Every Author likes high Post Rewards but are we deluding ourselves in thinking that this high STEEM DOLLAR is actually sustainable? There has been a lot of discussion recently amongst the Witnesses about whether to fix the broken US Dollar peg and it’s no surprise to find that it is a pretty unpopular topic amongst the Minnows and Dolphins on the platform who want the good times to keep on rolling. I hate to be the bearer of bad news but if you have a look under the covers at how the system actually works it looks pretty inevitable to me – even if the Witnesses do nothing.
There are 2 features of the system which are important to understand before we go much further :-
Most of us are familiar with the basics of how a post is rewarded. As an Author you have the option to select 50% of your rewards to be paid in STEEM DOLLARS, but the system calculates the number of SBD you receive as if they were valued at $1 USD each. So if your post payout is $10, then you will get $5 worth of STEEM and 5 SBD - which is actually worth substantially more. These are actually newly minted SBDs that are CREATED by the system and added to the Circulating Supply.
Instead of selling your SBD you have the option to redeem them via the blockchain for $1 USD worth of STEEM and up until recently you could do this via the Steemit interface. When you redeem an SBD it is effectively DESTROYED by the system and taken out of the Circulating Supply.
I’m going to break this next part up into 2 sections to show the contrast in how the system has been working. First I’ll have a look at the period of the 1st August to 21st November, which is just under 4 months. It’s back when the STEEM DOLLAR was fairly stable and before it broke the US Dollar Peg. Have a look at the graph below :-
The Blue line represents the 7-Day Moving Average of the SBDs CREATED from Author Rewards. The Red line represents the 7-Day Moving Average of the SBDs DESTROYED by SBD Conversions back to STEEM. The Green Line is the difference between the two. As you can see the Green Line is fluctuating either side of Zero and shows that the Circulating Supply of SBDs was up and down but if you add it all up over the period it’s actually a slight negative. This means there were less SBDs in existence on the 21st of November than there was on the 1st of August.
Now have a look at the same graph for the period of 22nd of November to the 29th January 2018 :-
You can see immediately that the SBD conversions have gone to near-Zero because nobody in their right mind would take $1 worth of STEEM in preference to selling SBD at an inflated market price. This means there are almost no SBDs being destroyed. Meanwhile you can barely see the Blue Line showing the newly created SBDs because it is covered up by the Green Line showing the Net number of SBDs being added to the Circulating Supply EACH DAY. Now remember that this is NOT a cumulative chart. If it was cumulative then it would look even more like an exponential curve….and there-in lies the rub.
Since the 21st of November, there have been approximately 4.1 million new SBDs added to the Circulating Supply. This represents an Inflation Rate of about 125% over just over 2 months. In the last week alone, the Inflation Rate of the SBD is about 10%. At this rate, with a $7 SBD price, we need to add over $4.5 million US Dollars of fresh money to the SBD Market Capitalisation EVERY WEEK - JUST TO KEEP IT AT $7. Any less and it’ll fall. But wait, there’s more. As the STEEM price rises it is going to result in a bigger reward pool and EVEN MORE SBDs being created and added to the Circulating Supply.
That’s right, STEEM DOLLARS have become HYPERINFLATIONARY. Now if you think that speculating on a currency with that sort of Inflation Rate is a good idea then I’m sure that we can find some Venezuelan Bolivars you’d be interested in buying too.
I know that this system is a bit complicated and I don’t blame new users for not understanding how it works. We all want to get bigger rewards for our posts, but let’s not delude ourselves any longer. This is a short term windfall and the exploding SBD supply won’t resolve itself until people start Converting SBDs back to STEEM, and that’s not going to happen until it gets back near $1 USD. So this is a train wreck waiting to happen for those poor bastards in South Korea buying this pump. A drop from $7 back to $1 is bad enough, but if you bought at the peak your losses are going to put you in the same boat as a BitConnect bagholder.
That’s where I have an issue with people who are familiar with the system but are promoting and perpetuating a high STEEM DOLLAR. They should know better and pushing this myth that this price rise is sustainable while at the same time lining their pockets with Author Rewards is in my view, unethical. Those people are no better than those ones who were pumping BitConnect before it collapsed.