Toward Mass Adoption of Steem Dollar: Is Pegging Really Important?

in #steem7 years ago


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A week ago, Korean Steemit community reported the first payment of Steem for two lattes and this encouraged many other Korean members to adopt Steem and Steem Dollar as an alternative payment method. This is surprising because the adoption is faster than expected, especially when compared to volumes or market caps of other pegged cryptocurrencies, such as Tether or BitUSD. What does make this difference? This post attempts to answer this question and to facilitate further discussions.

Myth about Pegged Cryptocurrency

It has been argued that when we peg a cryptocurrency to a fiat(e.g. USD), it will replace the fiat gradually. The basis of this argument consists of two elements: 1) pegged value, and 2) trustlessness. In other words, people will prefer a crypto version of USD that can maintain similar value as USD and that they don't have to trust third-party (e.g. a central bank of U.S.) for its value. Bitcoin cannot meet the first factor due to its volatility, while Tether failed in the second one due to trust in the issuing company. However, it is very hard to explain why Steem Dollar is accepted earlier than BitUSD, since BitUSD keeps better peg and similar characteristics with Steem Dollar. In addition, we are seeing that Bitcoin is relatively more used than Steem Dollar despite its volatility.

To deal with this conundrum, we can revisit the assumption. "Is pegged crypto is really important?" I would answer "No". For convenience, I will use Steem Dollar as a representative of a pegged cryptocurrency, since it meets two conditions what I described above (i.e. pegged value and trustlessness)

Most of all, we need to admit that Steem Dollar is not a superior version of US Dollar. Actually, it is superior version of STEEM. More specifically, Steem Dollar is value-pegged (or guaranteed) version of Steem, so that you can be ensured obtaining about 1 USD value Steem with 1 Steem Dollar. Similarly, BitUSD is superior version of BTS, not USD. Why is this important? Because it tells us that the key is not pegging, but community.

All Currencies are Community Money

Imagine you are living in Korea. The country's currency is KRW (Korean Won), and many people live there are using KRW. You have a friend who is German. If he suggests you to use Euro in Korea instead of KRW since Euro is more broadly used and reliable, would you accept? Maybe not. With some exceptional cases (e.g. losing trust in the community such as Venezuela), people tend to use money of a community they are living in.

We can apply the same story to cryptocurrencies. Why are people using Bitcoin? Because they are involved in, and trust the community. Why the Korean members used Steem? Since they are Steem community members with belief. Pegging is good, fast transaction is good, no fee is good, but they are not the key. They are just additional features. The key is community.

Toward Mass Adoption

Now is the time to talk about mass adoption. I think there are three things for the mass adoption. First one is community as mentioned. I think it is better to rephrase "mass adoption" into two parts, "community expansion" for mass, and "community adoption" for adoption. We don't have to promote usage of Steem Dollar to merchants. We just have to bring them into Steem community, and they will use Steem Dollar or Steem if they are involved in this community.

The second one is easiness to use. Many crypto are focusing on this part by improving wallets and transaction speeds. Steem has one of the pioneering crypto in this part, not only because of Steemit site but also because of third party apps such as eSteem, Blockpay, etc.

The last one is easiness to earn. Buying Steem Dollar for purchasing goods makes less sense because it is more convenient to use US Dollar. If a merchant accepts both US Dollar and Steem Dollar and you have US Dollar now, would you pay with US Dollar or buy Steem Dollar and pay with Steem Dollar? I think in most cases paying US Dollar is preferred. But what if you earned some Steem Dollar and a merchant accept both US Dollar and Steem Dollar? You may pay with Steem Dollar.

Other cryptocurrencies are missing this point. To earn Bitcoin, you have to buy ASIC miners and run. To earn Ethereum, you need to buy GPU and mine. There are only small proportion of people earning these cryptocurreicies. However, Steem gives rewards to all active stakeholders who writes or votes. There is no "buy" or investment part to earn Steem and Steem Dollar. "Earn and use" is the real strength of Steem.

