Impending STEEM DOLLAR Purge : The #1 Key Indicator To Watch
About 3 months ago I wrote about The Coming STEEM DOLLAR Purge and here we are finally knocking on the door with SBD breaking down to 1.01 USD this week. This is what I would call the first "bounce" off the key $1 level that is supposed to be the level it is pegged at. The Purge has not yet begun, but I think we are very close now and while it may look ugly when it happens, I am happy it’s happening sooner rather than later – before things get worse. But before you lynch me for saying so, please let me explain.
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The way the STEEM blockchain works is complicated and I will assume that you, the reader, have some basic knowledge of the functions for STEEM, SBD and STEEM POWER. The important thing I want to talk about here is the print rate for SBD. All Authors understand that they get “Post Rewards” in various forms for their contribution of content to the platform, however, what is generally poorly understood is how those post rewards are calculated and how their makeup might change according to the calculated “Debt Level” of the STEEM platform.
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This Debt Level is basically a function of the SBD Circulating Supply divided by the STEEM Market Capitalisation. The Blockchain treats SBD as if it is worth $1 USD regardless of what it might be trading at on the open market, which is why we don’t use the SBD Market Capitalisation to calculate debt. Anyway, there are a couple of set thresholds that I have highlighted as zones on the chart below to be aware of and I’ll briefly outline them below :-
When the debt level is under 2% then 100% of the liquid post rewards are given to the user in the form of SBD. This is a healthy state and basically the system is saying that the debt level is so low that there is no problem issuing more debt in the form of more SBDs.
Once the debt level gets above 2% the system starts to reduce the amount of debt (SBDs) being printed and it starts rewarding authors with some liquid STEEM instead. It is a gradual reduction up until the debt level hits 5%.
Once the debt level gets to 5% the printing of new SBDs completely stops and ALL liquid post rewards are granted in the form of liquid STEEM.
Once the debt level gets to 10% then the convertibility of SBD into $1 USD worth of STEEM is compromised. At this point the system will only convert to a fraction of $1 USD worth of STEEM as the debt level is too high and a “Haircut” is applied to SBD conversions.
You can see from the above chart that the system had a fairly healthy debt level for most of the last year. Back in November we had the SBD begin its pump and the converting of SBD back to STEEM pretty much ceased at this point. If you want to read more about this please read my post from 5 months ago titled STEEM DOLLAR Will Fall To $1 USD : Here’s Why as it explains the SBD Conversion / Destruction blockchain functionality and the massive inflation of the SBD Circulating Supply. You can see on the above chart there was initially no problem as the price of STEEM itself was ALSO pumping and so the debt level actually dropped. However, now that the STEEM Price has been dropping that extra Circulating Supply of SBDs is now coming home to roost and it’s going to give us a hangover.
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We first broke through the 2% barrier in March this year, when we started seeing liquid STEEM rewards and more recently in May and June we have broken this level in earnest. It looks like we are actually very close to the SBD Printing Halt and I personally think this is potentially disastrous for the STEEM Platform. If this happens then all those authors who have been cheerleading the high SBD price will quickly realise how foolish they have been because they won’t be getting any more of them.
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If the Purge I have predicted then begins and we get Arbitrage selling of STEEM that even further depresses the STEEM price we might even threaten to break into the SBD Haircut zone. If that happens suddenly the confidence in SBD could evaporate as users realise that SBD is no longer going to be supported at $1 USD. At this point I think we’re in a pretty broken state and the Purge just got a whole lot uglier.
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As gloomy as this all sounds, I am hopeful that we will see the Purge occur very soon and that the SBD Circulating Supply will start to drop to return us to a healthier debt level. It is a critical time for the platform and while I am taking a break from STEEM myself I will be keeping an eye on this debt level and hoping (against all the odds) that the Top Witnesses will have the courage and foresight to enable reverse conversions. I believe this is what is needed to permanently fix the SBD peg, give us a proper Stable Coin and prevent this sort of existential threat from happening again.
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I'm glad you temporarily came out of hiatus to write this. Seems like now would be a good time for it to happen since crypto morale is low anyway.
Thanks. The Purge probably doesn't happen unless sentiment turns anyway, but my take on it is that the bigger the boom the bigger the bust so if it happens now then at least the bust (hopefully) isn't so big.
BTW - My post count might be down but my hiatus hasn't really started yet. I have a few loose ends to hopefully tie up this week so I might have a couple more posts in me yet ;)
Even if Steem starts giving out haircuts, I'm not too worried. This place isn't easy. Well, unless you're cheating. If it's paying out in Steem? No problem. I like Steem. I believe in Steem. If it's paying out a bit less? No problem. I'm used to getting paid shit for things I actually work really hard on here. Worst comes to worse, I get paid nothing. I guess I'll still make some posts on here probably. Maybe not as often.
What I wanna know is who is holding all the SBD?
https://steemit.com/@freedom/transfers
850,000 of them!
Good. The #1 value extractor can be the #1 SBD bag holder at the end of the pump. Seems appropriate.
Don't think that account does anything apart from accumulate!
