RE: The Steem-Backed Dollar (SBD): Having your cake and eating it too
Hi Dan!
The most important point is that the high positive interest on SBD IS a one-sided drag on STM. IF the interest were allowed to go negative and were properly managed, then YES, what you say would be true. Unfortunately, the interest rate is managed to make SBD attractive which then transfers all the downward volatility PLUS that attractiveness tax to STM.
IN THE REAL WORLD - The interest actually paid on SBD is MUCH HIGHER than should be the case for simply compensation for accepting the risk.
SBD + STM == STEEM Market Cap
If you give SBD too high an interest rate, STM suffers massively and the downward spiral begins. The lenders of your scenario are charging too high an interest rate and are bleeding the community dry. We need to separate STM from them if it is to survive.
P.S. I do understand when SBD is currently created and destroyed. I am proposing a radical change to that scheme.
I agree with your assertion that the interest rate is too high and I've been continually active in trying to convince other witnesses to lower it (my current vote for the rate is 6% and I intend to go lower still). However, as with most of these SBD arguments your statements are incredibly hyperbolic. The total amount of SBD outstanding right now is about 1.2 million. 8% of that (the current APR) is about 100K/year. That's 0.3% of STEEM's market cap. That is the cost of the interest. This is hardly bleeding anyone dry now, nor will it ever.
The same applies to all of these alarmist arguments about SBD in terms of allegedly excessive selling pressure from conversions, the supposedly enormous cost of feed discounts which are sometimes used to support SBD value and incentivize conversions, etc. It is a story people want to hear when the price is falling because it feels good to have something on which to attach the blame, but when you work out the numbers it ends up being very much like the above, and it doesn't hold water.
AHA! I didn't realize that there was "only" 1.2 million in SBD. I had believed that it was much higher. Thank you for the education. I now agree with your conclusions (and will edit my post accordingly).
TL; DR - The interest payouts on SBD are far higher than they should be which is a drag on the entire system that shows up only on the STM side. All the equity is bleeding from STM to SBD and making the community-building voting and payouts MUCH less valuable.