Every Author likes high Post Rewards but are we deluding ourselves in thinking that this high STEEM DOLLAR is actually sustainable? There has been a lot of discussion recently amongst the Witnesses about whether to fix the broken US Dollar peg and it’s no surprise to find that it is a pretty unpopular topic amongst the Minnows and Dolphins on the platform who want the good times to keep on rolling. I hate to be the bearer of bad news but if you have a look under the covers at how the system actually works it looks pretty inevitable to me – even if the Witnesses do nothing.
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There are 2 features of the system which are important to understand before we go much further :-
Most of us are familiar with the basics of how a post is rewarded. As an Author you have the option to select 50% of your rewards to be paid in STEEM DOLLARS, but the system calculates the number of SBD you receive as if they were valued at $1 USD each. So if your post payout is $10, then you will get $5 worth of STEEM and 5 SBD - which is actually worth substantially more. These are actually newly minted SBDs that are CREATED by the system and added to the Circulating Supply.
Instead of selling your SBD you have the option to redeem them via the blockchain for $1 USD worth of STEEM and up until recently you could do this via the Steemit interface. When you redeem an SBD it is effectively DESTROYED by the system and taken out of the Circulating Supply.
I’m going to break this next part up into 2 sections to show the contrast in how the system has been working. First I’ll have a look at the period of the 1st August to 21st November, which is just under 4 months. It’s back when the STEEM DOLLAR was fairly stable and before it broke the US Dollar Peg. Have a look at the graph below :-
The Blue line represents the 7-Day Moving Average of the SBDs CREATED from Author Rewards. The Red line represents the 7-Day Moving Average of the SBDs DESTROYED by SBD Conversions back to STEEM. The Green Line is the difference between the two. As you can see the Green Line is fluctuating either side of Zero and shows that the Circulating Supply of SBDs was up and down but if you add it all up over the period it’s actually a slight negative. This means there were less SBDs in existence on the 21st of November than there was on the 1st of August.
Now have a look at the same graph for the period of 22nd of November to the 29th January 2018 :-
You can see immediately that the SBD conversions have gone to near-Zero because nobody in their right mind would take $1 worth of STEEM in preference to selling SBD at an inflated market price. This means there are almost no SBDs being destroyed. Meanwhile you can barely see the Blue Line showing the newly created SBDs because it is covered up by the Green Line showing the Net number of SBDs being added to the Circulating Supply EACH DAY. Now remember that this is NOT a cumulative chart. If it was cumulative then it would look even more like an exponential curve….and there-in lies the rub.
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Since the 21st of November, there have been approximately 4.1 million new SBDs added to the Circulating Supply. This represents an Inflation Rate of about 125% over just over 2 months. In the last week alone, the Inflation Rate of the SBD is about 10%. At this rate, with a $7 SBD price, we need to add over $4.5 million US Dollars of fresh money to the SBD Market Capitalisation EVERY WEEK - JUST TO KEEP IT AT $7. Any less and it’ll fall. But wait, there’s more. As the STEEM price rises it is going to result in a bigger reward pool and EVEN MORE SBDs being created and added to the Circulating Supply.
That’s right, STEEM DOLLARS have become HYPERINFLATIONARY. Now if you think that speculating on a currency with that sort of Inflation Rate is a good idea then I’m sure that we can find some Venezuelan Bolivars you’d be interested in buying too.
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I know that this system is a bit complicated and I don’t blame new users for not understanding how it works. We all want to get bigger rewards for our posts, but let’s not delude ourselves any longer. This is a short term windfall and the exploding SBD supply won’t resolve itself until people start Converting SBDs back to STEEM, and that’s not going to happen until it gets back near $1 USD. So this is a train wreck waiting to happen for those poor bastards in South Korea buying this pump. A drop from $7 back to $1 is bad enough, but if you bought at the peak your losses are going to put you in the same boat as a BitConnect bagholder.
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That’s where I have an issue with people who are familiar with the system but are promoting and perpetuating a high STEEM DOLLAR. They should know better and pushing this myth that this price rise is sustainable while at the same time lining their pockets with Author Rewards is in my view, unethical. Those people are no better than those ones who were pumping BitConnect before it collapsed.
https://www.slideshare.net
https://www.silverdoctors.com
http://www.graphic-manifesto.com
http://www.thanksmailcarrier.com
Saying that SBD will go back to 1$ is a different thing than saying that it should be forced to 1$.
While I don't see SBD going back to exactly 1$ anytime soon - the possibility is high that SBD looses in value.
On the other hand, as we have seen before and again and again - there are people trying to play with SBD. And how would you know that this isn't their gameplan?
And yes, I'm a Witness in favour of keeping the current SBD model.
Why are you accusing me of telling people to buy SBD?
I never said that.
The only thing I said, is that: I don't believe it is the right way to force SBD back to 1$ because the chance is high that it will happen anyway.
If it happens anyway, it will happen anyway.
And whether you force it now or let it play out, those poor b* in south korea will take a punch anyway. IF they are not planning it like this to make you think that SBD will go back to 1 SBD.
My opinion:
Let us have a bit more fun and be grateful for such a high SBD-Price, which comes from outside investors.
I'm not accusing you of anything. I hadn't even known who you were until now.
I also am not advocating for forcing anything with this post. There are a number of ways this could be solved but here I am just trying to educate people really.
Great article buggedout, I didn't know the SBD were being destroyed when converted to steem. Do you know if those steem being created on top, come from the reward pool or come from the owners supply?
It blows my mind for how long this premium SBD price has been going on with the selling pressure increasing daily. I doubt it will ever go to 1$ again (probably 1.5$-2$) as many might speculate to sell when the price peaks again. Current rate really screws up curation, would be nice to have an update of the entire situation by ned.
The way it works is that there's a set amount of steem in the rewards pool. When payout comes, and sbd is printed, instead of giving you all of the steem, it converts the steem it would have given you into SBD via the price feed.
So to answer your question, steem is not being created "on top". It is a deferred creation. Instead of creating it on reward time, it gave you SBD, and whenever you decide to convert it , it gets created then instead.
So in this view SBD really is backed by a set amount of steem. (at the time of conversion).
Concerning your point about price. It will go down as steem price sustains or goes up. The supply is increasing at greater and greater rates! It's just a matter of time.
