In the year and a half+ I've been here, I've heard this repeated over and over, but I guess it hasn't been repeated enough. If you convert while SBD are above $1 on the open market, you'll not only get less STEEM, but it could make the price move even higher by destroying SBD. Instead, choose 50/50 on all posts instead of 100% power up to create more SBD and sell the SBD you have on an exchange or the internal market. This happened once before (SBD skyrocketing in price) back in May which I talked about here.
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Right. We are wondering why this is happening, though. What is the official protocol for the conversion process? It is built right into the wallet. Why wouldn’t it follow the market price average? Why would it not be a good idea to use a feature built right into the wallet by the platform? @maxinpower simply used the convert to Steem feature built into the wallet.
Well, that's a bit like asking, "Why would it not be a good idea to do X?" when X is a market-driven, dynamic, chaotic process which is uncontrolled by any authority. Just because a function does exist, doesn't mean it's always a good idea to use it. The last time the price spiked up like this in May, a warning was added to the convert window to let people know what's going on.
It's not there now, unfortunately. People using the convert are still getting what the smart contract that is SBD guarantees (around a dollar worth of STEEM). The problem is they could get much more STEEM if they instead sell on the internal market or on an an exchange. Nothing was taken from them beyond what was promised, there's just a better approach they should become educated about.
SBDs are debt based on a smart contract. The white paper and blue paper go into this in more detail. If people are using that functionality without understanding what it does, then that's their responsibility. I'm hopeful more people will be incentivized to take the time to learn about this stuff so they can benefit from it as I mentioned in the post I linked to in my last comment.
Not really. I’m just asking what the actual math is behind the conversion process. Shouldn’t be a mystery. It’s numbers and there is a protocol. Pretty simple.
True. Never argued it wasn’t. Just very counterintuitive. Usually “convert” implies a somewhat proportional exchange rate based on a market price. It’s not irrational to expect that from an exchange mechanism.
Thanks for clearing up the fact that it is a smart contract, though.
It's $1 USD worth of STEEM per SBD.
If SBD is trading above $1, that doesn't impact the contracts it still does $1 USD worth. That's the contract. That's important because it enables the peg if SBD ever go below $1 USD value. The convert process ensures upward pressure and arbitrage will bring the value back up as people sell STEEM for SBD and convert.
Convert doesn't mean trade or sell at market rates.
Thanks. That’s what I was wondering about.
“Convert” usually implies getting the current market value of something to the average populace. If someone converts a coin on an exchange to another coin, they expect to basically get the current market value’s worth of the coins they are trading in the form of the other coins.
This smart contract detail is in the white paper? I’ll have to read it again. It’s important to lay it out very clearly so folks don’t get burned like @maxinpower who understandably assumed if SBD is trading at X price, that is the value he will get for it in Steem.
I understand about keeping the peg.