Bitcoin is booming: My Favorite Coin: Part #4 : SBD
Investment generally centered around a return, therefore it is apparent that we add a coin in our portfolio which can offer a return. Most importantly that return is generated from the value of the coin itself.
But when we add coins in our portfolio, it is not just about the speculative coins only, there are stable coins also which have a place in our portfolio. Since 2017 the popularity of stablecoins has grown significantly, perhaps that is the reason why stablecoin like USDT has gained the rank of 4 in market cap with a total market cap of 19.134 Billion USD.
People generally prefer Stablecoins:-
- as a hedge against volatility or bear market.
- as an ideal "Unit of Account", when transfer value from one peer to another, as it does not fluctuate.
- as a perfect coin to earn an interest rate on top of its value and other DeFi use-cases such as lending.
- other misc purposes such as Futures trading.
But what if you discover a coin which can offer you the advantage of a stablecoin as well as a speculative coin. Precious! During a bear market, it can trade like a stablecoin, shield the investors from the potential loss, and during extreme bulls sentiment it can offer you the experience of a speculative coin also, enables investors to earn money on top of the pegged value.
Many investors in crypto are very particular about the total supply of the coin to gauge the potential demand of a coin. By and large, the crypto ecosystem is known for reducing inflation over time. So, that makes the total supply to harden or saturate over a period of time.
However, it is really difficult to find a coin whose total supply is reducing from its previous year, and that is practically not possible unless a burn mechanism is adopted to render a reducing supply each successive year.
But in today's episode, I will introduce you to such a potential coin which has historically proved that it has the characteristics of both stablecoins and speculative coins. During an extreme bear market, it does not goes down excessively, even if it goes down, it quickly returns to its pegged value, thanks to the Blockchain mechanism in place. It also exhibits the property of a speculative coin in an extreme bull market and generates a return for the investors.
It is one of the rarest coins in the crypto segment whose circulating supply in 2020 is less than the previous year 2019.
That coin is SBD, an underrated coin of the crypto sphere and the unsung coin of Steem Blockchain. A gem to add to your portfolio.
In this post, I will explain it's historic price movement, Blockchain mechanism to regulate its supply, effort by the curators to reduce the printing of new SBD from time to time. I will also plot the circulating supply over the last two years.
Steem Backed Dollar. This means an equivalent amount of STEEM is backed to create a debt instrument SBD(pegged to 1 USD value) in Steem Blockchain. The main use-case of SBD is to pay the publishers/bloggers who select 50/50 post payout and to fund the Steem DAO(Distributed Autonomous Organization).
The reward pool in Steem Blockchain is derived from inflation in which a certain fixed number of new STEEM tokens are minted to incentivize the various actors in Steem Blockchain-- Authors, Curators, Witnesses, Vested token holders, Steem DAO, etc.
Of the total reward pool, 10% is meant for Steem DAO and 65% is meant for Authors and Curators in a ratio of 50/50. In short, 32.5% of the reward pool is for Authors.
In the 32.5% share of the reward pool, not all the rewards are minted as SBD. There is an option for the authors to choose either "50/50 payout" or "100% Power Up" reward. In the 50/50 payout, the author receives 50% of the reward as SBD and the rest of the 50% in SP. In the 100% Power Up reward, the author gets 100% of the reward as SP.
So the maximum percentage which can generate SBD from the Author Reward Pool is 50% of 32.5%, that is 16.25%( if all the authors select 50/50 payout).
If a certain number of authors choose a payout "100% power up", then this percentage to mint SBD will be less than 16.25%. If all the authors choose the "100% Power Up" reward, then this percentage will become zero.
Practically, neither all the authors will choose 50/50, nor 100% Power Up reward. So, in reality, the actual percentage is somewhere between 0 and 16.25%. With community effort, it can be reduced significantly to lower the supply of new SBD tokens.
Further, there is another mechanism in Blockchain, known as Debt Ratio, which caps the debt limit to a maximum of 10%, which means if the debt ratio goes above 10%, then Steem Blockchain automatically stops printing new SBD, that means, if the debt ratio is more than 10%, even if an author selects 50/50 payout, the realized payout will always be in STEEM and SP. No SBD.
