Witness Run: My outline of the Economics of the system. What to do to keep the SBD peg at $1USD and why we should.

Being a witness has a lot to do with understanding economics. Here I'm going to outline my basic understanding of economics and how it relates to Steemit currencies through the lens of my mission statement with a current issue as an example. Yes, this is what I choose to do on a long weekend.

https://steemit.com/missionstatement/@aggroed/my-steemit-mission-statement

The value of a currency is proportional to the amount of goods and services provided

Ok, so this post is going to have some equations. I'm sorry. But this is an economics post and I'll try to use only basic math rather than calculus or something more complicated.

Total Currency Value ∝ Total Goods and Services

∝ means proportional

This is considered a direct relationship. If your good and services goes up then your total currency value goes up. If your total currency value goes up then you are able to purchase more goods and services with it.

Both sides of this equation get more complex!

Total Currency Value is the combined value of Steem Power, Steem, and SBD

To figure out the total value it's the sum of total SP, S, and SBD value.

That means it's SP times the value of SP plus the amount of S times the value of S plus the amount of SBD times the value of SBD.

XVSP + YVS +ZVSBD = Total Currency value
X= number of SP in existence
VSP= value of SP
Y= Number of Steem
VS= Value of Steem
Z= Number of SBD
VSBD= Value of SBD

A gauge for goods and services

The amount of goods and services is the total output of the economy. So, you add up all the physical stuff produced. Then you tack on all the services (labor) that was sold. While it's not perfect I think the fastest and easiest way to approximate total economic output is to figure out how many people are in your economy. People purchase goods and labor. People provide labor. So, the number of people is a pretty easy handle to figure out your total economy size. Furthermore, the rule of thumb in crypto is that you can approximate the number of people by the number of transactions in that currency per day. So, it's pretty easy to track on the block chain how many transactions there are per day so it's a really easy metric.

The right side looks like this

Amount of Goods and Services ∝ Amount of People ∝ Number of transactions

So, my new total equation looks like this

XVSP + YVS +ZVSBD ∝ Number of Transactions

Let's run through some hypotheticals

1. Steem is cool and more people use it. The number of transactions increase. What happens to the value of the currencies?
   With more transactions, more people, and more goods/services and assuming the amount of currency in circulation stays the same then the value of the currency will go up. Currency deflation
2. Steem is uncool and less people use it. THe nuber of transactions decrease. What happens to the value of the currency/?
   With less good and services your currency is now in excess supply. That means it will take more of it to purchase something. Currency inflation.
3. Steemit prints a shit ton of coin but the amount of goods/services stay the same. This is inflation. There are now more coins in circulation than the amount of good and servies so the value of each coin will drop.
4. Steemit stops printing coins and people destroy or lose some while the amount of goods and services stays unchanged. This is deflation. There are less coins in circulation so it will take less of them to purchase the goods and services that one can buy.

What's happening in the real world?

Steemit increases coins in circulation at a rate of 10% annually. That's 24million coins this year. The total size of the American GDP is 19T dollars. World GDP is between $75-110T. So, STEEM only has 0.000032% of the amount of currency in play. This is to say we temporarily have a very small marketshare of the amount of goods and services traded in steem. We're in a super tiny pond and with events like 1btc>1ozgold crypto is going through mainstreaming and expansions. Because this thing is easy, cool, and popular it's going to keep increasing the size of the economy it's involved in.

So, the value of steem in circulation is slowly increasing (barely perceptible increase), but every time another company, industry, trading group, or nation comes to steemit the total goods and services provided takes a giant leap up. These kinds of changes are putting a very strong upward pressure on the price of steem currencies.

What's the issue?

One of the big questions that witnesses are coping with is "SBD is worth more than 1 USD. What should we do?"

We basically have two options.

1. Get rid of the 1SBD=1USD peg and let the currency value go up.
2. Inflate the currency as new people come on board to keep SBDs around 1USD..

There are various approaches to each.

Who are the stakeholders?

1. Steem currency holders. Arguably the most powerful group. Investors want the currency they hold to go up in value.
2. Merchants- These peeps just want a stable currency. Thats really fricki' hard in crypto land, but it's understandable. If you want to sell a shirt in SBD you don't want the value of the SBD fluctuating all day. Boom and bust isn't safe for business.
3. New folks. These guys don't really have a voice, but we have to consider them as we want this place to grow. They want it to be easy to understand. They want to be able to buy in. They want a distribution that doesn't give all the power to a handful of people.
4. Authors and curators. These guys want their posts and curation to have value.

So, what's my answer to the problem?

XVSP + YVS +ZVSBD ∝ Number of Transactions

As long as number of transactions (new people, and new good and services) is going up the value of the currencies is going to go up. But they don't have to go up equally. I think the answer is to hardfork and change how SBD is generated. I think that's the best pressure release valve. I don't want steem flying through the roof. That will exacerbate the problem with concentration of wealth into whales. I don't want to hurt merchants by letting all this shit freely fluctuate. I think the answer is that when the value of the SBD goes up then steemit starts cranking out more SBDs, but the inflation of steem and Steem Power stays at the current planned rate.

The current plan is to put downward pressure on SBDs, but it's no match for the expansion crypto is going through now that 1 BTC> 1Oz. Gold. So, I don't think it's going to do what they think it's going to do.

If we crank out SBD when it's above $1USD while not increasing the amount of steem and Steem power then the 4 stake holding groups are happy.

The investors are happy because the steem/SP won't inflate like crazy, should have some scarcity, and will continue to go up in value.
The merchants are happy because they can sell in SBD and not go through boom and bust.
The newbies come along because steem is easy to understand and the system's distribution doesn't get worse.
The authors and curators are happy because they'll get paid a lot of SBD for their posts.

Class Dismissed, be safe out there, and please support my upcoming witness run

PS Pro tip- When SBD > $1USD then go 50/50 on your posts rather than 100%SP for max rewards.