Would be nice to see all that transferred to STEEM and powered up :D
Accumulate and vote for witnesses that let them accumulate.
That seems to be the name of the game. It is why I am not optimistic about the reverse conversion being implemented - there is too much profit potential in letting it run again.
Yeah, it's quite interesting how it's all set up, steem serves as quite the punching bag here.
Accumulate and
Vote for witnesses that let
Them accumulate.
- charitybot
I'm a bot. I detect haiku.
I guess I am one of the delusional ones who still thinks this platform could be "the one" for mainstream adoption of Crypto and this kind of boom-bust typically scares the mainstream off. I'd like to see the platform running (and being maintained) better but you are correct - The will be a hard-core of Steemians who will post here regardless.
Ehh... Steem putting the posts on the actual blockchain where you can never delete them. That means that as long as Steem exists, so does everything we put on it. That's actually a pretty big problem. This place is pretty cool in its ways but I don't think it really will be ever mainstream. Especially if we don't do more about the abuses. Like the bots.
I think it might be the bitcoin of crypto social networks though. We're learning a lot from this place, one day at a time.
It looks like the bulk of the SBD Circulating Supply is sitting on Exchanges, so it is likely just in the hands of speculators. The Bittrex wallet alone hold 65% of the SBD supply and since Upbit consistently has a higher trade volume there is probably a fair chunk of it there too, but I don't know what the holding account for Upbit is.
I'm guessing people are waiting for another pump to offload them?
It was a good call you made 6 months ago. If you were a witness, how would you set your price feed at present?
https://steemit.com/witness-category/@dragosroua/adjusting-my-price-feed-to-2-sbd-may-cross-below-usd1
I wouldn't be going negative. I think zero is fair but I'd still lean to a positive bias as long as SBD is above $1 and/or the debt level is over 2%
I know it is an unpopular view but I do think a gentle push into the high 90s is needed to create the incentive for SBD -> STEEM conversions to resume and reduce the debt level. If the SBD Purge can be gentle and orderly, spread over the course of a month or two then that is probably best case scenario for restoring system health.
Cool, thanks for the insight. We might give a small positive bias, although it's more of a token gesture in the grand scheme of things.
I suspect some are now holding their SBD for a pump, but if they can level off or STEEM goes sub SBD, then hopefully some will consider converting. That's what i'll be doing where possible.
You are exactly right I think. There will be some (maybe even myself) who would hold for the next SBD pump if the peg doesn't get fixed. But once it drops sub $1 the opportunity is there to convert to STEEM to re-buy at a profit and that's where the SBD destruction and debt reduction occurs.
Do you follow @burnpost?
I think it could be nearing the time for @smooth to take action with his experiment. If only the account had the same number of SBDs to convert (and then burn the STEEM) as @freedom 😁
No, though I am aware of the burn experiment that @smooth was conducting. It didn't make a lot of sense to me, but maybe I just didn't understand the point he was trying to make.
Great post with some pretty common sense analysis of what is happening. I think the SBD scenario is pretty grim at the moment and your 'Purge' is pretty much guaranteed. Hopefully it is like a sticky bandaid and can be ripped off quickly with minimal pain.
Thanks. I'm not sure if quickly and minimal pain go together. I see it a bit like a typical bubble, when it corrects you either get a slow deflation (minimal pain) or a fast pop (quickly).
What do you mean by purge why is it bad?
If there's too many steem dollars and the system stops making them, why would this be bad for the platform?
Is it just holders losing their value or is it actually bad for the overall platform?
Good questions.
Have a read of my linked posts. I personally believe the Purge is necessary to reduce the debt and give us a chance of SBD becoming the Stable Coin it was always designed to be. But the Purge itself will have some short term negative price influence on STEEM.
If the system stops making SBDs and we neither have SBDs as a Stable Coin nor a Liquid Post Reward then SBD really is redundant from a system perspective. There are many who think we should get rid of SBDs anyway but I think it is a shame because at one stage SBD was potentially a market leading Stable Coin that could have attracted mainstream use along with merchants to the platform.
9 months ago Found : The Crypto for mainstream adoption
5 months ago STEEM DOLLAR Will Fall To $1 USD : Here’s Why
3 months ago The Coming STEEM DOLLAR Purge : Why it Needs to Happen and How
Great article: resteemed!
I agree with the most points you made.
My main conserns are: the reward system, when it comes upvoting, releasing quality articles, or whales being friends with each other and constantly being in HOT or TRENDING sections....
Also to add to this negative price move of Steem and Steem Dollars - we are in a long (in crypto time) bear market, I know many people who are so tired of those red colors in price action.... some of them sold all holdings, some people put in Tether, or still HODLing. But the whole 6 months have been painful specially for newcomers into crypto space. So this adds to the "pain" we feel in Steem and Steem Dollar prices too.
What happens if a sizable amount of SBD its converted to steem and SP?
This is what I want to see.
The debt level drops and we return to 50% SBD and 50% SP payouts.
This was a very compelling read - we'll see how it pans out but I am definitely paying attention - I have some sbd pump ready, though I'm not holding my breath.
Clear as mud to me. Not your fault... just my total ignorance. 🤔
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