As long as Steem keeps growing in user base and Steem Dollars keep being held it is going to be harder and harder to see it coming back to $1. Something would have to happen because demand for Steem Dollars doesn't seem to be reducing. The only thing I can see happening is Dai becoming more in demand.
Greater supply as the graph in the original post shows you would think would result in a crash in price for Steem Dollars but do we really know how much demand there is for a stable token? Do we know how much demand exists for Steem Dollars? If demand outpaces supply then even if more Steem Dollars get created, in a market with 500 billion total floating around it's not so easy to know what will happen or when it will happen.
Also there are the SMTs which are coming. Who knows what influence that could have on Steem Dollars?
You raise a good point, but the problem with this line of thinking is that the demand needs to keep up with supply. Right now we are printing steem at 5 times the rate that we did before (proportional to STEEM feed price). I really don't think we've seen the effects of this just yet, as this is a recent phenomenon.
Even if we were to do nothing, you need to keep this demand increasing, no? Where do we expect this demand to keep coming from? The population is finite, but SBD supply grows without anything else changing. The only way demand has a chance is if STEEM price goes back down, which I admit is also a possibility.
I agree that for now it doesn't look like it will hold. I just don't know the long term value of SBD. It could be worth much more than $1 but I don't know exactly what. It depends on how SBD is used and whether it gets locked up, burned, etc.
With current parameters and nothing else changing, assuming demand does not keep up with supply (I know this is not a widely accepted assumption) this is what happens:
The reason 1 USD is the threshold is because of the conversion rate of 1 SBD to 1 USD worth of steem based on price feed.
Note if the witnesses change the price feed to be against some other asset, the peg would then be towards that asset instead.
Nailed it. Good job :)
The problem is many people are hopelessly confused by this Steem Dollar have no idea they can convert it to STEEM at market rates then use it to increase their rewards via self voting and curation.
Thanks, so if I understand it correctly. SBD are part of the ~9,5% yearly inflation of steem.
Yes, that is correct.
Thanks for the great answer!
Thanks. I think that the Circulating Supply won't start normalising until it is near $1 and there is no longer a dis-incentive for the market to convert SBD back to STEEM.
Youre missing one thing - this is crypto and if some whale / pump group decides to pump SBD to $100, they will do so. The mechanics you're describing are in works since the start of the pump and SBD is still above $5. Free market mechanics of demand / supply have no power here. But from logical point of view you're absolutly right :)
The point about my post was really that the system mechanics and the inflation of the SBD is poorly understood by many users. The fact some are now using ignorant views on the subject to affect witness rankings is a disturbing new trend.
While I agree it is poorly understood, that does not give Witnesses the right to take corrective actions without community support. I agree the price will fall. I do not agree with Witnesses taking corrective actions without polling the community. I too will be unvoting any witness that takes this action without vetting it through the community.
Yeah but it's like fighting a tidal wave. Once the supply is high enough and it matures, it is not as susceptible to pumps.
True.
How high is that?
Who knows, but my point is about the long term (years, is my guess) state. Admittedly it's not comforting to not be able to give any timelines for this.
What if it's a benevolent Steem whale, who profits after the speculators chasing the pump while giving the bloggers a pay raise?
What is this mythical creature you speak of? LOL
the benevolent whales aren't as visible, typically. or you don't know where to look ;)
there is so much to not understand about what's going on... hard to not speculate on theories and such... think of the grump cat... someone had enough money to buy all that steem, and start regulating on steem no one knows who they are, there isn't enough sp among the other whales, that he can do whatever on steem and no one can stop him.
if I had enough money to profit on a PnD with sbd, while at the same time benefiting the masses on steem, damn right! why not? a fun game where everyone in steem wins except the people hell bent on a peg.
If you can help out with where to look I'd appreciate it.
I've found a few benevolent witnesses that I'd like to network with and help, but the whales seem to be a bit more elusive ;)
:shrug:
I guess they did it once already and will do it again. Since the price has gone down, it looks like the time has come to pump again.
Thats exactly my opinion. Here is an additional chart where you can see: If SBD price rises then inflation rises too.
Its included in my weekly statistic charts:
https://steemit.com/steem/@sevenseals/steem-statistic-charts-week-04
It may look that way, but it's when the STEEM price rises then inflation rises. It is easy to get confused because often STEEM and SBD rise together.
In may opinion inflation of SBD rises because when the price of SBD is high, no SBD will be destroyed. What should be the connection between high Steem price and SBD inflation?
I saw SBD go up when TETHER got hacked. Thats how I see it.
If SBD drops to 1$ I think that it will be a incredible opportunity.
I originally thought the pump was related to the Tether hack too, but I've since cast doubt on it. The correlation of SBD to the broader market suggests is not being sought after as a safe haven.
I have been telling my friends This too, its not sustainable, And honestly i dont understand Who started the pump And why? :p
I don't know who started it, but the question I have is... how has it been sustained?
We will probably never know the who and maybe never know the real why either. It has only been sustained because of uninformed demand IMHO. When every man and his dog is doing Technical Analysis without looking at Fundamentals this kind of thing can happen.
Ahh, too true, and do you believe like I do, that most people are just using it as a place holder during the Asian vacation and possible bear market like most use Tether, or are people actually trading it like a regular coin or token?
I believe many are trading it like a speculative asset and thinking it will appreciate in value alongside STEEM. I have seen numerous posts citing the coins relative "scarcity" as a reason to buy it (sorry, but scarcity is NOT a utility) and I've also seen numerous people doing Technical Analysis on SBD and saying it's going higher (without understanding ANY of the Fundamentals of the coin). So yeh, I think there is a lot of ignorant speculation going on.
Ha ha, this can be applied to so many people in this space.
My guess is that people who wish to invest in Steem, but didn't read the white paper. The names are too close. People don't know. That is why I think it is a last resort for Steem Witnesses to take action.
I would like to see what percentage of the reward pool has been taken by the highest stakeholders - over the same time frame...
I hope you didn't just call me an unethical scammer that has no conscience and therefore can't sleep at night, haha (laughs nervously). In my recent post I talked about this subject from my perspective and I didn't think I was being dishonest in any way. My concern is that if there is a sudden peg to $1 USD it is going to make people go away and we already have a problem with retention. This move would make it worse. I believe the markets will do what they will do and I am not trying to artificially sustain higher and higher prices. In fact, I stated the following in a comment on the same post in response to a reader's comment.
