RE: SBD Debt Issue Part 2 - Riding the STEEM Price Roller Coaster (Witness Parameters)
At 10% debt level, the system would no longer honor the "1 SBD = approximately 1 USD worth of STEEM" agreement.
I guess this is built into the system? But why not just get rid of this restriction?
Aside from the fact that we stop honoring the conversion at 10%, there is nothing inherently bad or dangerous about 10% debt. Ive seen plenty of IPOs with with higher debt to equity.
There are quite a few disadvantages and pitfalls to paying debt with money you print from nothing. But the one great thing about it is that you don't have to sweat your debt to equity ratio, because it really doesn't matter.
Given the amount of steem already being printed, i can't imagine the concern is just the possibility of putting more on the market through redemption.
The 10% limit was put in place to prevent potential "black swan" events. It is a somewhat controversial change, but unless a new change is made to remove it - it is there, and we must deal with it.
The 10% rule is probably the biggest risk, but in general a huge increase in debt ratio (usually as a result of large price drops) does add risk of hyperinflation. The blockchain is designed with a target inflation rate, and if it needs to produce 10x or even 100x the amount of STEEM to pay for the rewards that have been paid in SBD - it poses a risk to the current investors of STEEM/SP.
Interestingly, the main intention of using debt is not just to pay for rewards. The blockchain could do that without SBD, by just paying in STEEM right away. It is more to create SBD as a stable marketplace currency, so that users can buy things with their rewards, instead of cashing them out for 'fiat' money.