Are You Converting SBD to STEEM?

in sbd •  5 months ago  (edited)

Since I joined Steem in June of 2016, I've been trying to better understand the complexities of the economic system here. Between, STEEM, Steem Power, and SBD (Steem Blockchain Dollars), things can get pretty confusing. I've written about these things many times, so I won't repeat it again here other than to say STEEM is the liquid token, Steem Power is vested STEEM which takes 13 weekly payments to divest (and gives you voting power and influence over the rewards pool of new value created via inflation) and SBD are debt tokens controlled by smart contract which are supposed to be worth one USD of STEEM.

If that all sounds too complicated, just think about this gif and a nerdy blockchain giving out money:


(source)

The 1 USD peg doesn't always work and for more on that you can check out this post (and the many comments): Should SBD Be a Pegged Asset? If So, When Should We Peg It?

Back then SBDs traded for higher than $1 and there is currently no mechanism to prevent that. Some (myself included) argued for a reverse conversion where STEEM could be converted into SBD to increase the supply which, in theory, should lower the price.

Reverse conversion, you say? Well what happened to a normal conversion?

Since SBD is a certificate of debt against STEEM, you can convert it using the blockchain to one USD of STEEM under normal circumstances. This feature used to be part of the Steemit website which I've written about before:

It was removed when SBDs were trading on the market much higher than $1 and some people who didn't understand how things work were using the convert function (imagine taking a $10 token and trading it for $1 worth of STEEM. Ouch.)

What those previous posts didn't cover (and I only recently understood) is what happens when the value of the supply of SBD grows larger than 10% of the value of STEEM. In these situations where there is basically too much debt and not enough support of the debt because the value of the supporting asset (STEEM) has fallen too low too quickly, then the median of the price feed published by the witnesses is no longer used. Instead, it just uses whatever 10% is based on the price of STEEM and the supplies available.

Page 9 of the Steem White paper explains it:

A rapid change in the value of STEEM can dramatically change the debt-to-ownership ratio. The blockchain prevents the debt-to-ownership ratio from getting too high by reducing the amount of STEEM awarded through SBD conversions if the debt level were to exceed 10%. If the amount of SBD debt ever exceeds 10% of the total STEEM market cap, the blockchain will automatically reduce the amount of STEEM generated through conversions to a maximum of 10% of the market cap. This ensures that the blockchain will never have higher than a 10% debt-to-ownership ratio.

(emphasis mine)

You can see the actual code involved here on Github:

database.cpp#L3258

Here's the formula involved:

usd_per_steem = total_sbd_supply / total_steem_supply
steem_per_sbd = total_steem_supply / total_sbd_supply

Thanks to @someguy123 and @smooth for explaining some of the details to me.

So what does this mean to you? Well, even that's a bit complicated. Right now the conversion of SBD to STEEM is a little funky. Doing conversions is always risky, but depending on how things go, maybe converting is a good idea. You can see all the other people converting here from SteemDB Labs:

As I was looking through that list, I happened to notice the @worldwidealpacas account which just did two conversions at just under 25,000 SBD each. Wow.

So how can you get in on this since the feature is no longer part of the Steemit.com interface? Well, you can use the cli_wallet command:

 convert_sbd(string from, condenser_api::legacy_asset amount, bool broadcast)

Which for my account would be:

convert_sbd "lukestokes" "100.000 SBD" true

But that's a bit too nerdy and technical for most people so instead you can use the wonderful https://steemworld.org site:

Thanks to @transisto for pointing this out to me.

It's a bit tricky to find, but just click Balances, then Convert SBD (assuming you have SBD to convert). From there, choose how much you want to convert and when you click OK, it will prompt you for your active key.

You should never put your keys into any website you do not trust.

When I tested this out, I watched the net tab in my browser on a test account to ensure the only thing sent was the signed transaction, NOT my private key. If you have questions about that, contact @steemchiller who built SteemWorld. As mentioned there:

Your private keys are not being stored in cache or anywhere else. They are only readable from the client (your browser) on this page. Therefore you need to re-enter them after you have refreshed the page or switched to a different account.

Okay, so now you know how to convert your SBD into STEEM which takes 3.5 days to complete.

Should you?

That's a question only you can answer. I found this page by SteemReports helpful, but it also can be a bit confusing as well:

You hopefully have more information than you did before. What you do with that information is up to you. I know it's a bit technical and confusing, but at least SBD is still functioning, where as bitUSD had a global settlement. If enough people convert SBD and the price of STEEM goes back up, we might get that debt back under control.

For some more context, here are the results of two recent conversions I did which happened to be profitable (but again, with prices swinging in both directions, you can also lose money in a conversion).

12:00 PM, Dec 16th

Price of STEEM: 

$0.221206 USD (2.13%) 
0.00006760 BTC (-0.17%)

Price of SBD:

$0.537000 USD (-2.59%) 
0.00016411 BTC (-4.79%) 

2,800 STEEM to Bittrex
Sold at 0.00006737
Bought 1,124.058 SBD at 0.00016698

Internal Market: 
235.488 STEEM for 95.588 SBD

Fill convert request: 1124.040 SBD for 2864.301 STEEM
Fill convert request: 95.588 SBD for 243.579 STEEM

Price of STEEM:

$0.288234 USD (6.89%) 
0.00006903 BTC (-1.79%)

Price of SBD:

$0.647525 USD (9.27%) 
0.00015508 BTC (0.40%)

The end result was getting 2,864 STEEM for 2,800 STEEM and 243 STEEM for 235 STEEM.

