Vlog 331: Will the current outstanding SBD debt become a problem for STEEM if the price of STEEM goes lower?
As far as I understood it every SBD needs to be backed by $1 worth of STEEM.
At lot of SBD's were created on the recent high STEEM price. (50% of the payout).
We now have 15 million SBD's outstanding.
When STEEM was $5 that meant that only 3 million STEEM was needed to back the debt.
But now STEEM is $1.20 so that means that 12,5 million STEEM is needed to back the 15 million debt.
It's easy to see that when STEEM goes lower in value more STEEM is needed to cover the outstanding debt.
The blockchain recognises this and you can see it in the payouts:
More STEEM is created and less SBD.
I currently use SBD as a hedge against the lowering of the STEEM price.
My reasoning was that when STEEM would hit 10 cent I could convert 1 SBD to 10 STEEM.
But that would mean 150 million STEEM would be needed to cover the debt.
That seems like a lot so I read through the white paper once more.
Reading through the whitepaper there seems to be build in limitations in the blockchain to prevent my reasoning from happening.
So the way I understood it is as follows: if SBD market cap reaches 10% of the market cap of STEEM it will automatically start to convert SBD to STEEM.
Current market cap STEEM = 345 million @ $1,20
Current market cap SBD = 15 million @ $1
Currently that would happen at a STEEM price of around 52 cents, the market cap of STEEM would than be 150 million.
I talk about it more in my vlog.
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So it's a little bit interesting how this works. First is the following:
When you convert using the convert mechanism, the SBD converted gets destroyed and the corresponding amount of Steem is just created (at the feed price after the 3.5 day delay).
Next, if the debt ratio is over 10%, the blockchain will set its feed price higher and create less Steem on conversion. I gave a chart about these numbers here which will be a guide for "what the effective peg is" in the event that the debt ratio is that high.
In my opinion, this mechanism is very good in terms of stabilizing the situation when SHTF. So I actually think your hedge is smart in its intended goal to shelter the blow from the bear market.
But to address a specific point: there is no automatic conversion, it does it by adjusting the conversion rate.
Thank you for adding this!
I'm thinking along the same lines. I've started to buy SBD (sub $1). However I'm buying with fiat.
If Steem goes lower, I'll convert some SBD to Steem.
If there is another bull-run, SBD could pump again. I think SBD has more chance of pumping to $3 before say BTC triples to $18k. Plus as you say the downside risk is less.
BTC also looks a good buy at these prices, so I'm price averaging in. I'm also now looking at good entries on other cryptos.
(You know me... I've a habit of buying when there is blood on the streets!!)
Haha, I somehow felt that you would be a buyer somewhere around now :) I'm also averaging in.
Holding my SBD , hoping Steem will go down and SBD.
I think this is an awesome year to accumulate.
So I am sad and happy at the same time. 😉
I am going to hold SBD for now just to see if STEEM goes below a $1
Mark @exyle in my gut I can feel this is probably a great time to get more STEEM Power because when the price turns around and goes Up you will be glad you did...............
Steem selloff is based on three factors. First is overall crypto market selloff. The second is too many people are delegating to voting bots and the third one is increasing number of people powering down. Steem price will continue to decline until this turns around. It’s a common sense. It’s actually people creating these bear markets subconsciously. I suspect SBD will drop below $1.00 the same way it went well above $1.00 threshold. We will know when it all ends when all weak crypto projects collapse. That’s what usually happens in any bear market. I call it clean up of weak inpatient hands, clean up of weak companies and especially clean up of Ponzi schemes. Remember, thanks to financial crises we got rid of criminals such as Bernard Madoff and many more Ponzi schemers. In crypto it’s just a beginning. Once we start to hear certain coins to collapse, that’s when we get near the bottom. Until then, it will be painfull for many of us. Only strongest and patient will survive.
OK. So I think I understood most of that @exyle.
What I didn't get is . . . if Steem Inc start converting SBD for Steem what would be the implications of that?
Could Neds recent withdrawal be related to that possibility?
Make the most of your time with your family today. 💜
I'm excited to see the prices so low. On one hand it's getting me thinking about a major investment into the blockchain and capture a bigger position....
On the other hand....How low will it go?
I believe in STEEM and the entire community, so it's a calculated risk for sure...And things like the SBD / STEEM hedge is a plus (on paper) for investors...But like you said, it's a bet. What do we put our money on :)
Technology is cool...But people are what matters. And that's why I think STEEM wins over any other project out there....But then again I'm biased lol
On the other hand....How low will it go?
Just buy step by step. 20% for example and buy 20% when it drops etc.
I was one of those persons who told you your target for BTC was too low, but the reality is that the markets are playing us. It is not looking pretty, I guess my decision of not buying even when the markets sank twice was correct.
Anyways the bullish long term feeling is still with me.
same here.
Ahaaha, Always!! That's why we are here!
wow that's some interesting things you shared the calculations have been badly messed up by that sbd pump and more than that now sbd is acting as a free coin which is in market hands no more control over it
nice explanation about steem and sbd and in my opinion we might not see steem at 0.50$ again but we might get a chance to buy steem at 0.80 to 0.85 cents, so i agree right now holding SBD and convert them later into steem is a perfect option because next bull run which will start in couple of weeks will push steem towards at least 10$. wish you all the best in all of your future endeavors! Stay blessed