Testing The Steem Dollar Peg
Sunday night I initiated a conversion of SBD to Steem through my wallet. I hope to accomplish a couple things with it.
I want to increase the amount of SBD that I own and the value of my SBD. That is, I want to end up with more SBD and I want the total value of those SBD to be worth more USD.
In the long run, I want to strengthen the peg. In the process I hope to take advantage of market actors who are undervaluing SBD. It is intended have an amplifying effect from both reducing supply of and increasing demand for SBD.
I'm starting with a small amount; just 250 SBD. But this is just an experiment, and if it works I will be putting more resources into it and others might be encouraged to do the same.
On the other hand, if I lose money on the conversion it will suggest that perhaps converting SBD to Steem is not a viable option for maintaining the SBD's parity with USD. More data will be needed in any event, so as long as I'm not losing too much money I plan on continuing to experiment with this.
Starting out, I converted 250 SBD.
The Steem Dollar Ticker was showing:
My 250 Steem were worth around $0.82 cents a piece. I could get close to 86 STEEM for them, or trade for BTC valued at about $204.18.
As I'm writing this, about 25 hours later, the ticker is showing:
Basically bad news all around. SBD is worth less vs the USD. Steem is worth less BTC. And the value of BTC has dropped.
If this continues or worsens, There is a risk that I lose money by converting.
I want to take a look a hypothetical scenario in the context of a week long downward trend. That is exactly how the market has behaved over the past week, so we can look at the current figures as reported by steemd.com and the witness @pharesim.
steemd.com is showing a median SBD value of:
base 2.457 SBD quote 1.000 STEEM
while @pharesim has a feed price of:
base 1.975 SBD quote 1.000 STEEM
Just eyeballing the numbers, we can see that it's going to turn out to break somewhat even. The current feed price is roughly 80% of the median value, and the market is offering us something like 80 cents on the Steem Dollar.
The median price will produce:
250 / 2.457 = 101.750 STEEM
And the market is offering us:
101.75 * 1.975 = $200.956 USD
Essentially the same price for that STEEM as we would get if we sold our SBD now.
In fact, if I were to sell that STEEM on the internal market:
I'd end up with the same amount of SBD I started with. Only I will have taken 250 SBD out of existence, and taken 250 SBD off the market. In theory, the reduction in supply and the increased demand should put pressure on the price to move up. 250 SBD won't have much of an effect, but with more SBD being cycled like this it would almost certainly have that effect.
If the price of STEEM were to stay at about the same level, or even rise somewhat, I would be able to increase the amount of SBD that I have. Potentially by a lot. I will provide an update in a few days showing the price movements and how that would effect conversion payouts.
This is uncharted territory for me. If anyone can help me improve my analysis, please comment below.
If you trust in the long-term stability of SBD buying SBD at 20% below the peg makes absolute sense. Using the convert option at this time is risky, due to the current downtrend of steem and the 7-day-median conversion price.
Thank you for sharing, I continue to underestimate what a difference the 7 day median has on the conversion price.
Great post, very informative. Bravo
The hardest part for me is visualizing the effect each plays on the other valuations. Two way comparison is easy compared to three say with a peg.
Are there any qualitative metrics to measure data points like that?
That's basically what I'm trying to do. I want to model it, but I'm not smart enough to do it without some hands on experience with it.
I wrote an article about this. With the recent downward trend in pricing, and because of the discount on SBD, I think using the conversion feature makes perfect sense. Then again, this is coming from someone who has invested BTC into the system and is looking to make a profit trading the internal/external markets.
I bought ~$3.50 worth of SBD for 1 STEEM, which was worth about $2.80 at the time of purchase on the open market. I started the conversion process 5-6 days ago. I estimate I'll end up netting at least 30% STEEM, but I think far more.
In short - good choice, and good experiment. Thanks for posting.
Holding steem power during these nutty times will surely benefit people in 8 months from now. Anyone doing that calculation? aka my article.
As long as the underlying token (Steem) is volatile and the markets illiquid, there is still a risk in doing this conversion even if it is the right decision. I did the same a few days ago. The problem is that it's the mean price of Steem over the week period which will determine the outcome, and the final price also matters a lot.
It's a gamble, but one which is in your favour for every cent below $1 SBD are trading at. Also, SBD dropping in price after you bought is not relevant, in fact it only helps for you to make more profit by doing the exact same thing again after the week with even more SBD available to you.
Hey baccist,
just a little question I have here. I asked myself how the conversion affects your SBD value. What you basically do is trading here, am I right?
I think about converting my SBD to Steem in order to power up
If you just want to get steem and power up, your best bet is going to be to trade for it. Converting it, you wouldnt be able to power up for a week.
What are the benefits of converting to trading SBD to Steem?
Well, I hope that by converting I can get a better deal, and hopefully put some pressure on the market to start pricing SBD closer to $1.
When you convert though the wallet, the SBD that you use are taken out of circulation. There are that many fewer Steem Dollars floating around.
If this is actually the case, shouldn't this be pushed as the biggest reason to use the conversion?
I have never heard of that, but would have used it if I knew that they would be destroyed. Theoretically that should increase the value of the steem dollars.
If the goal was to make a profit, couldn't someone just buy SBD (current .75cents), convert it and then sell the steem off at approx 2$, then take that 1.25 profit and buy more SBD if they're still at a low price?
I'm in it for the long haul, but is the above correct, or does my thinking need an adjustment to get back to correct?
That's the idea... if the market is undervaluing SBD, we have to start abusing it. The only real risk is a sharp decline in the price of STEEM, which would probably further depress SBD anyway. As I show above, even in a week of a steady downturn in the STEEM price, you can still break even during a conversion.
I am not an expert at all , I try to simplify for my understanding and learning through posts like yours . Basically it means that it's better NOT to sell at the moment. I don't have anything but it looks it would be probably smarter to power up ? Is this correct ? As long as I believe in a longterm stability ?
Please keep your experiment updated! I'm very interested to know your results. I'm completely new to the crypto game and trying to learn as much as I can to play in the market. That's why I'm enthralled with steemit. I don't need out of pocket cash to begin. Do you have any resources for someone like me who knows nothing about it crypto and wants to get in the game? Ebook to read maybe? Thank you
Thanks for sharing this bacchist. I've read your post twice (it's early in the morning and I need more coffee to function). Not good if you're selling, but why would you want to sell?
I'm not really selling, just trying to cycle SBD to see if I can take advantage of the market undervaluing SBD.