Not bad!

I tried selling STEEM on both the internal market and on Bittrex to see if one was better than the other:

2864.301 and 2,800 = 0.022964285714286

235.488 and 243.579 = 0.034358438646555

Seems the internal market was slightly better at 3.436% profit compared to 2.296%.

Again though, anything can happen depending on which way the market goes. This isn't trading advice because I'm not licensed to give out trading advice and big bad men with guns paid by The State would get mad at me if I did. That said, if I can make a suggestion between friends, if you are going to do this and have other crypto lying around, it might be best to buy SBD with that instead of selling STEEM as I did in this example. That way the value of the Steem ecosystem goes up instead of just shifting between STEEM and SBD.

Happy converting!


Luke Stokes is a father, husband, programmer, STEEM witness, DAC launcher, and voluntaryist who wants to help create a world we all want to live in. Learn about cryptocurrency at UnderstandingBlockchainFreedom.com

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Thank you @lukestokes ....I wish this info was available 3 weeks ago. (In an easier to access and understand format)

I tried it two weeks ago...converting some Litecoin, I had been holding, into Steem Power.

Now...with SBD ON EXTERNAL MARKET AT $0.58 and Steem at $0.23. Each SBD should have given 4.34 STEEM(so I thought). IT only gave 2.52 Steem for each SBD....As if each SBD was $0.58.

So the LOOPHOLE has been closed, or closes during periods of debt ratio increase.

Interesting that, when the debt ratio is less than 10%, and the price of SBD IS BELOW $1, you can effictively 'game the system' through an internal / external arbitrage and potentially create a huge ROI from a few mouse clicks and a 3.5 day siesta! Rinse and repeat.

Thank you kindly! Hope you are all having a great Holiday week!!!

I also did the same recently and even bought some SBD with @blocktrades to immediately convert and got a great conversion rate but that was exactly when the debt ratio started going over 10% so I was lucky. However, as SBD prices have come down I have found myself thinking that it may be better to buy SBD rather than Steem for the potential future conversion value at $1 effectively if the debt ratio is below 10%.

Posted using Partiko iOS

I have been converting a small amount for several weeks now. My first conversion was for 50 SBD (75 Steem at the time) and I am now up to 136 Steem (58 SBD). I only had one conversion not going in my favor. This will be my 15th conversion and hopefully we don't see a big drop in the price of Steem in the next few days. For the operation I have been using Steemconnect (which is another option).

This is super useful guide. I will try it.

Also, I wanted to share with you the following presentation. You may find it interesting to watch on your spare time.

I've made an convertion experiment recently, which was spending 100 Steem for buying SBD on the internal market and then converting the SBD bought, making it four days in a row. You can see from the screenshot that it doesn't really a goldmine.
However for someone who is willing just power up some Steem, to buy some SBD and convert it seem to be a better option.

2018-12-17 10.42.47.png

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why does it look to me like you are losing Steem??

Did you start with 100 and now you only have 97.9? You lost 2 Steem!

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  ·  5 months ago (edited)

Yes, from four convertions I've lost twice and profited twice too. Counted all together it was some tiny profit in Steem terms.
I've started with 400 Steem ( devided in four 100 shots ) and ended with 401 Steem something.
However I've just bought SBD for Steem at the market price and that isn't the optimal strategy of course. Instead I could just place my order a few decimals higher and wait for it to be filled.
These few % would make all the difference.

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That make sense

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Since I've started the new strategy I made about 50 conversions and all of them were profitable in Steem terms.

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Thx for prompt reply @svamiva

I was also wondering how much time did it all take? Invested time need to be considered as well.

Yours
Piotr

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Invested time is less then time for reading my feed )
However when we are in "haircut" area the amount of Steem converted is very much predictable. Now when we are out of it I fully expect bigger fluctuations and as a consequence making loss sometimes.
Time will tell.

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again thank you for being so responsive @svamiva

I appreciate it a lot. Yours, Piotr

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Thanks for sharing those details @svamiva

Cheers, Piotr

🏆 Hi @lukestokes! You have received 0.1 STEEM reward for this post from the following subscribers: @cardboard
Subscribe and increase the reward for @lukestokes :) | For investors.

I tried selling STEEM on both the internal market and on Bittrex to see if one was better than the other:

When you said you sold on the internal market, do you mean you sold for btc on the internal market? I only know the internal market is steem/sbd, btc not inclusive.

2864.301 and 2,800 = 0.022964285714286

235.488 and 243.579 = 0.034358438646555
Also, when you said you converted 2864 and 2800 steem. I thought you already got 2864 steem using 2800 steem, how come you have both again. Or do I miss a part of the writeup?

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Yes, sold STEEM on the interval market to buy SBD to convert. No BTC involved.

Yes, I got 2864 for 2800. Displaying the numbers again was just to show what percentage profit each approach gave me (internal market vs bittrex). Every situation will be different, so please keep that in mind as well.



Merry Christmas, enjoy the vote!

Well I´ve converted my SBD to STEEM almost 1 month ago... :;D

But it is indeed a bit tricky to understand this economic system.

Very informative post, thanks:)
!tipuvote for 5 steem hide (testing something;)