A reason to prefer (1 ) over (2) is that (2) puts DHF funds at risk, rather than people putting their own funds at risk.

Conversion is not a guaranteed profit. There is a judgement call to be made how much of a discount is needed to be worthwhile, and beyond that, the risk of theft exists too, which increases when the funds are locked up for 3.5 days instead of being returned promptly. None of these issues apply (at a systemic level) when people risk their own money.

I'm not saying we shouldn't do (2). It is included in the stabilizer proposals and can be implemented at any time, and I may well implement it. My actual hope (though certainly not a guarantee) is that we won't need it much because we can attract enough demand for HBD with an attractive but reasonable yield that it rarely (not saying never) goes below $1.