RE: Honesty Bank: Steem's New Banking Solution for Viral Mainstream Adoption (Business Plan)
You say that the long-term weakening of SBD is a risk. Please consider the fact that long-term strengthening of SBD is also a risk, and I believe a damning one.
Your business model seems to depend on the SBD interest rate to fund your depositors' interest payments. Here's the problem: when you increase worldwide access to SBD by arbitraging between SBD interest rates and consumer banking interest rates, you'll (if you're successful) put a huge demand on SBD. This will cause the price of SBD to rise above 1 USD, and if it stays high for too long, the witnesses will vote to reduce the interest rate in order to encourage people to sell their SBD.
Put this another way: If SBD is low-risk, safe, liquid, and all the other things we associate with cash, then arbitrage opportunities will tend to drive its interest rate closer to the rates that banks pay. Please carefully consider the possibility that your business model may be self-defeating.
@biophil we encourage you to do more research on the Steem Dollar. There can always remain a constant peg to 1 USD. If SBD spikes in demand, @steemit is expected to flood the market with additional SBD in order to keep the peg constant. If demand in SBD steeply falls thereafter, we trust in @steemit to buy back SBD to remain that peg.
Thanks for your calm answer to my unfriendly post. :)
It's not about whether or not the peg holds. And BTW, the @steemit account is not the reason the peg holds. The peg is fundamentally enforced by the witness price feeds and the ability to "convert" SBD to STEEM at the price feed. The @steemit account could disappear and we'd still have something like a peg. (I'm assuming you know this, but I figured I'd write it just in case new people are listening in.)
Anyway, the point is that your business model says this:
Fundamentally it's arbitrage, plain and simple. You're "buying" SBD, repackaging them, and "selling" them as bank deposits at a better price than the banks offer. There's absolutely nothing wrong with that.
The problem is that arbitrage is often self-defeating. If we were guaranteed a 10% interest rate on SBD forever, your plan would sort-of work. Unfortunately, we're only at 10% interest because SBD is chronically trading at a discount to USD. If that discount becomes a premium (and your business, if successful, would surely cause this), the witnesses would be forced to reduce the interest rate to suppress demand for SBD and bring the peg back in line. There is no way @steemit would continue dumping SBD just for the sake of funding your business.
I'm sorry to be so negative. I really am! I wish you the best, and maybe I've read this whole thing wrong and you'll be fine.
Well said my friend. You're absolutely right. As arbitrage margins minimize, Honesty Bank's main source of income will cease to be profitable and we will enter a decline phase.
However, I think you're underestimating the (1) length of time and (2) amount of wealth this arbitrage opportunity can sustain. SBD has a potentially infinite supply. When demand picks up on SBD, @steemit (or @ned / @dan founder team) has the authority the spurr the digital printing presses to match supply with demand. The unprofitable venture on their behalf won't be pouring SBD into the markets, it will be taking them out when/if demand dies. Then again, it's the ultimate buy low / sell high opportunity.
This is how SBD can be sustained in the first place. Otherwise, SBD couldn't really peg. So if we're confident Steem will have long term success, we can be confident that SBD trading volume will increase & volatility will decrease.