My Thoughts About The SBD Peg, And A Proposal For A Soft Peg
Recently, there has been an interesting discussion among witnesses about the status of a financial component of the Steem blockchain, namely SBD (or Steem Blockchain Dollars). Initially, this instrument was designed as a stability instrument, pegged to 1USD.
Recently, trading outside of the Steem ecosystem (which is controlled by witnesses price feeds) drastically increased the SBD price, reaching as high as $14/SBD.
There are two directions among the witnesses: one pro peg, and another one con. In today's post I'm going to answer to @reggaemuffin, which started a pro/con discussion in this post.
My Current Status And Position
Before proceeding, I want to let you know that I'm part of the few witnesses which adjusted their price feed bias, which resulted in more SBD being printed. Theoretically, a bigger supply should bring the price low, so the basic idea behind this increase price feed is to bring the SBD price down.
But, although I am in favor of bringing the price of SBD lower, I'm not necessarily in favor of bringing it back to $1.
Let me explain.
The Difference Between A "Hard" Peg And A "Soft" Peg
A "hard" peg is established when an asset is forcefully traded at a certain value, value which is enforced via collateral. In our case, if SBD should have been pegged "hard", it would have been paired with a similar amount of USD in cold storage. If the total supply of SBD is now 6.5 million, that would have mean that, somewhere, in a bank, there should have been $6.5 million. And this isn't happening, as far as I know. So SBD is not pegged "hard".
A "soft" peg is established when an asset is forcefully traded at a certain value, but the value is enforced via a proxy asset value, which is in turn hard pegged to something else. In our case, a soft peg for SBD would mean it is trading at "$the_peg_value worth of STEEM". For instance, if we establish the soft peg at $10, then 1 SBD will always trade for "$10 worth of STEEM". It won't be directly - and hard - coupled with USD. Initially, that was the plan, only the $peg_value was arbitrarily set at $1.
Now, if we follow the "soft" peg we see that at some point something nasty can happen. If we trade SBD for the US value of STEEM, it means we are "borrowing" STEEM and sell for USD. This is debt. There is this thing called "debt to ownership ratio", which, if it goes too high, can break the system.
I won't go into details, because the goal of this post is rather theoretical and strategical, but I'm open to as many simulations as you want, if any of my followers would want to go that path.
In short, what I'm proposing is: let's make SBD soft pegged to a certain amount worth of STEEM, and control this value by adjusting the supply of SBD. (I wouldn't adjust the STEEM supply because this is already announced, planned and it is nicely decreasing 0.5% for the next 18 years, until it reaches 0.5%.) This "certain amount" can also be dynamically calculated taking into account various data points: STEEM price, STEEM supply, SBD supply, etc.
If SBD is soft pegged, it means it can be traded at any value the free market will want, and, internally, all we have to do is to control the debt to ownership ratio.
In this scenario, SBD can go as high as $100 and all we have to do, internally, is to adjust our debt to ownership ratio.
There are many things to be calculated here and I'm not saying this is fool proof, it may go wrong - as everything in life - but I think it's worth at least an exercise of simulations.
Looking forward to hear your comments.
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
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Wrote about SBD peg half-serious half-joking here.
SBD pegged to 1 USD from south as one can always convert SBD to 1$ worth of STEEM, then trade them for SBD on market exchange, rinse, repeat.
From north SBD pegged long-term as with greater price comes greater inflation. There were only 2.8M of SBD in november and 6+M now.
I'm for an anarchic approach. If someone willing to pay more than 1$ for 1 SBD let him. You could consider such a trade as a donation to a platform and its authors.
SBD is already soft pegged to $1 worth of steem. You can always convert it to $1 worth of steem over a 3.5 day average, if the debt to ownership ratio is not too bad. If it is, you can exchange for less than $1.
What we propose is enforcing the soft peg on both sides, so you can convert $1 worth of STEEM to one SBD, creating dept while burning STEEM. This has the risk of raising the debt to ownership ratio, but the steem blockchain has safeguards in place if that happens.
