To be honest, I see a lot of things these days related to the haircut rule on hive and it's difficult to find the real truth about it. I did some research but I can't guarantee that what follows is 100% accurate. So take it with the according nuance.
What is the haircut rule and why does it exist?
To understand this rule, we have to comprehend that every HBD token is backed by Hive. There is a relationship between the HBD in circulation and the hive circulation. This is called the dept ratio.
HBD circulation value / Hive circulation value = dept ratio
This dept ratio defines when the haircut rule will be applied. There are actually two levels for this rule one I think is at a dept ratio of 20% and the other at 30%
Level 1 at 20%
In the past there was a transition where from 10% to 20% there was a continual shift of liquid post rewards that comprehended a part paid in hive and another part in HBD. With the latest hardforks however there is now something else in place. When 20% of dept ratio is reached, 100% of liquid post rewards are paid in Hive. Before that, 100% was paid in HBD.
If dept ratio is above 20%, all liquid post rewards are paid in Hive.
Level 2 at 30%
When the threshold of 30% dept ratio is achieved, the hard haircut enters into play. Which means that according to the level of dept, hbd can't be converted in 1$ worth of hive anymore. According to the intensity of the dept ratio, 1 HBD would be worth 0.8$ of hive for example or even less. Also the APR on interests and the DHF would be affected accordingly. They would still get the same amount of HBD but their value would be reduced. It's difficult to understand how fast and how extensive this loss of peg might be.
I believe that at the same time some conversions wouldn't work anymore for the DHF for example, further reducing the supply of HBD.
Why this haircut rule is in place?
It's important to understand that this haircut rule is in place to protect hive. It tries actively to reduce the supply of HBD, or at least not grow it any further. Because, without it, we would turn to a hyperinflation.
Let's try to understand that. If Hive is worth 0.1$. One HBD is worth 10 Hive. But when Hive is worth 0.05$. One HBD is worth 20 Hive. Let's say I own 1K of HBD. If prices drop from 0.1$ to 0.05$, my HBD owning increase the Hive supply by 10'000 Hive. Without the haircut, there would be no limit for that and the lower hive prices dropped, the more hive would be in circulation and this would create a death inflationary spiral.
For the survival of hive this haircut rule is primordial, not to avoid dropping prices but to avoid hive going to zero.
What is the situation today?
According to HBD stats by 
What contributes to move towards the haircut?
There are two effects that influence the dept ratio: The quantity of HBD in circulation and the value of the hive in circulation. So basically to prevent the haircut, we should avoid to have more HBD in circulation and also avoid that hive prices fall even more. It's difficult to influence the second one but there is something that we can do about the first one.
There are three sources of HBD minting:
- HBD through post rewards
- DHF spending
- Interests from savings
The first level of the haircut rule has taken care of the first source of HBD. The DHF spending is something that governance has to rule. We can fight against more HBD in circulation by voting for the return proposal. The less HBD is paid out on a daily basis, the better it is for the dept ratio.
In terms of the interests paid on savings, it's not as insignificant as many make us believe. 75% of all HBD in circulation is in savings. At the moment this is 7.8 mio HBD. This is 1.17 mio HBD of interests per year or 3205 HBD interests per day at 15% APR.
When compared to DHF which pays about 15'000 HBD every day, this is not as high but it's still a big number.
The question is, at this rate, can we afford to pay such high interests and should we not try to reduce our DHF spending?
If we reduce the attractivity of holding HBD, people might sell them and give even more downward pressure on Hive. So we would need to reduce this rate at a steady pace to avoid panic. If we don't move now, we won't have a choice to put it to zero once Haircut is in action and this would create even more sales pressure on hive at a crucial moment.
Are you holding HBD in savings ?
By holding HBD and getting juicy APR on savings, you are taking a certain risk at the moment. If haircut is reached, it's possible that your HBD will not be able to be exchanged at 1$ per HBD anymore. So even if you get 15% APR but HBD is worth 0.6$, you would make a big loss. It's therefore also in your interest to lower hbd Apr on savings to avoid that.
In my opinion 15% APR is not sustainable and has no justification at the moment. Hive power provides about 10 to 11% APR but with the inherent currency risk. On other chains, APR on stable coins is between 3 and 8% maximum. There is no real reason to have 15% return on HBD other than making HBD holders happy...
I believe it's time that we reduced this APR, so that we don't have to take extreme measures later...
What do you think?
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