I like the idea, but not so much on the How do part. Since this is a fighting game, it would be very hard to tell if someone is trying to execute the Hug by being close to their opponent. I would change how it's done by adding a taunt button that would have your character extend a hoof in a way that doesn't look like an attack or be on their hind legs with their front legs open for a hug, to let the other player know what you are trying to do.