio to 100%, that would be rather arbitrary as well. HBD price is dictated by supply and demand and if people decide to trust it and use it despite blockchain setting a 150% debt ratio, once again there is nothing anyone can do about it. It will work. People trusted a coin that openly set that variable to infinity.
This a good point that is actually overlooked by most people. Most believe that HBD is worth $1 all the way the the haircut threshold (30% debt ratio atm) and only starts losing value once it goes over but historically that has been proved wrong so it was wise to widen the preparatory stage (it used to be as narrow as 9% to 10% before HF that moved the haircut from 10% to 30%). This way supply starts reacting to upcoming risks at a more reasonable point. That's the side that can be handled. The other can not.
That's good to know.
That should read "Possible any number above zero creates risk". Surely noone loses many with 0.1%-haircut-imaginary-HBD as there is not enough of those out to bother. Sooner or later, any number gets there, 10% or 30%. The good thing about the architecture is that it clearly defines who the losers are. If HIVE price inflates due to HBD success, and the troubles hit during a bear, it is going to add some selling pressure from people who would feel cheated (in fact they didn't RTFM) at the worst moment possible but since the Hive network still has value outside HBD, there is no need to crash all the way to $0 HIVE (Luna style).
That is true. Applications have an incentive to hold it simply because of the need for resource credits. People need them to engage onchain.
Also, the key is to build value on HBD itself, through utility. That means that in spite of the trading and other financial aspects, users have incentive to keep it in their wallet, ie to make payments and purchases.
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right game starts from 0. At least we play it against ourselves. Possible it's more psychological matter than numbers and stretching playground probably doesn't matter until we maybe reach very high HIVE price somewhere in 10 years
You are correct on the math that a huge drop in price will cause the ratio to drop. When that happens, the creation of HBD stops along with conversions. The point was that more creation doesnt continue unabated like with UST/Luna.
Conversion of HBD would help to eat it up, lowering the market cap and ratio.
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Unfortunately, conversions don't earn full dollar of HIVE and the released (created) HIVE pushes HIVE price further down after 3.5 days of sky-is-falling posts all around.
I am pretty sure it is going to be intelectually challenging to play the market but I am afraid even the top prize is not too lucrative.