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RE: The Price of Steem Will Always Go Down... It's Supposed To : The Magic of Steem Power

in #steem • 8 years ago

The amount of SP is not related to the price of Steem. The value of that SP is though, as SP is simply vested(non-tradeable) Steem.

SBD is always worth aprox. $1 worth of Steem regardless of the price of Steem.

8 years ago in #steem by
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     8 years ago  

    For simplicity, let's assuming that steem isn't appreciating in value. Under these conditions steem inflates primarily through interest paid on SP, which means the real value for SP holders doens't change since they are all having their SP inflated at a similar rate. I get this part.

    The part I don't understand is this...

    Doesn't the steem that is used to back SBD need to be inflated at a similar rate to keep SBD from losing value?

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       8 years ago  

      The steem backing SBD doesn't exist yet. SBD is a contract that guarantees enough Steem to equal 1 dollars worth of steem. When\If the contract is executed the steem necessary to make this happen are freshly created. So with a rising price the steem obligation to SBD is deflating; with a falling price it's inflating. Check pages 12-13 of the whitepaper for more info on "Sustainable Debt to Ownership Ratios"

      For every SMD Steem creates, $19.00 of STEEM is also created and converted to SP. This means that the highest possible debt-to-ownership in a stable market is 1:19 or about 5%. If Steem falls in value by 50% then the ratio could increase to 10%. An 88% fall in value of STEEM could cause the debt-to-ownership ratio to reach 40%. Assuming the value of STEEM eventually stabilizes, the debt-to-ownership ratio will naturally move back toward 5%

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