I've been out of the loop for some time, so I haven't followed the development of the platform as much as I probably should. Has there been a change to stop the breaking of the "peg" at debt ratios above 10%?
I expressed my concerns about it when it was implemented quite some time ago... my thoughts on it can be found here:
https://steemit.com/witness-category/@bacchist/witness-petition-do-not-abandon-the-peg
If this is implemented, it will likely cause the debt ratio to increase with the additional SBD production. Have there been any relevant changes, or will it still be potentially catastrophic?
No. The 10% limit is still in place.
Yes, that is somewhat the intent. The market has signled (through sustaned high SBD prices) that the current 1-2% debt level is not enough supply. This change would allow the market to increase the supply pretty much all the way up to the 'haircut' limit.
With the new market conditions that have opened up around SBD, there is a lot less of a concern with the 10% level being catastrophic. If it starts to get "too close" to that 10% level for comfort, SBD traders will (logically) sell - which will put downward pressure on the SBD price. With enough downward pressure on the SBD price to push it back to $1 USD, this will incentivise conversions again.
Anytime SBD is trading at or below $1 USD, the market essentially has the option to "override" this change by converting an equal amount of SBD each day as gets printed, which would have the same result on the market as the blockchain printing 100% STEEM in place of SBD.
I see where you're coming from here, but I think it's a bit optimistic. By the time enough "extra" SBD has been printed to drive the price of SBD below $1, the debt load will already be in haircut territory. The change you've implemented increases SBD production when the debt load is already high relative to the 10% threshold. The debt load is very sensitive to STEEM price fluctuations... I think this change will add significant systemic risk.
Please note that it's really the haircut itself that I find objectionable. Your change is only problematic because the haircut exists.
I think the haircut is less systemically broken then the print limit. The haircut shifts existing price risk from STEEM onto SBD holders. If they don't like having more risk, they can sell, at which point the SBD price will drop, SBD will start getting converted and its total supply will drop. It at least tends to push SBD in the right direction. The print limit is the opposite: If SBD is overvalued, then it doesn't get converted, the supply steadily increases and then printing stops, which makes SBD more scarce and potentially drives the price even higher (WTF?!).
I understand you have expressed concerns about the haircut but personally I don't see it as a problem (other than potentially impairing the utility of stable SBD at some point, but we are so far from that now, not something to worry about at this point).
Has the idea of implementing reverse conversion of STEEM -> SBD been abandoned? Seems to me this proposal is just a band-aid fix that gives more tolerance/flexibility but makes any systemic break harsher.
I would not say abandoned but it is certainly more complex and farther away from being implemented and deployed (if ever).
I agree with you that reverse conversions (or something like it) would be more effective in maintaining the peg but this doesn't make this proposed change a bad idea. I believe the print reduction is probably the most broken part of he peg system in Steem. I would remove it altogether, but failing that, increasing the limit is certainly better than not doing so.
As far as I can tell reverse conversion would have similar results in terms of any systemic break, indeed possibly worse. I'm not sure what you are suggesting there.
Why are we not doing this, and hat can we do to move this forward?
@timcliff discussed some of the challenges with getting development done that isn't on the existing roadmap. That applies even more so to something like STEEM-to-SBD conversions since that code is more complex. There is also the matter of whether there is even sufficient support for it. It seems more people find the conversions approach to be risky or undesirable. There still could be enough support though.
I guess I am referring to the "haircut" scenario where the peg really ends up potentially a lot lower than $1 USD.
A couple of months back I wrote about The Coming STEEM DOLLAR Purge but I now realise I got it wrong. With a haircut dynamic in play the downside limit to SBD is effectively gone and we could totally downward spiral in a negative feedback loop.
thank you @gentlebot
If it takes that much SBD to bring the peg back to $1, I don't necessarily think it is wrong to print that much.
The SBD traders who are holding (and buying) SBD all the way up to that point are the ones who are taking the risk, and they are the ones that will get harmed if the peg drops below $1.
I hear you, and I don't want to downplay the significance of the point you raise. There definitely is some risk with this. With the way the SBD economy has been working though, I don't personally consider it a systemic risk though.
If we pass the 10% haircut limit, let's say even to 20% - that is a risk for SBD holders. In this (hypothetical) scenario - SBD could drop down to $0.5 USD.
The question though is what would happen to it after that. While it is completely hypothetical/unknown, it is somewhat likely that traders would see it as a significant buying opportunity - possibly long before it reaches that point.
I think the important thing that we have learned is that the market is not really looking at the SBD->STEEM conversion rate at all (at least currently) with regards to the value that is placed in SBD. Speculation is playing a much more significant role.
In that case (1 SBD = 0.5 USD), should SBD holders not be able to convert to one USD equivalent of STEEM?
No. If we pass 10% debt level, then SBD conversions would pay out less than a dollar worth of STEEM. At a 20% debt level, it would pay out 50 cents on the dollar.
SBD will never below $1 because you can burn it and receive $1 steem in return.
If it goes below $1 people can make a profit just by buying and burning it.
No.