I am just asking the powers that be to consider the impacts of artifically re-pegging it back to $1 USD, especially in a short time-frame. In a couple of your comments, you have stated that you think SBDs could be re-pegged at a higher USD amount. I really like that idea. It does appear that you find some value in receiving the higher payouts. I figure the markets will do what they do. The high prices certainly was a surprise. I may not completely understand how this ecosystem works; I am not sure if I followed your explanation of how SBDs are destroyed. Are you saying that the only way SBDs are destroyed is when authors choose 100% Steem Power as their payout selection? Honestly trying to understand and not be a jerk. What I do is take my SBDs and sell them on the internal market and then use the Steem to buy Steem Power. I have consistently been getting more Steem per SBD over the last few months and to me that is really the advantage, while it lasts. It appears that is what you are doing as well. I didn't realize we were creating so many SBDs and they aren't being destroyed and we are in essence, flooding the market. And, like you said, as the price of Steem goes up, we will begin to see more and more SBDs produced and the price is likely to come back down. I support pegging it at a higher price. I'd gladly have it pegged at $2 or $3 per SBD. Just throwing out a number. Thanks for providing your perspective. Again, I hope that I was not the sole inspiration for your post, I am learning as I go. I want to earn Steem Power and help secure my financial freedom and that of those that choose to associate with me.
No, steem has an option where you can "convert", destroy 1 SBD and create $1 of steem. It doesn't show under your wallet on steemit right now to protect folks.
Thanks, that's weird, I have never seen it.
I almost used it when I first switched off 100% power up when sbd first started rising. Thankfully I saw someone with an all caps warning to use the market instead.
Oh, okay, I think I actually know what you are talking about. Is it that process that takes 7 days? I did that a few times until I discovered that the internal market is much quicker and apparently offers better price conversion.
3 days I think, but yes that's the one.
Yes, but its that locked in price conversion that provides the floor. If SBD ever goes below $1, you could buy it up and convert it for profit.
No, I wasn't talking about you mate. In fact I wasn't trying to point the finger at any individual.
It was more a comment directed toward the Witness ranks who really DO know how this stuff works, or at least SHOULD know how it works. I think there is a temptation there for them to play populist politics to get votes by playing up the popularity of the high STEEM DOLLAR, or take away votes from Witnesses who are trying to do the right thing by the platform AND the investors by looking to address this issue with a long term view.
I already know for a fact that some Witnesses have lost votes over their stance on the SBD situation, so it pays to reason that others will have gained.
Ok, sorry for my big vomit of a comment about it. I agree that the witnesses should know exactly how all this works much more than a minnow like me. I didn't know there was such controversy among them about the subject. If big merchants like Starbucks really are considering Steem as their crypto for payments, I'd be glad to have The SBD pegged to $1 USD if that's what it took to get them on board!
We can only hope to attract a big merchant like Starbucks, but the argument is that they probably wouldn't look at us until we have our house in order so there is an opportunity cost to let this SBD situation run. There is also concern that a big bubble and crash of the SBD could really hurt the platform credibility and reputation in the fallout.
Don't SBD's also get destroyed when you promote your posts under the promoted section?
Yes, I believe that is true. A very good point and might be worth adding that to my query.
That burning for promotion means advertisers have a reason to buy a lot of SBD so as to have tokens by which they can advertise on Steem as a whole going into the future. Promotion as a function hasn't been developed out to it's full potential but that is because we don't even have a million users yet. Developed to it's full potential then how much could SBD be worth?
Ok, it sounds speculative and I have a healthy scepticism that it could be the root cause of the pump, but I'll concede it's possible. Let me sleep on it for a while and see if I can come up with a way to validate or quantify (or debunk) the theory.
now in 2018 steemit is very big platforms lot of peps and whales have invested alot
what i thnk fluctuation will be there i agree but it will rise in future anyhwo
Awesome, now I have a graph to point people to, thanks for this post. I am in complete agreement with your assessment. The problem is, I don't think all witnesses acknowledge that this is the picture, some still seem to think that long term SBD can still sustain its high value. Others acknowledge this but want a faster timing to the drop. We'll see what happens but I hope the conclusion takes this into account.
The issue is not whether it can sustain its high value "forever" but for how long. It has already been high, and volatile, for two months. The last time it de-pegged (spring 2017), it took about 3-4 months to fully return to $1. During these periods its utility as a stable value token is destroyed. Businesses that started to bloom around Steem making use of SBD had to abandon their plans and pivot or shut down. The interest in improving the peg mechanism (which in relying solely on accumulation of massive supplies of SBD to limit price gains has only a very weak, and very slow, response to demand spikes) is directed at avoiding continuing to have these incidents (even if each is temporary), which disrupt several important functions of the blockchain and greatly reduce the potential value-add of SBD to the platform.
Personally I am not looking for faster timing of the drop, I don't care about the short term movements. What I am interested in is improving the mechanism going forward so that SBD (and by extension the entire Steem blockchain) becomes more useful and valuable.
Ah you are saying that relying solely on the print functionality is not enough to prevent further demand spike incidents.
My theory on this is that in the mature state, the print rate would just be so high that a demand spike could not last for so long, and we are anyway better at propping up the value when SBD is below 1 USD. Likely we will be loosening these parameters to accommodate such spikes. Is this too naive?
Also, I would be interested in your response to the @twodollars abuse scenario here. Is there a potential problem with reverse conversions?
This is absolutely possible. But it won't be the case for a long, long time, if ever. Your model depends on the natural supply rate always being higher than any current rate of demand to increase holdings of SBD (with the difference made up using SBD-to-STEEM conversions). Without knowing the behavior of future demand, which is impossible, it is also impossible to predetermine a rate of supply such that we can be confident that the supply rate is always going to be higher than demand rate. Even if we could, given the existing design constraints such as an already-determined total inflation rate, it is difficult to envision how we could raise the SBD creation rate enough to chang this unless that creation comes with an associated destruction/conversion of STEEM.
