The STEEM DOLLAR Purge Begins : This is what we need to DO

in steem •  2 months ago

Too much debt is never a good thing and in the STEEM ecosystem STEEM DOLLARs represent Debt as each one is effectively an I.O.U. written by the STEEM blockchain for $1 USD worth of STEEM. I’ve been predicting a Purge of the over-supplied SBDs for many months now and if you haven’t read my piece from April The Coming STEEM DOLLAR Purge : Why it Needs to Happen and How please do so as it will provide important context for this post. We have now entered “Phase 2” as the speculative excesses of the recent Crypto Boom are coming home to roost in this current Crypto Bust. Now that we’re finally here it is a critical time for the STEEM platform and things are possibly going to get worse for HODLers before they get better. The Moment of Truth has arrived and we are about to discover how this SBD Pump story ends….

nuke.jpg
Source

After the SBD price bounced off the $1 USD level a few times in the last couple of months we have finally broken through to the sub $1 USD levels that is the trigger point for the SBD Purge that I have been predicting. You can see from the chart below that in the last couple of days the $1 USD level finally gave way and we are now most definitely in Purge territory. You will also notice from the chart that the trading volume for SBDs has picked up markedly. This is the smart money coming in to try and profit from the falling SBD, but more on this later.

SBD_Chart20180815.PNG
Source

The biggest problems we have right now are the low STEEM Price and the high Current Debt Level. When I first predicted that a SBD Purge would occur I didn’t think we’d be starting off such a low base with STEEM already languishing around $0.85 USD. I also hoped that our Current Debt Level would be lower than it currently is now. I detailed the importance of the Debt Level in my more recent post Impending STEEM DOLLAR Purge : The #1 Key Indicator To Watch but since then we have broken through the 5% Debt Level and we hit the SBD Printing Halt about a week ago. We did that when the STEEM price was still around $1 USD! Now with the subsequent drop in the STEEM Price over the last couple of days, the Debt level is rocketing up very quickly.

Steem_Debt20180815.PNG

You can see from the above chart that we are already up over 6% and we are now going to be walking a tightrope. All of the selling pressure for both STEEM and SBD are now going to be channelled into STEEM as the SBD is likely to get support from Arbitrage players. But as the price of STEEM drops further, this calculated Debt Level is likely going to get higher. If we hit that critical 10% threshold then a “Haircut” will be applied to SBD conversions which will mean that it is no longer going to be convertible at $1 USD worth of STEEM. If this happens it is likely to be disastrous for the platform and confidence in the SBD. We may actually see a bit of a Death Spiral effect. What we really need is for the Debt Level to be reduced at a faster rate than the STEEM price drops. If the STEEM price drops too fast then we will get a Haircut on conversions applied…and if the SBD price rebounds above $1 USD then the Purge (Debt Reduction) will be halted. That’s the tightrope we need to walk to get back to system health so that we can ALL live to fight another day….

tightrope.jpg
Source

So what can we do? Well, the first thing that needs to happen as an absolute MUST is that Steemit Inc need to re-enable the SBD -> STEEM Conversions in their User Interface on steemit.com. There are thousands of Non-Technical users who need access to that function while this SBD Purge is going on. The best thing for the ecosystem will be if Genuine Steemians use the SBD Conversion (destruction) functionality to convert SBD to STEEM as they are much more likely to power up the resultant STEEM than the professional Arbitrage players who will see this opportunity for what it is. That Smart Money I referred to before will be accessing the SBD Conversion functionality of the blockchain via other methods and they are much more likely to dump the resultant STEEM on the market so that they can buy more SBDs. If we just leave it to them then we will get much more selling pressure on STEEM than if we have Genuine Steemians doing the SBD Conversions and powering up.