To know more about "What is Debt Ratio", please visit this POST.
Similarly, in Steem DAO, it is fixed, 10% of the total reward pool that is given as SBD to fund the various proposals which are voted and approved by the community.
Circulating Supply of SBD
At present, the circulating supply of SBD is 5.803 Million.
Interestingly the circulating supply of SBD is lower than what it was in 2017, 2018, 2019. So this is one of the rare currency which plots a contour of reducing circulating supply over time. The real Deflation!
Let's have look at the month-wise circulating supply of SBD in 2020, 2019, etc.
As evident from this chart, it is worth noting a reducing supply which was more than 7 million in 2019 and more than 10 Million in 2018, but it's almost half now in 2020. How come that possible? Well, there is a burn mechanism that exists in Steem Blockchain, and burning reduces the supply of the token. Other initiatives are being made by the community leaders to encourage the authors to select 100% Power Up reward, by doing so, no new SBD tokens are being minted in Steem Blockchain and hence that keeps the circulating supply deflated.
Also, there have been serious efforts in past by the community, especially since HF21/22, to reduce the supply of SBD.
There is a @null account in Steem Blockchain and the tokens are sent to this account to burn the reward.
If you choose "Decline Payout", it won't reduce the newly minted tokens that are added to the pool, but if a burn mechanism is adopted then it will reduce the supply of newly minted tokens, as the newly minted tokens are sent to the @null account and burnt forever.
In recent times, @steemitblog has been making serious effort to reduce the newly minted tokens by-
- By burning its own rewards generated from the announcement posts and other community-related posts.
- By encouraging the authors to select 100% Payout.
So far it has been successful in its effort and the result is quite visible.
Price of SBD and its historic range
In general, the price of SBD trades within a tight range of $0.95 to $1.05. When the debt ratio exceeds 10%, the Blockchains stops printing new SBD, that keeps the supply in check, boosts the demand.
In an extreme bear market, SBD has depreciated to a lower range of $0.6, but if you the check time span of recovery, then it is quite clear that even within the prolonged bear market it is quick enough to recover to $1.
In the optimistic scenario, powered by the extreme bull sentiment, it has gone high beyond $18, in 2017. Even in recent times in this month(Nov'20), it has gone as high as $1.98, benefiting from Bitcoin's recent Bull run.
Put simply, the risk of SBD going down is as low as $0.6 but the risk to go up is more than $1, $18(2017), and $1.98(2020).
Some people advocate that 2017 was a one-off exception that SBD was broken the peg to trade as high as $18, but in 2020 also it has printed $1.98. Historically it has proved that it can serve the role of both Stablecoin and speculative coin, and the limited supply is doing the trick for SBD. Risk: Reward ratio is quite favorable in the case of SBD.
My own thought and experience
I know one person in my friend circle who trades SBD regularly, in fact daily, and he has been doing it since, 2018. He always picks the coins with less risk and guaranteed reward.
In a coin like SBD, he has made a profit to the tune of $10K in the last two years. What he does is simply to trade the tight range of $0.95-$1.05. He always feels confident that being pegged currency it will touch $1 anytime. And that's the trick. He simply buys it at $0.95 and sells it at $1 or $1.05. Just imagine with such a low risk and scalping strategy, in two years he made $10K in profit. I don't have any details on his capital investment, but SBD has really created that opportunity for many with low risk.
The Crypto industry is known for reducing inflation over time, but SBD has gone one step beyond to make it a currency of reducing circulating supply over time. I am not sure whether the crypto industry is aware of such dynamics of a coin like SBD or not. An underrated coin! But mathematically it makes SBD a demanding coin.
Even from a trading perspective, the risk is less and the reward is more. The community effort by Steemit Team(for encouraging the authors to choose 100% power up reward) and burning its own reward from time to time has been successfully lowering the new supply of SBD tokens.
This sums up SBD as an asset with the property of a stablecoin as well as a speculative coin. And definitely the hidden gem, the unsung coin of Steem Blockchain.
This is not financial advice, nor a guarantee or promise in regards to any result that may be obtained from using the above content. So it should not be considered as financial and/or investment advice. No person should make any kind of financial decision without first consulting their financial adviser and/or conducting their research and due diligence.