A hard peg would be a whole nother discussion and I don't think all that useful for the SBD :)
Is this still enforced on the UI? Ot it's available only via cli_wallet?
steemit.com disabled it so new users who think they get STEEM at market price don't loose 6/7 of their SBD worth. But once SBD goes down again it will be added in that UI.
Just want to drive down the point that steemit.com is not steem :)
Obvious.
With that in mind, I want to stress that the soft peg I'm thinking about "can also be dynamically calculated taking into account various data points: STEEM price, STEEM supply, SBD supply, etc."
The point is not to have it tied to a single variable, the USD, but put more variables in the equation: STEEM supply, SBD supply, etc. I'm sure there can be a formula that will, at some point, hit a soft spot. I'm ready to do some simulations if there is enough interest.
Can you elaborate what you want to change? Currently there will be printed a certain amount of STEEM and an amount of SBD that is amount of steem printed times steem price (if all whoose 50/50).
That means the dept ratio can be controlled with printing. And in this SBD pump, the network started printing more SBD to combat it. But for a functional peg that is too slow. The peg will hold again at some point. But waiting months to do it is too long.
The idea of having 2 assets coupled by a third one (STEEM and SBD, coupled to USD) is interesting. If SBD would be a "first rang citizen", meaning it would be taken into account for the overall inflation of the system (which I understand it isn't) then interesting scenarios can happen.
One of them is "moving" STEEM into SBD, like burning STEEM and creating SBD. In this case, increased supply of SBD = lower price for SBD and decreased supply of STEEM = higher price for STEEM.
A sweet spot can be found for both directions.
Well that is what they are from the beginning. Just no one thought someone would buy a $1 giftcard for $7 ;) so the downwards pressure is pretty easy.
And SBD are part of the inflation. You can either get inflation paid out in SP or in dept SBD.
you mean "debt"?
You presented your thoughts well here. I would definitely agree that a soft peg is always best. Trying to forcibly limit it to 1 $USD would make it essentially another Tether, and prone to the same controversy and demand of 3rd party audits to ensure that everything is on the up and up. I would hate to be in charge of counting those beans.
Plus, the inflation rate of SBD would be so astronomical without an equally sharp decrease in the value of our upvote, which is basically rewardpoolrape 2.0 and not in anyone's or the platforms best interests. At least that's what I would expect the outcome to be, unless I'm missing something.
The current soft peg doesn't sweep you guys into a corner as the platform grows towards hitting critical mass, so keeping a soft peg is not a hard sell in my opinion, unless there are ulterior motives of some witnesses that exist outside the platform.
we already have one, all this discussion is about soft peg, read my comment :)
My idea is very simple: Allow the individual user to set the ratio between SBD and Steem for rewards. Up to 100% SBD is allowed. Fix the inflation of steem and keep the inflation of SBD variable.
If the SBD price is above 1 USD, people will ask for payouts 100% in SBD - inflation of SBD would increase, hardly any new Steem would be issued.
This would result in significantly increasing vote values - and the amount of SBD issued would increase even more.
I am pretty sure that this would reduce the value of SBD to 1 USD pretty quickly and automatically.
What do you think?
I'll give it a thought....
Thank you. Maybe I am making a mistake in my thinking, but this should work I think.
Is the view on pegging of each witness public? I never thought the voting for witnesses was more than a popularity contest, but with this split, sounds there may be something worth shifting the votes.
Personally, as someone who likes buying (editing) and selling (coding) services I'm bummed out by the failure of the peg and the failure of you guys to re-establish the relatively stable prices of before. Basically giving up on the idea of aggressively pegging to a relatively stable price removes all hope that steemit will ever again become the great platform for exchanging services for crypto's that it was before the pump, what would be very very sad if you ask me.
