RE: Understanding the Hive Debt Ratio and the Haircut Rule
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Thanks for the info. I have a question about the conversion of Hive to HBD.
The following paragraph mentions a 'corrected price feed'. I wasn't aware that this existed and am interested to know what this phrase means - do you have the calculations/process for the 'correction'?
To perform this conversion, the blockchain uses the median price feed provided by the witnesses. When the debt ratio exceeds the hard-limit, the HIVE price used for the conversion will no longer be the median price feed but a corrected price feed.
The next paragraph seems to describe a situation where the Hive price has become so low that converting lots of HBD to hive would result in them owning a huge amount of Hive, but wouldn't that effectively result in the devaluation of HBD on the markets? Wouldn't that then result in HBD crashing to as relatively low a level as Hive has hypothetically done? Or is the assumption that if the Hive price chrashes then HBD will also crash and therefore nudging HBD to crash in order to somewhat protect the Hive price is the best option?
The aim is to limit the effective price to force HBD to remain at or below the hard-limit threshold of the combined market cap of HIVE and HBD. This way, we can protect the blockchain by preventing individuals with a lot of HBD to take advantage of a sharp decline in the HIVE price to make in-chain-but-out-of-market conversions to HIVE and take over the blockchain.
It would be best for HBD in some senses if it were not reliant on the price of Hive, though I guess that's hard to avoid. It should be made clear to investors in HBD that the stability of it's value is directly tied in to the value of Hive, since that is not obvious.
It could but as we've seen the price of HBD is market-determined and doesn't necessarily align with exactly how much HIVE it could be converted into. As I write this HBD is worth about 6% more than its conversion value.
The haircut affects the amount to which it can be converted, but the market price is still a market price, could be higher or lower.
true, yes. however, I was thinking that it might be possible for the market value of HBD to be pushed down if Hive crashed to a very very low level, since if HBD can't be exchanged for an accurate price of Hive from within the blockchain and there aren't any external markets with good HBD trade volume, then holders of HBD would effectively be stuck holding a devaluing currency and would have to undersell it in the internal market in order to cash out.
i think it's safe to say that in this sense, HBD is 'Hive with a different hat on' and so it's ultimate stability is dependent on Hive's stability to some extent. as someone who holds a fair amount of HBD in savings (by my standards), this is important for me to understand (and for others too).
It is dependent on Hive yes. You can't guarantee value unconditionally and out of thin air. The stables that have claimed to do this are fraudulent. HBD isn't because it makes clear you are subject to a potential haircut (even a severe one) if Hive can't continue to support the value.
yes, understood - even gold back currency is not guaranteed.
aside from understanding the mechanics for my own use, my main interest is that potential investors have easy access to transparent and clear info on this topic. i tend to find that hive's details are available somewhere but not easily and definitely not in the very concise form that is beneficial in web UIs. people tend to assume that stable coins are likely to be scams at this point - since there have been several - which we saw in the recent twitter threads on this topic for HBD.
being able to convey in clear language/images/video how the relationship between hive and HBD works would probably make it easier to advertise/promote HBD.
Good points.
Your witness price feed is stale.
Thanks, yes, I will get to it soon.
For the conversion, we want the existing amount of HBD (X) to be hard-limit (L) of combined market cap (CMC), meaning the existing amount of HIVE (Y) has to be (100-L)% of CMC.
Therefore, a minimal price feed can be computed as ((100-L) * X) / (L * Y)
When the debt ratio is above that hard-limit, the blockchain median price is replaced by this minimal price and is therefore used by the conversion process.
Thankyou! These are not obvious concepts to calculate since running a currency is not something I do on a daily basis! Bookmarked for future reference.