SBD Interest Rate

SBD balances accrue interest, at a rate determined by witnesses. While at first glance, this might just seem like a nice perk for holding SBD, a closer look will show that the interest rate is necessary for SBD to have a market price at all.

While conversion provides ample reason for users to value SBD at the peg, it does little to convince market participants to establish a price for SBD. If conversions reliably produce almost exactly $1 of Steem as intended, there is no reason to buy SBD at $1 with the intention to convert it at some point. And there would certainly be no reason to sell SBD for less than $1, since it would be done at a loss.

It would be pointless to buy or sell SBD if conversions were functioning as intended. The only thing to do would be convert any SBD to Steem in order to acquire something with actual market value.

By providing passive interest to SBD holders, the platform enables the token to be both bought and sold at a fair price. It becomes viable to buy SBD at $1, because simply holding it can now provide an economic benefit. With the advent of demand for SBD at a fair price, SBD can be sold without incurring a loss. Conversion is no longer the only way to realize the value of SBD.

Since converting SBD to Steem increases the supply of liquid Steem which can be sold on the market, it does represent some downward pressure on the price of Steem. Though the effect may be marginal, any decline in the price of Steem can be seen as a loss of value.

By providing the conditions for SBD to be traded back and forth on the market, the supply of SBD can be maintained and the value it represents can be preserved.

In the future, Steem Dollar users can look forward to a variety of goods and services to spend their Steem Dollars on. But looking back to Dan's plan for world domination, we see that Steem Dollar stability is a pre-requisite for the development of a successful marketplace.