SBDPurge20180815.PNG

As you can see from the above chart, the SBD Purge has already begun with 12,782 SBDs destroyed via the conversion process on August 14 alone. The big questions from here are - Will that number of SBDs destroyed increase over coming days? When the conversion process is completed in 3.5 days will the resultant STEEM be dumped on the market so that more SBDs can be bought at a discount? We will find out very soon….

momentoftruth.jpg
Source

The other thing I would encourage people to do is talk to the top Witnesses about the proposals in Hard Fork 20. One of the proposals is to effectively Lift the Debt Ceiling to 10% so that even more SBDs can be printed in future. If this policy had been in place now then we would have even more SBDs in circulation right now. Our Debt Level and the problems we currently face would be even worse and the chances of us hitting the SBD Haircut threshold would be significantly higher. This policy proposal in my opinion makes the STEEM platform even MORE unstable and it will likely create a lot of potential SBD bagholders during the next boom/bust cycle. Now I know this might seem a long way away, but it’s important to keep an eye on the future. Increasing the Debt Ceiling is not going to work out well for the USA, so why would we think it’d be any different here?


Images and Credits
https://www.extremetech.com
https://coinmarketcap.com
https://www.nonprofitwizards.com
https://www.orderofman.com

teamaustralia_buggedout.png

steemsilvergold_buggedout.png

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

Steemit Inc need to re-enable the SBD -> STEEM Conversions in their User Interface on steemit.com.

Totally agree! I even posted on this matter.

Yesterday I noticed that SteemWorld now has a button that allows us to use the SBD to STEEM conversion feature. It shows in the "Balances" tab next to our SBD balance.

·

Steemconnect URL for conversion now works too so it's a snap if you already trust them. Sample URL for anyone following along:

https://v2.steemconnect.com/sign/convert?requestid=1&owner=eonwarped&amount=5.000%20SBD

Change user, change requestid to something like 20181601 or something.

·
·

Another great option. Giving this one a test out now too. Thanks for the tip! :)

·

This is an excellent tip, thank you. I am giving it a test right now. Got an error but my wallet is showing the conversion attempt.

·
·

I hope it works out. If you have problems with SteemWorld, you can leave a comment on the latest post by @steemchiller (the developer). He's really good at responding. His latest post at the time of this writing is this one.

·
·
·

Thank you. I am reaching out to him. I am impressed with some of his recent development.

Oh! Really?
I thought the Sbd is having a low px is because of the diluting of coins?

Nailed it man!! Absolutely agree with you on the raising the debt ceiling to 10% and only reducing the SBD print rate between 9 and 10%.

I commented on the HF 20 change on Discord the other day...

It's just going to put a band-aid on and wait for a bigger bust to come later, or they'll have to keep on raising the debt ceiling. One of the big problems is that SBD is trade-able on the external exchanges too.

·

Thanks @bmj I think it's a "band-aid" solution too and I don't think it really solves anything. It just allows a bigger boom and a bigger bust next time around. They'd be better off improving the actual peg mechanism and removing the speculative appeal of SBD altogether.

Great post & info, this slways happens when we get above 5%, if you watch the supply you can tell the future 😎

If percent_sbd is below 2% then the sbd_print_rate is 100%.
If percent_sbd is above 5% then it stops printing sbd.
If percent_sbd is between 2% and 5% then sbd_print_rate = 100% * (5 - percent_sbd)/3.
We are not in 4% but 2.15%. This is the calculation:

Steem supply: 265700335.221 STEEM
SBD supply: 10858144.712. How much STEEM is it? The median price is 1.855 SBD/STEEM. Then 10858144.712/1.855 = 5853447.283 STEEM
The virtual Steem (Total) is the Steem supply + SBD supply. Total = 5853447.283 + 265700335.221 = 271553782.5 STEEM
Then the percent_sbd is SBD supply / Total = 5853447.283 / 271553782.5 = 2.15%
This percent is between 2 and 5, then the printing rate is (5 - 2.15)/3 = 95%

Found this from the last "purge" 5-6 months ago!

·

I don't follow your maths. It looks way out of date. "The median price is 1.855 SBD/STEEM" No - Not by a long shot.

We actually haven't had a purge since before the first SBD pump in Nov 2017, much longer than 5-6 months ago.

