SBD to STEEM Conversions and the "SBD Haircut"
View this post on Hive: SBD to STEEM Conversions and the "SBD Haircut"
In mid-February 2020 Justin Sun acquired the shares in Steemit Inc and proceeded centralise the blockchain under his control, improperly using Steemit's founders stake (intended for development and decentralisation of the blockchain) and tricking exchanges into initially supporting his power grab.
After extensive efforts to resolve the dispute failed, the community revolted and formed a new, fully decentralised blockchain - Hive - without the pernicious influence of Justin Sun and his minions.
Because of Open Source licensing, Hive was legally able to duplicate all the code and content on Steem.
The vast majority of the community and decentralised applications and projects moved to Hive and Hive was listed on many cryptocurrency exchanges without having to pay the normal listing fees.
On 19 May 2020, a Steem hard fork (0.23) designed to steal the Steem from 65 accounts associated with creating Hive became public.
My position on this hard fork can be found here: https://peakd.com/hf23/@brianoflondon/letter-to-exchanges-do-not-run-steem-hard-fork-23-hf-0-23-0
This was the final straw for my involvement with Steem.
I will now post exclusively on Hive at https://peakd.com/@apshamilton/posts
All my old Steem content can also be found on Hive.
I've read a number of informative posts (from @themarkymark @newageinv & @tcpolymath) recently about the SBD to STEEM conversion option and I wanted to crystallise the key points I've learned from them into a single post.
I was always aware that the SBD was supposed to be pegged to US$1.00 although it rarely seems to trade at that level.
What I wasn't aware of until recently is that there is an option to convert SBD to STEEM on the basis of the $1 peg and the average internal STEEM price over 3.5 days.
This is a useful option when SBD is trading well below $1, as it is at the moment.
This option can be used in @steemchiller's https://steemworld.org/ and other places too (go to Balances tab for your account).
Since HF20 the amount of SBD (valued at $1) is supposed to always be less than 10% of STEEM market cap (based on STEEM's internal price, which is an average of the last 3 days).
If that cap is breached, because of a large drop in STEEM's price (which has happened) then the blockchain system will do two things:
- Stop issuing new rewards in SBD, instead issuing STEEM;
- Stop converting SBD on the basis of a $1 value and instead start holding the value of SBD at 10% of the STEEM market cap.
What this means is that the value of a SBD for a conversion will be:
(TOTAL ISSUED STEEM x INTERNAL MARKET PRICE) / (10 x TOTAL ISSUED SBD)
I've modelled a few scenarios with the latest numbers out of SteemWorld to understand what this means:
(Corrected thanks to @tcpolymath)
Thus if the current market price were to remain for the next 3 days and there were no further conversions of SBD then the SBD price for conversions would drop to $0.97 which is still well above the current market price.
Taking into account the perhaps 500k SBD of conversions currently in the system (and a stop in SBD printing for rewards) then the the haircut level would not be reached and the SBD conversion price would remain at $1.
The STEEM internal price would need to recover to fall to around $0.42 for the haircut to apply.
The STEEM internal price would need to drop to below $0.35 for the SBD conversion rate to be worse than the current SBD market price.
Thus my conclusion is that if you are looking to increase your SP at these low prices then buying SBD and converting it to STEEM is still a worthwhile option, even once the haircut limit is reached.
The conversion option de-risks your purchase price of STEEM by giving you a 3 day forward average.
- If the STEEM price drops causing the SBD conversion price to drop then you also get the benefit of that lower STEEM price.
- If the STEEM price rises then the haircut will not take place and you still benefit from having acquired SBD at well below $1.
- If the STEEM price stays the same then the effective SBD price will still be more than you paid for it.
In addition, by your conversion you are reducing the supply of SBD and increasing the supply of STEEM thus bringing the SBD Debt ratio back down and the SBD conversion rate back towards $1.
Thus the blockchain encourages behaviour which brings itself back into equilibrium.
Thanks for for these posts which have helped me understand this.
https://steempeak.com/steem/@themarkymark/sbd-haircut-rule-is-about-to-activate-do-not-convert
https://steempeak.com/busy/@newageinv/results-of-sbd-to-steem-conversion-and-next-steps
https://steempeak.com/steem/@tcpolymath/teasing-the-sbd-peg
I look forward to your comments on what I've set out above.
Please let me know if I've got anything wrong.
Please note that I haven't looked at the code itself on this issue.
Signup for the Crypto Class Action against Facebook & Google's Crypto Ad Ban
https://gateway.ipfs.io/ipfs/Qmd9Lme3FP2CMxtRbuQWCuiVdpWNp6EdKa5BkQ4gqRZ4mz
Great analysis! These are great opportunities for sure which is why these mechanisms were put in place. Ultimately, there is too much SBD outstanding so hopefully this will entice others to fix this imbalance going forward. I see you made a purchase of SBD to try out as well, so we can compare notes in 3 days!
Yes, I've bought SBD and converted it in a few tranches to see what happens.
I think you're using Current Supply when you should be using Virtual Supply, which is messing up your numbers a little bit. All of your reasoning is good, though.
Thanks. Are you sure that virtual supply is what is used for the calculation as using it puts the current SBD debt ratio at only 8.63%. Well below SteemWorld's reported 9.4%
It means we are much further away from a haircut than people have been saying.
I see 9.4 as right for that. 13.696m/(313m * .465).
Thanks for the correction. I was also using the wrong internal price. I've redone the numbers and amended the post above. The result is that we are unlikely to hit the haircut level with the number of conversion in the system.
Do you have a good way of seeing those?
I can see the conversions at https://steemdb.com/labs/conversions but it doesn't have a total outstanding. Do you know where I can find that number?
No, I was thinking of writing a script for it. Though on a manual basis copying 3.5 days worth from that page and pasting it into a spreadsheet is probably simple enough.
Edit: I get 455,337 this way.
Edit 2: That would bring the magic number down to $0.4227, which we could still totally get to.
I also did it in a spreadsheet and got 455,546.
Edit: 1: So the conclusion is that unless the Steem price drops further below 0.42 and stays there for 3 days then we probably won't have a haircut and even then it will be slight, much less than the "haircut" the market is currently giving to SBD.
Congratulations @apshamilton! You have completed the following achievement on the Steem blockchain and have been rewarded with new badge(s) :
Click here to view your Board of Honor
If you no longer want to receive notifications, reply to this comment with the word
STOPTo support your work, I also upvoted your post!
Do not miss the last post from @steemitboard:
Do you think is it profitable to convert now? I'd appreciate the answer! Thanks
Posted using Partiko Android