Hi friends, it is week-6 already and I am delighted to have participated in all your series. Reading through your Lectures and attempting on all homework presented. It has been impactful and helpful especially for those of us with little knowledge of the crypto-world.

Without wasting much time I will be handling this week-6 homework as stated below;

HOMEWORK WEEK-6 TASK
Homework task: Write about any one of the following stable coins;
Tether(USDT)
Steem backed dollar(SBD)
DAI

source

INTRODUCTION

We cannot discuss about Steem Backed Dollar (SBD) without taliking about it's origin and affiliate coin its standing proxy for as regards value stability. Steem is a decentralized platform or can also be refered as an Open-source blockchain. And one of the recognized platform on the Steem-blockchain is the Steemit which invariably is known as a blogging platform.

The Steemit platform has continue to reward it's users who got upvoted when an original and trusted content is dropped on its blog in the form of steem, steem power or Steem Backed Dollar (SBD). This three (3) different tokens gives different purposes for the functionality and sustainability of the blockchain.

Basically, the three digital assets in the blockchain namely; Steem, Steem Power and SBD may represent Maximum freedom, Maximum influencer and Maximum stabilizer respectively. It is sure way to contribute to the system, earn from it and also hold power in it. Both SBD and Steem Power derive it's value from Steem in the blockchain.

For purpose of clarity, the system rewards you in the form of SBD which also can be traded in some exchange platforms, Steem power is native currency traded in the Steem blockchain only, while steem is the base currency traded in exchange platforms. This rewards system maybe seen while placing your reward tool on 50:50 SP and SBD or 100% SP to enable recieve value while it pays out.

It is difficult to be 100% sure and certain on ROI in the Cryptocurrency platform where value of coins keeps fluctuating in a manner that over 100% of its value can be lost in a day, Hence the need for s stablecoins (SBD).

A Stablecoins like SBD is also a digital assets like all other assets/coins we know but they are aimed to manage the volatility of other assets considering the value as top priority.

As said earlier, all other assets in the Steem blockchain derive it's value from the Steem in Steem-blockchain. The blockchain program is seen to produce SBD in correlation with the Steem generated every day. This is in conjunction with the SP that makes the whole Steem blockchain functions.

source

THE STEEM BACKED DOLLAR

Steem Backed Dollar commonly called SBD is earned by mining which simply means here you're contributing to the blockchain platform by posting some useful contents that gets rewarded by an upvote.

SBD are liquid Stable coins designed to be pegged to $1 (USD). They can be traded with Steem as seen in the blockchain, and transferred to other user accounts for exchange of fiat or other digital assets. SBD can also be converted into Steem through a process that happens swiftly in seconds now via swap.app. And this stable coin has the potentials of being used in the Steem blockchain to access others services in the platform.

The purpose of applying stable coins and especially the SBD as a peg to $1 USD deriving its value from Steem cannot be overemphasized due to the volatility of cryptocurrency market. In any given time the risk seen in the decentralized market due to market volatility can only be transferred without being created nor destroyed. Mostly, volatility are based on the unpredictability of market perceptions.

So the essence of having a Stablecoin (SBD) is to transfer this risk or volatility from SBD to STEEM. This simple puzzle now puts the fate if having STEEM value on its own. When the price of Steem increases, Steem holders makes profit and vice versa. But for trades between Steem and SBD holders, the fall in the value of Steem transfers same value to SBD but a rise in price of Steem transfers it to Steem value.

Moreso, SBD is seen to be a good investment when the growth of Steem in value is moving at a higher rate than the interest rate paid on SBD. The intention of maintaining SBD to be $1 worth of Steem, the blockchain will have to produce the corresponding Steem value to equal $1 USD. If the price of Steem goes down, this means more amount of Steem coins needed to be produce to pay back same amount of SBD.

For example, if the the native steem is values at $1, this invariably means that the blockchain would produce only 1Steem to pay back 1 SBD but should in-case it is valued at $0.50, the blockchain would produce 2Steem coins to pay back for 1SBD. So obviously it is a two way drive; when STEEM falls, SBD becomes pegged to STEEM or when STEEM grows and SBD contributes to boosting the gains.

Only 10% of STEEM is used as collateral for outstanding SBD.
The term's of the SBD smart contract are that only 10% of the STEEM network is pledged as collateral for the debt. This means that the network's maximum "loss" is 10% of equity. There is no "infinite dilution" caused by SBD; instead, there is a hard upper limit.

There are some extra details to look through as well:

• When the debt level is below 2%, the Steem-blockchain will pay users in SP/SBD.
• When the debt level is between 2% and 5%, the Steem-blockchain will pay users in this combo; SP/SBD & SP/STEEM.
• When the debt level exceeds 5% but lower than 10% the Steem-blockchain will pay users in SP/STEEM only.
• But when the debt level exceeds 10%, the Steem-blockchain will no longer be in tandem with the "1 SBD = approximately 1 USD worth of STEEM" agreement.
  When it exceeds the 10% threshold, this invariably would be a bad business for the SBD. Though it would be difficult to manage, the best deal is to keep the deal below 2% debt level.

CONCLUSION

From all indications, SBD is meant to provide that stablecoin in the marketplace despite the market fluctuations that affects the price of Steem. Though maintaining this stability comes with a price which involved the Steem-Blockchain to produce more Steem coins to pay back the debt that will equal Steem to &1 USD.

BTC has been widely accepted as a Cryptocurrency without having a stablecoin pegged to it to maintain its value, what about rewarding contents in the steemit platform in SP/Steem and abandon rewarding with SBD. This will limit the cost of producing an equivalent Steem to match the number of SBD rewarded to a user.... My thoughts

This is my entry to week-6 homework @yohan2on

Cc:
@steemitblog
@steemcurator01
@steemcurator02

REFERENCE