Introduction to Steem Dollars (SBD)

Steem Dollars can almost always be converted to $1.00 worth of STEEM.

Cryptocurrencies are unique in that they are the only digital asset that is not someone else’s liability. They are
fungible, decentralized, and as valuable as the network of users that support them. Historically they have suffered from
very high volatility and are mostly held for speculative purposes.

Steem borrows a concept from the startup world known as a convertible note. Convertible notes come in many forms, but the basic
idea is that they are worth $1.00 of shares at a future price. STEEM Backed Dollars (SBD) convert to a crypto-currency rather
than to shares in a company. The price used to convert SBD to STEEM is derived from a reliable decentralized price feed.

Earn Interest on Savings

SBD pays users who hold it interest. This interest rate ensures that SBD can be safely held with minimal opportunity cost. The
actual interest rate can be changed by consensus of the active miners. This gives Steem the flexibility to adjust the interest rate
to be appropriate for market conditions.

Where does Interest come from?

Steem creates new SBD to pay interest on existing SBD. This increases the debt-to-equity ratio of STEEM. STEEM creates financial
incentives for 90% of all virtual STEEM to be vesting for at least a year. The virtual STEEM supply is the amount of STEEM
that would exist if all SBD were converted to STEEM at the current feed price. The impact of creating new SBD to pay interest is
to increase the virtual STEEM supply and reduce the percent of vesting STEEM. As the percent of vesting STEEM falls the rate of
return paid to vesting STEEM automatically increases to attract new long-term capital.

If we ignore the accounting details, the economic impact of paying SBD interest is to transfer value from holders of non-vesting STEEM to
SBD holders. This value transfer benefits both parties because holders of SBD are effectively extending credit to Steem. This credit
gives STEEM holders leverage that increases their profits when STEEM rises and increases losses when it falls.

Decentralized Price Feed

A price feed is produced by 21 active miners. Once per hour the median published feed is logged. The median of all feeds
logged over the past week is used to determine the rate at which SBD converts to STEEM. With this process it takes 51% of
active miners colluding for 3 and a half days to meaningfully corrupt the feed. It is safe to say that STEEM holders with a
vested interest in the future value of STEEM will be very pro-active in voting for reliable miners to produce feeds.

Conversion Requests

When a user requests a conversion from SBD to STEEM their request is delayed for 1 week and then executed at the future
moving median exchange rate. This process ensures that no one can use the feed delay against the network.

Conversion requests will primarily be used by speculators looking to buy large quantities of STEEM without moving the market.

Liquid Market

Most users will prefer to use the internal market to perform instantaneous trades between STEEM and SBD. The internal market will
track the real-time price of STEEM much more reliably because professional traders can take advantage of arbitrage opportunities.
To further enhance the quality of the market, the STEEM network rewards individuals who provide liquidity by leaving orders
on the book.

Merchants

SBD is a perfect token for merchants to accept because it is backed by a liquid market and can be reliably converted to
$1.00 worth of value in their bank.

Default Risk

No system is perfectly secure against default. A hyper-inflationary collapse of the STEEM access token could create a situation where all
SBD must be converted to STEEM at a value less than $1.00. The STEEM network minimizes the likelihood of this happening by economically
incentivising 90% of all STEEM to be committed for at least a year. This means the debt-to-equity ratio of the STEEM network is normally
under 10%. Even a 50% fall in the value of STEEM would only result in a 20% debt-to-equity ratio which is still conservative by financial
industry standards. The Steem network automatically increases incentives for long-term investment in STEEM as the debt to
equity ratio increases.