Is SBD a good investment now?
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SBD is now trading at around $0.8 on major exchanges. However, SBD is, by definition, worth $1 of Steem, then is it a good investment to buy into SBD now?
Well, of course, this is not an easy question. Let's for now neglect the fact that SBD had been sitting well above $1 for quite a long time since that is another mystery not fully decoded. But even given the statement that SBD should be ideally $1, seems to justify that buying into SBD, which is only $0.8, can bring a guaranteed profit of 20%! So, is it?
As I recall, the historical lowest price for SBD is $0.7x. So despite SBD's pegging has not being working well, but at least it can hold above a reasonable price.
Let's look into SBD's definition more closely. Actually, SBD does not mean $1 worth of Steem exactly. SBD's exact definition is that 1 SBD can be converted into $1 equivalent of Steem after 3.5 days at the average feed price of Steem for the past 3.5 days.
The time factor here is designed for a certain reason that I won't get into details here. But obviously it is the factor behind the loose under-pegging. It's easy to prove this point - suppose there is no time delay, then SBD can be converted into $1 of Steem at current price, then arbitrage will guarantee that SBD is closely pegged to $1. Q.E.D.
[Update: please refer to the comments where @smooth indicates something might be wrong with my arguments. I will look into it later.]
My explanation goes as follows: when Steem price is at a descending trend, then SBD price will anticipate it and hence goes lower than $1. When the Steem price stabilizes, SBD price should restore its value back to $1. Of course, with a lower Steem price, SBD might be slightly lower than $1 to reflect the risk of the death of the Steem blockchain.
So, my conclusion is yes. Yes, SBD at the moment is a very good investment for a low risk guaranteed profit around 20%, but you might need to wait until both Steem and the general crypto market to stabilize though.
No, the primary reason for the current underpegging is the low market cap of Steem relative to the outstanding supply of SBD. The latter being capped at 10% of the former. When the SBD supply is >10%, the peg target is temporarily reduced below $1 to bring the ratio back to 10%.
So for the peg target to get back to $1, the market cap of STEEM has to rise and/or the supply of SBD has to fall (or both).
In practice, the SBD supply is steadily (if slowly) falling. This means that SBD will eventually repeg at $1 assuming STEEM doesn't fall to zero. That may be soon or not so soon.
Once the peg target gets back the $1 then there will still be some deviations due to the time factor you state, but the track record is pretty good, and these deviations will likely be pretty small. Looking at a long term price chart, apart from situations when it has gone well above $1 (another set of issues there), as well as the current situation where the market cap of STEEM is too small, we mostly see a flat line about about $1.
Good to see your input here, master of SBD, smooth! ^_^
What you said indeed sounds convincing, but I still have some questions:
key word: the peg target. I always thought that SBD pegging is maintained through market mechanism by providing Steem/SBD conversion, so I wonder what this term refers to? Is there such a parameter inside the blockchain?
Furthermore, if this is the case, do you have roughly a formula for calculating the ideal/desirable SBD price? I imagine that would be something like SBD price = 10% x (Steem Marketcap) / SBD total supply, and from the data in coinmarketcap, SBD price should be around $0.96 but it's 0.85 now... I am confused...
Last, can you provide me a link that explains the past SBD overpegging the best? So far, I am still looking for a good answer to that. Thanks! ^^
The peg target is how much you get when converting 1 SBD. Normally you get about $1 worth of STEEM (delivered 3.5 days later as you noted in the post). However, you currently you get about 85c worth of STEEM. That's because, if every SBD is viewed as worth 85c, that brings us to the enforced 10% cap.
It is in the blockchain code and also discussed in the white paper.
MIN(1,STEEM supply * STEEM price / 9 / SBD supply)
Be cautious about coinmarketcap, especially their overall price. They can sometimes include some nonsense prices from questionable exchanges, including as their assumed Bitcoin price which affects all the other prices (since STEEM and SBD trade against BTC). Look to only prices from reliable exchanges. That's mostly bittrex and binance (for SBD and STEEM) and coinbase/gdax, gemini, bitstamp (for BTC).
I'm not sure but if you want to look for some posts and discussion on the topic I would suggest blogs from @timcliff and @buggedout
Damn, they promise $1 for 1 SBD and now something like that.
No, it doesn't "promise $1". It promises $1 only when the STEEM price/market cap is high enough. This is written up in the white paper.
okay... wow, seems I need to go back and check the WP.
thanks! it's nice to start my day (in taipei) with something I didn't know. :)
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Cool
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I thought one of the tools that could be used to stabilize SBD at the $1 Mark was interest. I'm wondering why the witnesses have not voted to pay interest on SBD lately when it's been under a dollar. I think that would help bring the price back up to the peg.
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Because interest encourages holding and therefore maintaining or increasing the SBD supply. What we want in the current environment is to reduce the supply. Once the SBD supply is back in balance with the Steem market cap (safely under 10%), then I will be in favor of some interest and other witnesses have expressed similar opinions.
the SBD dynamics is so interesting.
Thanks for the great explanation which makes sense to me!
那就要看用什么来买了，Steem 的话不是很划算。因为 SBD 要恢复一块钱的定位必定是由 Steem 的价格所带动，而 Steem 的涨幅是远远不止 20% 的。是我的话，最好就是用别的币种甚至是现金买入 SBD 吧。
有入手的话，顺道帮我买个 $5 的 SBD 可好，发达就在这一局。
我說的當然是現金買SBD，你說買Steem更賺，那是假設了未來回升，我說的是一種風險極小的鎖定回報囉！
大神你發達怎麼只靠$5的SBD？要是這樣可以發達，我都發達一百次了～～ LOL
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A very good coin now the value starts at stabilized 1 $ that has been valid since HF20
Investment is good, because the value starts stabilizing.
Something to consider, earning passive income using this method @deanliu
well, for passive income, you should consider SP, not SBD. ^_^
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