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RE: Ned on SBD: "Does the community want to continue to be paid out in Steem Dollars?"
In theory yes. I don't think having the internal market is enough of a reason to keep SD around though as I explain in some of my other responses it hurts the viability of Steem as a currency and reduces demand. Would you rather have a Steem at $1 without SD or keep it around and have the price at 13 cents or lower? I am one of the biggest supporters of Steem and even I tend to hold back on converting my SD in case the price goes lower. Multiply that by thousands of times and it makes a huge difference to demand.
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Since we have been in that situation we have a pretty good idea.
The SBD price will likely drop due to the distressed nature and asymmetric payoff unfavorable to the SBD holder, even during a conversion window (though the size of the price discount would likely be less since the conversion window has changed from 7 days to 3.5 days). To maintain the peg witnesses will need to increase the interest rate, and should also introduce some conversion discounts. Last time something like 15% APR was sufficient (it might have briefly been higher). Given less price risk for conversion we could probably make do with less now, but to be safe we'll assume 15%. At 10% debt and 15% APR that's a cost of 1.5% of STEEM market cap if maintained for an entire year, though that is quite unlikely. Alternately we could state the cost as 0.125% per month.
At that point (>5% debt ratio) production of new SBD would be stopped. Any conversions that occur would necessarily reduce outstanding SBD supply, and this includes large conversions that would probably (though we can't be 100% sure) occur by important stakeholders (for example Steemit itself owns about 300K SBD) specifically for the purpose of reducing debt. While this doesn't entirely guarantee that the debt ratio would reduce, it likely would (and it literally can't go above 10% given the current code). Some additional costs would incur due to the conversion discounts. If all 10% were converted (a very unlikely prospect) at a 3% discount (previously discounts were higher, but that was using a 7-day conversion process instead of the current 3.5), this would add an additional one-time cost of 0.3% of STEEM market cap.
So again, while there would be increased costs to this situation we are still looking at costs measured in low single digit percentages.
No one denies that SBD adds some costs and risks, but the actual numerical magnitude of these of often greatly exaggerated. It isn't anything close to the huge boogeyman that it is often made out to be. Even the leverage component, which isn't a net cost since it applies equally during up markets as down markets, is not all that large. At a maximum the leverage ratio is 1.1x (currently about 1.04x). This is not even easily measurable, much less a huge factor in practice.
Thanks for explaining.
Like I said I'm not an economist but I'm trying to expand my knowledge of such things. Having spoken to other people too - it seems the likely impact is smaller than I imagined.
Further as suggested by @tombstone the impact could be reduced further by reducing or eliminating the interest.
I had also underestimated the PR effect and attention that SD brings in terms of outside interest from non-crypto people. I think it is sometimes easy to get stuck in your own perspective and I am used to fluctuating values with BTC etc.
Merry Christmas!
This is another nonsensical statement from you. I'm frankly stumped at where your head is at on this. Have you lost a lot of money on STEEM and looking for someone or something to blame?
There is no rational basis to suggest that STEEM would be or become worth 8x as much were it to not have a few percent of its value in SBD as is currently the case (at one time it reached a maximum of 9%). That's just completely and entirely absurd, bordering on an irresponsible and outright dishonest sales pitch.
There are some very good reasons why STEEM's price has been declining and is now what it is (though it is always hard to know precisely what moves markets). SBD is not, to any significant degree, one of them.
Like I said before we disagree on this but I'm frankly disappointed on your tone. I am not going to indulge this any further.
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I have been advocating vigorously to reduce the interest rate for more or less exactly that reason. In fact recently more of the witnesses have begun to see it the same way and the interest rate has started to come down, to 6-7% currently. I believe it should go even lower. I agree with tombstone that SBD can add a lot of value (in fact I believe it already does) as a payment vehicle without piling a lot of effectively long-term debt and risk.
BTW, I do intend to answer the question you asked about what happens if the debt ratio goes to 9% but I haven't had time to compose the reply yet.
Thanks. I think that may be solution that everyone can get behind.
No problem I think we are all busy right now. I love this kind of discussion because I find economics and the interface with psychology fascinating. Plus I also find it quite educational to discuss it with others particularly if they have different perspectives.
I do like the Steem dollar and I am not opposed to keeping it having thought about and spoken with @Beanz too - there are more psychological factors at work than I had previously considered - such as the PR potential for non crypto people and greater ease of acceptance by merchants.
I wonder if we have any economists, or psychological economists (is that the right word) who could also give some opinions on this subject?
Sad that you can't even address the rest of my comment which points out with cold hard facts (i.e. numbers) how what you are claiming makes no sense. Why are you so reluctant to connect your views on this to some sort of actual logic or factual evidence?
OK then. It is 3.5% now. What if it get's to 9% again? The momentum and sentiment that creates on the market is what worries me more than anything. I'm not saying it is responsible for all our problems.
I hope I didn't come across as being too harsh or dogmatic in my opinion. I can sometimes be quite forceful in my opinions and I am in no sense an expert in these things. I think @tombstone makes a good potential point here:
Perhaps that is a better solution which can take both sides of the argument into consideration?
Anyway my opinions are never really set in stone even if I may sometimes give that impression. I am happy to be involved in the discussion because I think that makes us stronger as a community - even if it means confronting things I don't initially agree with.
It is always a learning exercise for me. It would be interesting to get the opinions of some professional economists (assuming we have some in the community).
It surely would stop trading in and out of SD internally :P . Maybe that would put more pressure on the external market? Would that be substantial enough to even cause a blip?
I play the market here a bit, so appreciate it. I NEVER take Steem off the site. I'm not saying that I won't, but that I don't right now. It's either powered up or I'm trading it in the market... or holding for a potential trade later. I like having that option.
Since it exists, is there really a compelling reason to get rid of it? Is the internal market really affecting the price? I honestly don't know.
It affects behaviour on the internal and external markets which creates downward pressure.