Regarding the abuse scenario I don't have time to work through his scenario in detail but I have considered many and nearly all if not all rely on being able to predict the price or assuming the ability to unilaterally move the price without losing money doing so. (Both being assumptions I consider questionable at best.) While I don't think anyone really believes that these conversion mechanisms are completely impervious to abuse, most of us do believe that abuses are limited and that allowing SBD itself to be subject to rampant manipulation allows even more damaging outcomes, including loss of utility of SBD as a stable value token and the associated opportunity costs that arise because of uses that will never happen.
Ah okay. Thanks again for your reply!
I want the peg as the end state, but didn't think this reverse conversion would work.
The cited abuse path does make the assumptions you stated, so it is likely something you been have already thought about. And it sounds like you have measured the risk of this to some extent and the spread at least could mitigate this. Hell even a large spread would still make me want to do the reverse conversion in the beginning anyway if I had spare steem.
To be honest, if there are enough risk mitigation factors and fail-safes in place, I would not be opposed to this procedure, as a peg is a completely sensible thing to have.
However, do you think it makes sense to see how the market reacts to the current rate of printing? Because it does seem to be a relatively new phenomenon. (Although I suspect your position here is that this is already too long, the two months)
Not only the two months so far now, but this is the second occurrence of largely the same phenomenon. It happened last spring as well, and took about four months to resolve. So over the past 12 months, the peg has been working only 6 of those months. To me it is clear by now that this is not only not working well, but imposing real costs on Steem in terms of both distortion of the intended incentives (curation, vesting, self-voting) as well as missed opportunities to attract business and capital with a working stable value token.
Thanks for jumping in here @smooth with some thoughtful comments. This is a great little thread of discussion right here. I just need someone with more voting power than me to bump the original comment to the top for me.
All they have to do to secure the value of Steem Dollars long term is re-introduce yield. If yield is added again then people will want to hold Steem Dollars over alternatives at least until Dai becomes more known. Steem Dollars are actually backed by something.
The other element is SMTs. How will people buy into SMTs? If Steem Dollars are involved this could lock in Steem Dollars.
Do you mean the interest rate? I doubt that's something the witnesses would consider at this time.
What's Dai?
The Dai is a stable token from the Maker project which is basically the bitUSD token equivalent for the Ethereum blockchain and I understand it is backed by ETH as collateral. My TODO list has it near the top to investigate as a place to park some crypto wealth now that SBD has become speculative. Stay tuned because I will probably write about it soon.
The Dai is likely to be the biggest competitor to SBD as a stable token going forward.
Looking forward to it.
Speaking of this, I was thinking about taking some SBD and parking it in bitUSD. Then I realized I'm not sure if that's any different than any current holdings I have on the USD, so maybe I should just buy steem with it :). But supposing I wanted a USD token, why not bitUSD?
I like bitUSD too though the liquidity is not great there and the underlying collateralised asset (BTS) is more volatile so the black swan event risk is higher. With ETH having more stability and more liquidity I think Dai could really be a winner.
That said, I'd prefer the collateral underneath the peg be something value producing like the STEEM Reward Pool rather than a raw crypto, but I'm one who will take the best stable coin on the market at the time. That looks to me like it will be Dai.
The issue is not securing the value, it is providing enough supply quickly enough that it does not de-peg to the upside, as has happened twice now. Yield will not help, it only makes SBD even more valuable to hold. What is needed is more supply, exactly what this post explains is happening, but it does not happen in a manner that responds dynamically to demand, so can easily fail (as it has).
I thought this way too when this first happened but now I'm skeptical that it can ever hold a peg. If it ever goes below $1 people will buy it as free money. If it even is at $1 people will buy it up as free money. How will it ever get below $2?
It will (probably) get below $2 because at $2 (or even in principle at $1.01) supply will keep being produced essentially without bound as the graphs in this post illustrate, until there is just no more incremental demand to keep buying more of of it, and then the price will fall.
Look at the price chart for last year. Just as it has proven that it doesn't reliably hold a peg, it is also proven that it is possible to return to $1 after being too high (once supply with its slow-but-relentless climb catches up).
It all sort of works, but not consistently.
Good post. Well written and nicely explained and illustrated.
Thank you. I appreciate you taking the time to comment here. You input into this discussion has been invaluable in helping users understand the big picture issues.
I am struggling to understand why people don't trade their sbd`s to steem at this price. Why would they wait for it to fall back to $1 to convert?
Because if you do it now, 1 SBD will only get you $1 worth of STEEM. That's about 0.18 STEEM per SBD. You can get much more than that on the internal and external markets.
Oh I see. Yes I always use the internal markets.
@buggedout, great post, resteemed, great analysis, I was actually getting a bit worried about holding our SBD as I had some concerns that the rise might not be sustainable too, we did not have much SBD, but agree that it is better to hold STEEM.
Don't worry hun.. I'm paying the builder with the SBD :) - that's why we don't have much lol
Thanks mate. Your spidey senses were right ;)
I was just having a conversation with a witness yesterday, because he wrote a post about a bunch of options as to what to do when it came to pegging the Steem Backed Dollar, or getting rid of it all together.
What I said, was that if they don't do anything, that Haejin character with his 111 posts per day, and his army of bots could easily pull in a million dollars a day, and the question I had was... is that even sustainable?
Steemit would be minting millionaires by the 100's each and every week, I mean how sustainable could that actually be in reality... I'd love to hear your thoughts? 🐳
The funny thing is that this system with bots, you mentioned, was sustainable from the beginning of Steemit and worked quite well when there were only for few whales and orcas. The only thing that has changed is a long waited "quality" content creators and user support. Somehow that was not very well welcomed by old-school bot users.
Probably this is what is not sustainable - draining reward pool with bots or massive user support for a quality content.
Is it possible for a few bad actors to drain the entire rewards pool via bots?
If so, how could the witnesses resolve this issue?
Yes. But they are not going to do it, because then it is too visible even for a newbie users.
When you limit something for a legit user then with bots it's useless. So, I do not have a solution yet.
They need to do something, because if what you say is true, one person and their bots could possibly take up the majority of the rewards pool.
I guess there's more coming this year. Stay tuned.
The potential reward pool abuse is a whole other issue and it is also an important one. My personal take is that we need to get better at identifying and self-regulating abuse. It will need more users to take a more holistic and benevolent view toward building the community and the platform.
As usual a very insightful post. (maybe inciteful too in some camps lol). But yes I agree. I'm really not sure why people would invest at that price. In fact I would never invest over $1.