·
·

Ok 9 months it is, my guestimation should have just said long long ago in a galaxy not so far away....

·
·

I upvoted you now noticed you flagged me for 3 month misquote... thanks pal

·
·
·

I did not want to do that but your comment was upvoted to the top of my list and had errors / was misleading so I didn't want it as my top comment.

I'll upvote your other comment above to compensate.

hey, @buggedout.

Thanks for the explanation of things. You know I agree on the debt ceiling deal. I'm just never sure what to make of explanations for things like this. In this case, it's because 5-10% is a no man's land for SBD, where it's neither created or destroyed, and that it was a limbo created by code that no one knew about until recently.

They made it sound like it would be okay to raise it because it would mean SBD would actually do something, because at 10%, things are supposed to halt all together. Or something like that.

I hope more people see this and react to it, especially the Top 20 witnesses.

·

SBD can still be destroyed in the 5-10% zone. In fact that SBD conversion feature is independent of the debt level and is more about whether the SBD price makes it an attractive option. I consider the 5-10% zone to be more of a buffer personally that stops the debt printing from getting worse before the haircut comes into play. This buffer might just save us this time around, but by the looks of it next time it won't be there.

·
·

Okay, so this is most of the comment from smooth that I based my previous comment on:

The intent of SBD is not that it be 'open to speculation' other than speculation within a narrow range and relatively short time period due to liquidity considerations (with enough volume, a speculator can make a large amount of money betting that SBD at $0.99 will rise to $1.01 or vice versa). Instead of a speculatively determined price, increased demand for SBD should result in more SBD being circulated and decreased demand for SBD should result in less SBD being circulated, in both cases pushing the price back toward $1.

The current mechanism doesn't fully implement this but that is the intent, and the proposed change gets a bit closer while removing an odd quirk how the thresholds are currently set: between 5% and 10% there is literally nothing being done by the system to control or even influence either the supply or value of SBD (none of it being created nor destroyed, backing ratio not affected, etc.). No one really intended to create a market cap ratio 'window' for fully-free-floating SBD with no controls at all; it seems to have been an accident.

Based on what is said here, I would agree that the conversion feature is independent, but for some reason "the mechanism" smooth refers to does not exist when we get into the 5-10% range.

I'm not trying to contradict, but I am trying to get to the heart of the matter here. If what they're doing is going to make things worse rather than what they say it's going to do—rein things in a little more—either way, I'd like to know that.

·
·
·

I have respect for smooth as he at least will engage and offer some explanation, but if you read between the lines even he admits this is a half-measure. You might not get him to admit this is a band-aid solution but it is definitely implied.

I disagree with him on this though. Between 5% and 10% something IS being done - printing of SBDs is being halted, thus allowing the system some time / grace to recover. Under their proposed solution we will go from full 100% SBD print (at 9%) to haircut (at 10%) literally overnight. The next bust is going to be hard and it will catch a LOT of people out....but the insiders who know the complexities of how the system works will be fine and I am sure they will profit handsomely.

Great analysis as usual Bug, although I still don't fully understand why there's debt in the first place. However, kicking the can down the road seems like a bad idea. Thanks for coming out of "retirement" to enlighten us among all the "buy the dips" and "HODL strong" posts.

·

Thanks @choogirl

The debt is there in the form of SBDs as part of the Stable Coin peg mechanism. It is only by making it "Redeemable for $1 USD worth of STEEM" that it is able to be price stable....well, that was the theory anyway.

PS - I am not in "retirement" (geez, you make me sound old), I'm just stepping back to focus on more productive efforts (hopefully) :)

Great to see a post from you on Steemit @buggedout!

Getting this SBD siluation fixed and have it actually pegged to 1$ really is key for Steem. What I don't understand is why they don't just apply the True USD model to SBD. A smart contract that automatically makes SBD for each dollar that is send to a bank account and the other way around. It should not be that hard to combine with the way SBD currently works and solves the problem of the peg and limited supply for as far as I understand. This would make it all adoptable for actual real life use.