I agree with being able to see what each witness is doing. Until now, like you, I just thought the same, but now that it appears there is a quiet civil war brewing between some witnesses over something that can have drastic long term ramifications, I would love for each witness to publicly post there stance on the matter, so that people can rightly vote for witnesses in an informed manner, and change votes when there is a topic like this that needs serious consideration. The confusion over whether SBD is supposed to be worth 1 USD or 1 Steem Dollar is another problem. The wallet wording suggests that SBD should be pegged to $1.00 of Steem, not 1 USD worth of steem. I wonder if that isn't adding uneccessary confusion to this (likely to keep growing) debate.
I dunno, I'm seeing more civil than war in this debate. Both parties (in my opinion) are handling this without resorting to ad-hominem, which is a breath of fresh air compared to other social networks.
Now, to your point at the end, what do you mean by $1.00 of steam? Wouldn't that just be the same as $1USD worth of steem, just worded differently? Or did you mean something else that I missed?
While I'm enjoying the high price of SBD I think that seeing it as good for posters and new steemians right now isn't necessarily good in the long haul. People already have unrealistic expectations about earning on Steemit and think this will only be compounded when SBD goes back to $1. I know this isn't part of this discussion, but it is elsewhere.
I say keep it the way it is. As the crypto community becomes more mature and people understand what SBD actually is we shouldn't see anything like this again as the market shoudn't pay $6 for something only worth $1.
I keep saying shouldn't because this is crypto and the only guarantee is that if you think/say something will never happen will only guarantee it will happen.
I agree, what is the point of having SBD and STEEM, if SBD will fluctuate as much as STEEM and always be priced higher due the reduced amount?
So, instead of Pro/Con soft peg, how about Pro/Con of eliminating SBD.
I agree. I never quite understood the point of sbd,except perhaps so that it would be easier for newcomers to know how much they were getting paid.
Especially with SMT's coming, it makes SBD even less important.
Get paid in STEEM.
Want a token related to STEEM for other transactions, use SMT's.
I cant agree.
Yeah, but look at the price of SBD lately...
We'd be remiss to think that the speculation is a result of anything happening on the platform itself. The timing of the airdropped Tethers and the bumps that many coins receive right after is too frequent to be mere coincidence. Most tethers are held by binance, bittrex, and poloniex, and guess where people send their SBDs and Steem? Yeah.
So maybe we should consider the fact that SBD/Steem have a true fiat pair on Upbit, and it's more than likely that there was a feedback loop generated between Tether money injection, conversions between Korean Won and SBD/Steem, and further bouts of speculation/pumping and dumping.
Right now there's a pretty clear pattern established I wrote in an earlier comment where they are cycling their money and pumping SBD, converting to Steem, pumping that, and dumping for cash or other coins until SBD cools off when they do it again. It actually happened again two days ago, SBD got pumped a little, dumped for steem, SBD slid, steem took off last night (look at the charts, obvious pump out of nowhere), and then slowly slid back down. If they continue to do this pattern the pumpers are making very, very good returns with little initial seed money needed to rig the pumping of SBD, and there are a lot of bag-holders being made along the way.
I think that any peg, hard or soft really puts you at risk for implosion. Tether is a systemic risk, many of the exchange coins and other peg coins are at risk, and has everyone forgotten the historical moments in time where pegs have wrecked entire economies in the real world? It's happened time and again. Don't peg unless you want to leave yourself exposed to yet another point of failure and collapse.
I can't imagine how the debates between witnesses go as to what the best route to take is in the long run. I agree with what you're saying about how it shouldn't necessarily go down to $1, but never be worth as much as it once was.
Hello @dragosroua
I would like to add an economic view on the discussion, based on fiat currency economics. I think it is a needed perspective, since we are talking about how Steem economics should works. Could you take a look?
https://steemit.com/witness-category/@phgnomo/sbd-usd-peg-taking-exemples-from-the-real-world-economics
okay so i had no effin idea of pegged and upegged terms and these debates about unpegged sbd these days..you have explained it so well.you should be my economic teacher :D
thank you !
nice post , please follow and upvote my post @dragosroua