Sure I'm taking advantage of the high price and currently selling SBD that I earn though posting. I invested substantially in SP when I began (and I don't touch that) and when SBD goes back to $1 I'll buy up and invest more.
The high price is nice and I'm benefiting of course, but I'm under no illusions it will go back where it's supposed to be by one means or another and I wont cry when it does.. I'm still ahead :)
Thanks again for your great explanation
Thanks Shelly. You're very astute and so I expect the both of us will be loaded up and ready to buy SBD when it does inevitably drop to $1 US or below :)
I totally agree with this post. SBD has to come to its correct level of 1$, above that it will create inflation.
Thanks. Whether it needs to be re-pegged, even at a higher rate or even abolished. The solution is yet to be determined but it's definitely broken now.
Could you repost this...or could I repost? I would like to "Resteem" this post.
If you would like to write a post you can take some extracts from here as long as you properly credit me and link to the source material I don't mind.
Situation probably needs an update with SBD having dropped so much already.
This is self-correcting in time.
I have no idea of why investors choose to dump money into investments that they know nothing about. A currency that's valued by a platform at $1 USD should always keep a value of $1 USD, unless people are oblivious as to what they're purchasing.
Sadly the crypto markets are full of people who are oblivious about what they're purchasing. A major market correction will eventually happen, and it's going to be ugly when it does :(
I agree, I have been telling people not to buy SBDs from external markets, even as a way to buy Steem Power as they are supposed to be pegged at $1 USD and I expect a correction. I advise them to buy Steem as it is the de-facto token on the Steem blockchain and has a greater potential to rise in price, not SBDs.
Indeed. That is why I think we have a responsibility to try and educate people about our platform and make sure they are informed about investing in us. In the long run we will be better and stronger for it.
It is also possible they know something we don't know. It's too soon for me to know how much a Steem Dollar is worth. I want to see how SMTs interact with SBD.
Steem dollars have no defined role in SMTs. There is no connection.
The only thing that SBD buyers know that some here do not know is that the mechanism is broken and does not effectively enforce an upper price bound. Therefore it makes perfect sense to buy it above $1 if you think it will go higher (and history has shown perfectly clearly that going higher is not only possible, but plausible).
How will we buy SMTs and when people buy SMTs what is the stable token going to be? Why woudn't SMTs increase demand for Steem Dollars?
There is no stable token defined in any part of SMTs. You will buy SMTs with STEEM or possibly with SBD or with other SMTs , but there is no special role for SBD in the design.
Another SBD myth dispelled. Thanks again @smooth :)
But isn't steemit inflationary as well at about 100% per year as well?
No. STEEM once had high inflation but it was changed to be 9.5% per annum in 2016 and that rate is supposed to drop by 0.5% per year.
How is that possible when so much steem is generated every day from posts.
The STEEM is generated per day regardless of the posts. It seems like a lot of money but remember the market cap for STEEM is about $1.3 billion USD!
Ok I agree with you now and am following you. Thanks for the info. Luckily I am holding steem power and not sbd.
8.5%, down by .5 a year until it reaches 0.5% a year, I believe. They forked it.
Buggedout you were so correct! However, now SBD has fallen below 1$ USD, does this mean SBD can be converted to the equivalent of 1$ USD worth of steem again or is this function not available any longer which means SBD are backed by nothing?
It has always been possible to do the conversion to $1 USD worth of STEEM, but the feature was disabled on steemit.com and has not yet been re-enabled. You can still access the feature via other means such as steemconnect.com or steemnow.com
I'm not sure if I'd recommend doing it right now because the price feed is inaccurate and you might not get a good conversion rate. Wait until Binance re-opens for deposits/withdrawals and https://coinmarketcap.com/currencies/steem/#markets is showing less disparity between the exchanges.
This is by far the best explanation of the SBD system I've seen. If accurate, it is inevitable. I read on another Steemit post where the guy claimed that the new SMTs were going to be backed by SBDs and he was citing this as a reason for the pump. I downloaded and read though the Whitepaper on SMTs...there is more code in there than I expected and the last University level coding class I took was Fortran 90 in 1995 so the code is over my head but it seems like this is Fake News because I only see them backing them with Steem in the Whitepaper. If I had to wager, I'd say the pump is due to sheep and speculation versus SMTs.
It is accurate, I even analyze the code right here.
There is no connection whatsoever between SBD and SMTs. If that story is being spread it is either out of ignorance or deliberate misinformation to drive the price up.
Thanks. It is disappointing to see others spreading mis-information but often people don't even know they are being misleading so it can be hard to judge. I have come to the conclusion this SBD pump is either speculation or manipulation. Maybe both.
I've been at Steemit since around September or so. But I'll admit I'm not very clear about STEEM and SBD. I do remember the latter was priced lower than Steem at Bittrex and Poloniex, until it suddenly shot up.
Actually I was thinking about buying some SBD. But after reading this post I'm now hesitant. So buying more Steem would be the better choice, is it?
For sure I would recommend buying STEEM over SBD at these prices. There are no guarantees but just by the inflation rates alone I'd be much more confident that STEEM will outperform SBD in the long run.
This is one of the best post I have seen in my limited time on Steemit. I come from the forex trading world and I grew up trading Japanese Yen. I agree with you that the prices should go down towards $1. But I don’t see that as a bad thing. A 1/6th drop should me palatable for altcoin investors. Even the king BTC is down 50%. Just the way trading works. Remember the moment BTC futures opened up, days of massive gains are over
Thanks. I trade a few alt-coins, but if I lost 85% on a trade I'd be pretty gutted. What concerns me is newbies here on STEEM thinking they should HODL or buy more SBD and not understanding how it works.
Why would minnows and dolphins be most worried about something like this, when the whales would lose roughly 1/7 of there investment and or ROI? if SBD was pegged to the dollar, surely Steem would take a dive as well. this site would be dead! If this is the case, I will never spend another red cent on SBD, and everyone should sell what they have ASAP.
I am speculating here, but many Whales are astute investors and they can probably see that a stable SBD could attract the big merchants that could really make the STEEM price moon.
I have a few SBD now tell me what is the best thing to do now?
Personally, I am selling every SBD that I earn. You can then buy STEEM with it or something else, but to HODL SBD is a mistake IMHO.
thank you, that is what I have been trying to figure out, is there a circumstance where holding SBD is a good idea?