From Value-Pegged to Value-Guaranteed

Now, we can revisit the notion of pegging. If pegging is not that important, what is its merit? The benefit can be guaranteed value, so 1 Steem Dollar can have at least about 1 US dollar value. In other words, this also means if one values Steem Dollar more than 1 USD, for instance $1.3, the premium part is not guaranteed so all loss from over-valuation is responsible to him/her. This can be applied to merchants too. Merchants can choose to regard Steem Dollar as $1 or $1.3 when market value is $1.3 as for now, but if one choose $1.3, he/she may loose $0.3 and must not complain. This also can be seen as a penalty of breaking community's promises of 1 Steem Dollar = $1.

With the notion of value-guaranteed, the community is able to earn more rewards in US Dollar denomination based on the speculator's risk taking. There is no harm unless we take risks of buying Steem Dollar above $1. Steem Dollar has been above $1 for over a month, but no complains heard so far because our community members earn Steem Dollar.

Steem for All

In my opinion, Steem Dollar (as well as Steem) is already prepared for the mass adoption. What we need is expanding community and somewhat easier usage, such as more user-friendly password system (Now is better than other cryptos but still more difficult than centralized services). We do not have to follow "mass" yet. Mass adoption starts from the community. Steem Dollar is the community money, and the community will have hundreds of millions people. This is what I am hoping.


Side note: I do not support feed premium for pegging since it violates $1 guarantee with conversion. We can just enjoy bonus from speculators :)

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What we need is expanding community and somewhat easier usage, such as more user-friendly password system ...
You are completely right! Also the sign in process partly still seems to cause problems to some of the people I invite to join Steemit. One of them just sent me the following chat message:
"I tried to make an account, but they put me in waiting list and told me I ll get a welcome mail, but I didn't receive any email nor any confirmation yet."
Way to complicated - too many people will be discouraged by things like that.

I think in the future it is important to have a mobile app to send and receive steem dollars, that would facilitate transactions a lot.

Do you mean only transfers?

Yep, and with many users of the app. Convenience and community should go together I think.

The guaranteed value is a great idea. It reduces pressure on holding that peg. Unless we're really going to market the pegged currency, it doesn't seem essential right now. Guarantee a value or a range.

Yes, but the system is still designed to $1 peg. So what we need to do is keeping the system design as promised, and it will approach toward the peg eventually, IMHO.

Great article! thanks a bunch for sharing and informing us on this issue most people could use help with to understand. AWESOME!!! All for one and one for all! Namaste :)

Maybe SBD is that asset that makes all the difference in adoption of Steemit. Great article, great argumentation and big thumbs up to Korean community!

I am half way through but really enjoy learning more and more about this world. Thank you ! I need to read this very slowly again because some terms and words I still don't understand. Oh and I sold all my SBD to get Steem. Was this a good move ?

You will never believe it but it's my very first trading adventure haha 😂 but at least I have a few digital wallets already and finally I know also what pegging even means 🙀

Perfect move! As said, Steem Dollar is superior form of Steem, so increasing Steem value will benefit SBD as well as the whole community.

Thanks for sharing. Reading, watching and learning.

Meeeee toooo

정말 좋은 글입니다

Everybody's for that mass adoption abd while helping by promoting and sharing this to families and friends, we are also hoping that the new look of steemit will soon be seen. It is much easier then to entice lots of people to use steem as part of their social life where they communicate each other easily and conveniently. I think everybody agree on this, that social media is about communication with ease.

Agreed. It is much easier to use Steemit than to use Steem Dollar for their purchases. Steemit is a lure, and once they are involved into the community, Steem Dollar will be one of options.

"User-Friendly password system.."

Exactly my friend, That's what we need. User friendly and fool-proof.

Because it is a different "currency" than the dollar and subject to free market forces, it is impossible to maintain a 1 to 1 correlation. It is then better to let the market determine the value and hope it goes to the moon. For merchants accepting the Steem dollar, they should charge steem dollars for their sales at the market value. This is fair trade and exchange for equal value. If the merchant decides to accept Yuan automatically the merchant takes into account the value of the Yuan. Anything else is tantamount to theft.

It's up to their choices and the system only guarantees about $1.

Great article! This really gets one to think about the wider ramifications of what a fiat currency is. The supply and demand of fiat currency can be manipulated by central banks and other politicians. Not so for crypto-currencies like Bitcoin or Steem. Thanks for sharing.

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