RE: SBD Explained

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RE: SBD Explained

smooth (70)in #sbd • 6 years ago (edited)

The continued printing is a downward lever, just one with limited intensity. As rewards are printed in SBD, users go and cash out those rewards, and the higher the price of SBD, the more capital inflow is required to keep the price high. Eventually one or the other must give. Still, "eventually" may be quite a while.

Also, you can't consider SBD as being entirely isolated from STEEM. As the supply of SBD increases, that represents more and more STEEM that is kept out of circulation. On the margin this should increase the price and market cap of STEEM, which in turn results in even more SBD being printed (see above).

It is possible to accelerate the feedback somewhat. For example my @burnpost initiative takes some of the SBD rewards and uses them to directly buy and lock-then-burn STEEM. When SBD was $10, this was quite powerful, as $1 worth of STEEM from the reward pool could be used to remove $10 worth of liquid STEEM from the market. At one time @burnpost was steadily and relentlessly removing $10000 worth of STEEM from the market per day. Over time that certainly adds up.

Still, this is absolutely not the ideal situation in terms of the utility of SBD as a stable value token (and indeed it appears to have demonstrated more temporary upward price instability than other pegged tokens). I don't think anyone would disagree there.

6 years ago in #sbd by smooth (70)

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eroche (67) 6 years ago

Thanks for this comment @smooth. I have been thinking about SBD quite a bit this year and I have been coming at all aspects of it from different angles. I really see it as a feature of Steem and I would love to see it work as intended. Just a few follow up questions while we are talking about it, which I will get to in a minute:

I know the following is a simplification but this is the picture I have in my head of SBD

I always thought of SBD as a simple asset. The key drivers to maintain the peg being

if the price is below 1 dollar on the open market, less is printed and interest is paid. People will hold the asset making it scarcer and and the price goes up.
If the price is above 1 dollar, no interest is paid and more is printed so people want to sell and the price goes down.

This of course ignores risk tolerances and some other characteristics of an open market monetary policy

Back to your comments, my follow up questions are the following:

As the supply of SBD increases, that represents more and more STEEM that is kept out of circulation.

1 - Would you say given the relative size of the Market Caps and Volumes of STEEM and SBD that this would have just a marginal effect if any?

When SBD was $10, this was quite powerful, as $1 worth of STEEM from the reward pool could be used to remove $10 worth of liquid STEEM from the market.

I have been thinking about the burnpost initiative from another angle and I always saw it as reducing the supply of SBD which would further increase the price of a scarce asset (based on supply and demand economics)

2 - Would the fact that it is reducing the debt on STEEM not have more of an affect on the STEEM price than the SBD price? (Again given the relative size and liquidity of the markets for the two assets)

$0.29

1 vote

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smooth (70) 6 years ago (edited)

Would you say given the relative size of the Market Caps and Volumes of STEEM and SBD that this would have just a marginal effect if any?

It is hard to say. The most obvious answer is that SBD has limited effect on STEEM given the relative sizes of the markets, and that is probably true to a large extent. But not necessarily entirely.

First, the market caps don't directly imply how much supply is actually available in the liquid price-setting markets. For example, a huge portion of STEEM's reported market cap is locked up as SP. Furthermore when SBD gets overvalued this serves to narrow the difference (a natural stabilizer). In addition, reported trading volumes on crypto exchanges are very suspect. Finally, the argument is somewhat circular. There is demonstrated huge demand for stable value within the cryptocurrency ecosystem (Tether, also rapid uptake of other solutions such as DAI) which dwarfs STEEM's market cap by about 10x and additional demonstrated huge demand for stable value outside the cryptocurrency ecosystem. Drawing some of that value (even a tiny fraction) into SBD could result in an upward spiral that lifts the market cap of both SBD and STEEM (potentially by a lot).

I see SBD as a 'product' of the Steem blockchain (along with others, such as value transfer, censorship resistant publishing, rewarding contributions, etc.). It is a product that has a vast addressable market, possibly dwarfing the others.

I have been thinking about the burnpost initiative from another angle and I always saw [burnpost] as reducing the supply of SBD

How would it do that when it immediately dumps its SBD on the liquid market? Secondarily, powering up (which @burnpost does) increases the STEEM market cap which further increases the supply of SBD (if only by a little). So overall I don't understand this idea at all.

Would the fact that it is reducing the debt on STEEM

I don't understand this question, including what you are referring to here with the word "it"

I'm also skeptical of the word 'debt' by the way, especially when used without further clarification. SBD has some properties that are analogous to debt but it isn't a perfect analogy by any means.