Yes, when it is priced at or below $1 it is a great idea to hold it.
Thanks for that info. When I started, I was always reading how SBD were tied to the USD with the goal of keeping close to parity.
When I started writing, I was always thrilled to see the big $ amounts (that is, anything over $2..I'm not that good yet) but now I use a site called steem.supply that shows upcoming payments. It has a neat toggle switch where you can look at the SBD and SP for upcoming payments and ignore the $ value which fluctuates from moment to moment.
At my stage if the game, anything better than 1SBD is great news!
Yes, it is a short term windfall that has made a lot of people happy (even wealthy)
My point here is that it is not sustainable so don't get your hopes up about it staying that way :)
I must say, I went in reading this skeptically preconceived, but upon reading your very well written, and easy to understand blog, I'm surprised this didn't become clear to me sooner. Thank you for posting this. Upvoted.
You're welcome. Thanks for your positive comment and feedback :)
Very welcome. I am now one of your followers.
Thanks for sharing! A link to your post was included in the Steem.center wiki page Steem Dollar (SBD) : Links. Thanks and good luck again!
We're seeing it in freefall now. I posted an article recently that rapidly became worth 400+USD. Its fallen in value now to under $150 Some upvotes have been removed (why do folks do that?) but the rest of the difference is purely the drop in value of SBD.
What can you spend SBD on? I'm not aware of anything that has a direct market with SBD.
With that said, if this social network continues to have big growth (that would also have to be exponential and I'm not positive it is), then at least for a little while SBD COULD have stable/upward growth versus the DOLLAR.
And there is the real point about this. I'd rather HODL an SBD than a dollar. I wouldn't hold either in truth.
SMTS? Smart Media Tokens?
I'm not sure I understand what you are responding to. You mean you can buy SMTS with SBD?
Being new to STEEMIT, this is eye opening.. I need to study this more. Did you pull the blue, green, red curve off the block chain directly?
I noticed that there's some big whales in this community, and getting paid a huge amount based on content that's not justified. In the long run, I have a feeling that it just can't be self sustaining as you mentioned.. good job
I pulled it from SteemSQL which is a database populated with data from the blockchain by one of the witnesses called @arcange. I massaged it a bit to make it a 7 day moving average to smooth the line a bit.
The first (and hardest) lesson to learn here is that it's not just about making good content, it's also about building a social network of users who will support you. Some of those whales might not have as good content, but they have lots of friends on here who support each other. For better or worse.
Per Dan Larimer, the SBD is guaranteed to be "not less" than $1.00. It is desiged to have it's own value as it's own token. It can definitely trade higher than $1. Better question is, what is driving that particular token's price upward?
The white paper states:
The authors of the white paper got this wrong. Over the past year it has not only not had a narrow trading range but it has been well outside of that range for a very significant portion of the year.
What was intended and expected was not accomplished, because the mechanism as designed is deficient.
Okay, I'll take a stab at it. I'm guessing that Steem Backed Dollars (SBD) are Dollars that are backed by Steem. So, if Steem rises, and you're sitting on SBD and not US dollars, then your ration of SBD to Dollar should increase as well. Well Steem just took a joy ride up the $8.00 range recently and I'm guessing that the inflated SBD price is directly related. if people hold on to those SBD's then they will continue to see a healthy swap rate to the US dollar when it's time. If they decide to cash out, well then the swap price declines and normalizes back to the 1:1 range with the US Dollar. Steem is a decentralized platform with it's own governance model. I believe vote can change just about anything. I am personally going to give the developers a pass under the argument that this recent run up in Steem price does not qualify for "normal market conditions". Great post my friend! Thanks for sharing!!
If cryptocurrencies moving up and down, even quickly, is not part of someone's idea of "most market conditions" then they have no idea how this market works and has worked for the past 7-8 years.
Likewise, thank you for the discussion!
Hello @buggedout, i read you article, and i also wrote one with my economic perspective, and i wish that your read it too, so we may improve this discussion. (BTW, i agree that a high SBD price will damage the system)
But i have one thing to point out on your analysis:
Wouldn't the destruction of SBD increase the price? Like you said, SBD conversion to Steem destroy SBD, reducing its supply. I think the effect would be the opposite.
As the basic supply/demand economic law states that shortage of something makes it price increase, the destruction of SBD would have the opposite effect on its price.
If you add to the equation an increase of SBD market cap, that would also mean a demand increase, wich also drive the price up.
I don't think Venezuela currency would be a good comparison, because there is some weird government influence over it, and supply and demand isn't exactly what if defining its value. If you check the chart of USD/VEF, you will see that the price doesn't move as other currency markets.
SBD actually is more valuable than a USD, not the opposite.
And one thing that maybe you didn't took in consideration on your analysis is that between Aug-Nov of 2017, the demand for SBD pretty stable, as can be seen on alexa.
At December, the traffic towards Steemit.com increased a lot, driving the demand for SBD and STEEM a lot higher.
The situation with the SBD price is a consequence of demand.
Check my analysis, let me know what you think.
https://steemit.com/witness-category/@phgnomo/sbd-usd-peg-taking-exemples-from-the-real-world-economics
The rate of printing increase is because of the steem price being high, and that's how it is designed.
About 2 and 3
What i understood here is that he thinks that the high supply is devaluating the currency, wich is true, but that doesnt make SBD on hyperinflation, since the demand is still high.
The destruction of SBD (conversion) become avaiable below 1 usd exactly to avoid the hyperinflation, because It reduce the supply, increasing the value, and to help avoid that the sbd lose value.
One of the reasons bolívares have hyperinflation is that the venezuelan government force its value lower than the dolar. It isnt the market supply and demand that cause the inflation.
And yeah, the printing in itself doesnt make a currency less valuable. I think the system is working Fine. Its only a question of high demand. When we reach the point where there is more SBD on the market than people are willing to buy, the price Will naturally fall.
Ah okay, I think we are agreeing here. The point of contention is that perhaps it is wrong to label this as "hyperinflation" from an economics point of view?
I think so, because at this moment SBD have a high value, and not the opposite.
An price increase would add more value to it actually.