·

This solution would introduce counter-party risk. What if the bank freezes the account? It introduces a central point of failure for the entire ecosystem.

But I agree, fixing the peg mechanism is key for the platform and is the only way to deter the speculators who have been pumping (and manipulating) the price.

I like the change. That SBD pump was terrible.
If the printing presses go full tilt whenever the price exceeds $1, we finally get the hedging instrument we were originally offered.
I'd like people to be able to lock in gains without needing to sell into fiat or BTC.
If the devs had predicted the pump, they would've set the max print rate higher from the beginning.

·

Can you explain that? I don't see how raising the debt ceiling gives us a hedging instrument NOR how it helps us lock in gains without needing to sell into fiat or BTC.

In fact, if we had a proper Stable Coin we could actually do real commerce on here and then we could exchange SBD directly for goods and services with real world merchants....without needing to sell into fiat or BTC. That's what I want to see.

·
·

People bought SBDs at $3 speculating they'd go up to $5. That's not good for keeping them at $1.
With the changes, there's far less scope for SBDs to increase in price, so speculators will look elsewhere (STEEM hopefully). I believe that's the main motivator for the change.
I could be wrong though, it's happened before :)
Good to see you posting again, btw.

·
·
·

The best way to remove the speculative appeal of the SBD is to actually fix the peg mechanism by removing the Asymmetric Trading opportunity that the SBD currently offers.

·
·
·
·

Let's find out together shall we?
:)

I do not see that anything Steem does can prevent such a thin market as exists for SBD from being pumped. It only takes a few millions of dollars to control the price of SBD.

The best Steem can do to control the price is to react slowly, as it has, to print more, or burn more. This can't affect relatively instant pumps.

I'd appreciate a better explanation of 'purge' in this context. My best approximation of understanding your use of the term is that SBD will be valued at less than the stated peg of $1 of Steem during conversion.

Could you confirm this is what you meant?

Thanks!

·

"This can't affect relatively instant pumps."

It can if you enable reverse conversions. Supply can be ramped up very quickly and the speculators will get burnt.

Definition of Purge at www.dictionary.com :-

"1. to rid of whatever is impure or undesirable"

In this context I am talking about reducing the circulating supply of SBDs (reducing system debt)

Excellent article, very thorough. It appears as though the entire crypto ecosystem is walking a tightrope right now. Especially Ethereum and ERC-20 ecosystem. We're definitely at a crossroads right now where only the strong survive. Here's to hoping the Steem platform is among them!

·

I hope so to. But we do need some smart adjustments from the powers that be on here....

I think I'm going to have to read this a few times. I've never been fully versed in the whole point of SBD v. Steem; like, the reason I always read is "so merchants can price to USD" but that hasn't worked out either, so I'm still scratching my head. Basically, are you imagining Steem crashing and SBD ballooning because of this disparity? Am I understanding that correctly?

·

Yes, that is the reason but it hasn't worked out.

I am saying basically that SBD should be supported around $1 USD as long as the debt level holds below 10% and that STEEM is a risk of further decline while the purge is going on.

Dude,mark my words,sbd will get big pump,sooner or later..probably over 10 usd.

Most informative article. I learned a lot from it, very well explained ... even for newbies like me. Now the picture gets clearer, thanks!

Wait so if I have SBD I should be converting it to Steem immediately or?

Posted using Partiko iOS

·

According to coinmarketcap, the SBD is currently with 1.01 USD, so you'll be at 1% loss if you convert it now.

Yesterday it was at 0.96 USD, so theoretically you could earn 4% by converting. Then again, you also earned 4% just by doing nothing since the value has rebounded.

Thanks for your analyse!

@buggedout nice article brother your article is help me for my next post on bitcoin..thanks brother for sharing this important information about bitcoin

thanks heaps, super informative :)

The pressing question is how to get access to said convert feature

Posted using Partiko iOS

Very nice, Will be looking forward to your posts. Up-voted

Thank you for your continued support of SteemSilverGold

Thanks for sharing! This is very good article and very informative!
Resteemed for others!

Cheers.