But If the price is lower than 1 dollar, then SBD lose its value, and the blockchain have systems in place to Bring the value up again (the conversion mechanism)
That is true if starting at $1. If you are starting at $10, then the currency can still hyperinflate and lose 90% of its value.
But the reason of SBD is exactly to be as close as 1 usd as possible, and when the price os above 1 dollar, the inflation increase exactly for the purpose of devaluate the SBD.
The hyperinflation would only occur if, when below 1 usd, the sbd would be printed at the same rate as now, on a continuous devaluation of the coin.
When below 1 usd, the mechanisms of deflation kicks in (less SBD printed, and the possibility to burn SBD through conversion)
We dont have hyperinflation right now, and we wont have hyperinflation when price os below 1 usd.
SBD Will never become Fully pegged to 1 usd, and like other strong currencies (usd, Eur, yen, and others) It doesnt have to be. But also It Will never rise in price nor lower in price forever because of the economic mechanism that already are in place on the system.
Also, allowing to convert SBD to steem now would burn SBD, thus increasing scarcity and driving the price up.
Ya, I always thought it a bit odd that SBD was so high. Right now there is no point o ever go 100%SP so why is it even an option? Because eventually it will drop, it already has had a significant drop from when I started. Get it while you can, it will correct to "proper" levels soon enough
Well the system was designed for SBD to be worth roughly $1. That is also why the post rewards are not showing an accurate dollar value. Steemit (the developers) disabled the Conversion to STEEM function in the UI but left the 100% post rewards option. Not sure why, but it's a legacy. Maybe some day soon it will be relevant again.
I am one of them people who does not understand it at all. I am just here for writing, and sharing photos and maybe get a dollar out of it :-) But I came in at Octobre and it went ever so slow, from december my money started growing overnight, which is for a no understander unbelievable! :-) I was ever so quick with changing all sbd I had on the steemit market. And when you did that, you ended up with even more money. Now that is changed, I do not want to change my sbd to steem, I get less back. But as I understand right I better still would do that? To get the sbd steemed into air and to make more steem? (Sorry for asking silly questions...)
I need to do more research into the economics and steemit white paper. But why the pump in the first place? Doesn’t it scare investors to put there money into something that supposed to be tied to the $1 value. Am I missing something?
SBD aren’t supposed to be a speculative asset (something for investors to put money into). Steem and SP are the things people should be investing in. SBD is supposed to be a stable currency so that businesses who want to launch a platform that runs on Steem can predict their future cash flows.
If a business wants to sell goods or services for SBD while SBD is a speculative asset, their customers are incentivised to hold on to their SBD in the hopes they will increase in value, rather than spending them to purchase goods or services, which are not likely to increase in value.
I hope this explanation makes sense.
Yes thanks for responding. With that explanation I hope the community can work together to figure something out.
Good job @crazyfisherman I could not have answered it better myself :)
Thanks @buggedout I really appreciate it.
Thank you! That's the question that's been going around my head all the way through reading these comments. Now it all makes sense.
No worries. Glad to be of assistance.
I had no clue. Thanks for filling us in. I was wondering if it was still a good time to buy, but now I think I'll wait a little longer and see what happens. Thanks, man!
I'll be buying boatloads of SBD if it ever gets back to $1, but not before.
You know, we should go in on it together. Rather than each getting a boatload, let's buy together and just split a cargo ship load of Steem. We can get it shipped over from China. :)
Oh how I've enjoyed the high sbd price, bought a shit ton of metal! 😎 Sadly I knew it wouldn't last forever but I wish it would. Very informative post, you always do such a great job of breaking shit down so dumb ppl like me can understand it. 👊😎
No worries mate. It took me a fair while to get my head around it, but once I did it only seemed right to share. Glad you got some value out of my post :)
Thanks for sharing your critical perspective, we need such rational thinkers like you in these times of euphoria. What is your viewpoint on the STEEM price?
Thank you. I believe STEEM has enormous potential if we can attract merchants to the platform. But there are a lot of problems to overcome before I will be convinced that the potential will be realised.
Thanks. What problems do you see that need to be overcome?
The answer to that question is probably worthy of a whole new post - or even multiple posts. But lets just knock them off one at a time. The bubble in the SBD is top of the list right now :)
Very good explanation on the over-supply side. The big question is what enforcing the peg will have on the STEEM price. The supply of SBD is dependant on the STEEM price, so high STEEM price = high SBD supply. The only way to reduce supply is to bring STEEM down, or burn SBD (intervention).
STEEM also seems to gravitate towards SBD, so will the peg on SBD indirectly result in a pegged STEEM as well?
I wish I had all the answers. My gut tells me that this doesn't get resolved until SBD hits $1 and we have some mass-redemption of the over-supply to STEEM. But there are other ways to skin the cat.
I don't know about the STEEM gravity thing. I think that is more about general sentiment than anything else so I understand why they might move together.
Not quite. Conversions reduce the supply of SBD without burning or any explicit policy intervention. See the chart above that shows how, under normal conditions, when the demand for SBD is not changing much, the supply of SBD is quite stable ('net' fluctuates above and below zero, but has an average close to zero over time), with conversions roughly matching new creation. That is to be expected as long as SBD remains near $1 and does not 'detach' (as it has).
Agreed, but right now there is no conversion. We can only reduce supply by STEEM going down, or the burn like you have been experimenting with.
This is exactly why we need a more robust peg.
There is conversion from SBD to STEEM (reducing supply of SBD). It isn't visible in the web UI but it is still usable via CLI or API.
What is lacking is the ability to convert from STEEM to SBD (increasing supply of SBD). The only way to increase supply of SBD now is to wait.
There is still 30 steem per sbd. Will that help sbd any?
Sure. Our debt level still looks very manageable.
I resteemed about this a while ago , and I think that the whales and witnesses are very aware of the problem and are trying to put up something : https://steemit.com/fr/@happydaddyfr/avis-a-la-communaute-francophone-les-witnesses-discutent-du-prix-du-sbd
thats the french version for the fr community
and here is the original : https://busy.org/witness-category/@reggaemuffin/witness-discussion-sbd-price-and-reverse-peg
I am hoping a solution can be found knowing I am here for the long term !
:)
Thanks. I had read the post by @reggaemuffin and another good one from @lukestokes before posting this. Those guys are both trying to build awareness about the issues and educate users about it, which I commend.
As others have mentioned, what do you guys think a reasonable Price for SBD and the STEEM token itself would be?
As a complete n00b at assessing volatility, I would say maybe a 10$ STEEM and 2$ SBD by end of year without any heavy spikes or crashes would be nice for sustainability.
Only issue is the day traders and the lambo dreamers that are assocaited with crypto as opposed to the underlying idea of hodl'ing, I guess only time will tell!
I would be happy with $10 STEEM and $1 SBD personally. I do think a SBD crash will hurt STEEM in the short term, but if we get a stable SBD back and attract a big merchant like Starbucks then $10 STEEM is going to be cheap!
It's a great article, I learned something there, some fantastic points. The only thing I think of is:- being pegged to Fiat USD, what happens if the US economy fails and the dollar goes under? It seems to me crypto is something new, so set a new standard for it and perhaps peg it some other way that dosent involve bankers and governments.
Any way I hope a solution can be found that keeps Steem moving forward and keeps everyone happy.
Great question. You should read my other article Instead of STEEM DOLLARS how about STEEM GOLD
That is crazy. Can't argue with that. This thing will fix it self.
To clarify I have never told anyone to buy SBD - though I've posted bullish charts this is about author reward prospects, not trading the damn shit.
Buying it is dumb. I should probably put a disclaimer re that as you are one of my savviest followers and even you thought I was actually buying the stuff.
As for the Witness thing, if anything this reinforces my view as to leave it alone and not cause a crash. Let the market dynamics sort it out and then peg it hard. I need to think more on this though. Maybe we do want to limit the number of muppets getting burnt on this ... who the fuck is buying this stuff?
Thanks for dropping in and commenting. Much appreciated.
I wasn't sure if you were buying it but you sounded bullish on it so thought it better to be safe than sorry and put out the warning. I don't want too see a crash either.
I also don't know if we can limit the muppets getting hurt. As a Libertarian I believe everyone should be free to do what they want, but I think it's important that people make educated choices and that's not what's been happening. The problem with these muppets is that once SBD comes down they will probably push it below $1 USD because the trend has changed and the chart will tell them it's going lower!
This is the danger of trading Technicals without knowledge of Fundamentals.
I did not understand alot about sbdz until now...thanks for the informtive article and thanks for making it so understandable for new stimians like myself.. i am greatful @buggedout
You're very welcome.
Thanks for the explanation and warning. As it is, I just convert SBD to Steem without bothering to check the price. At the moment the difference in market doesn't really matter for the tiny amounts that I change. And I need power more than on paper wealth.
I think that's a smart way to go for most people getting started, so congrats :)
Great post. Thank you for sharing this reality. The funny (sad?) thing is, when it does come back down, I'm sure plenty of people will find a way to blame the "evil" witnesses and whales for doing something to cause it. Heheh.
Thanks for dropping in with some support. I really appreciate that.
A big motivation for writing this post was I was seeing some anti-witness rhetoric being spread around, which was largely ignorant of the real situation. I would prefer our top witnesses to remain good technical people who are trying to do the right thing long term for the platform....rather than playing populist political games for the sake of garnering votes.
It may be inevitable that our witnesses become less technical and more political, but it is a trend I am quite determined to help resist.
Thank you for your efforts. They are greatly appreciated. It's a challenging line to walk to say things which may be unpopular to some but may ultimately bring the greatest value to the most number of people. I don't want to be part of taking away anyone's extra blogging rewards, but I also don't want to make short-term decisions that have an opportunity cost which, in the long run, could potentially decrease what so many could have enjoyed. We should be thinking about the many millions of users who have not yet signed up, as well as the early adopters we have here now.
It's a fine line to walk, but if we focus on facts and keep integrity intact (as I believe we are both doing) then at least people can make informed decisions and hopefully these kinds of disagreements over the peg can be civilised so we don't get personal or end in flag wars.
For better or worse it is the best we can hope for. I am very pleased not to have been flagged for this post by vested interests. It was one of my concerns :)
I decided a while ago not worry about downvotes. I got downvotes for months from a certain controversial whale (often in the last 12 hours before payout so no more upvotes could undo it). I just accepted it and moved on.
I have had to scroll a long way down this post to find a comment from a witness (that I recognise) that worries me because this is an important component of the Steem ecosystem .
I wrote a whole post on this topic with quite a lot of commentary, if you want to check it out.
I agree, it's tricky to educate people on what an ideal witness is. It's not a popularity contest. It should be someone who is adding value to the network and thinking long-term about what's best for everyone involved.
How did I miss that post, great analysis Luke, one thing I would like to add to the discussion is in relation to the split of rewards. It's touched on by lots of commentators but not examined in detail.
Part of the genius of Steem is the fact that some of your stake is locked up for a little while, currently 13 weeks. The broken peg means that authors can now effectively circumvent this feature when getting new payouts. No longer is the post payout 50:50. I think back to some of the big early adopters who got 15k for their first post. They could only cash out half and the remainder became an incentive to keep an interest in Steem. Having stake is a powerful incentive!
This distribution of payouts is broken at moment.
Yes, and it also disincentives curation which can lead to more people using vote bots to get noticed. Some have suggested we change the payout option to have more than 50% SBD, but I'm not a fan because the security of a DPOS blockchain is based on the stake weighted votes in SP. There has to be an incentive to keep a lot of people holding SP to keep the blockchain secure and the governance decentralized.
Sorry if I didn't comment under it. I resteemed it without comment because I think @buggedout said all there has to be said. If you want my opinion on it, ping me :)
No need to apologise. Your support is appreciated and has not gone unnoticed :)
Thanks for the reply, in many ways @dan is a genius but it's hard to put your finger on exactly what it is about the ecosystems he has built that make them so great. In Steems case there are so many little components that add up to much more than the sum of their parts. SBD allows/allowed risk averse people to get involved in crypto , it allows commerce to take place and if nothing else provides an intuitive way to see what a post payout is worth. I would be sorry to see this aspect of Steem being forgotten about and I don't feel there is enough discussion among the witnesses about it (not publicly at least). I mean't no disrespect.
I never understood how SBD could be so high and figured it was temporary so have been very quick to convert any SBD rewards into Steem as I have a feeling it can only go lower.
You've got good instincts. SBD may yet have another pump or two in it, but I'm doing the same and liquidating everything I earn.