Ned Was Wrong About Steem Dollars
Background
Late last year in an interview with Epicenter Bitcoin, @ned made an off hand comment about the possibility of removing Steem Backed Dollars from the Steem ecosystem. He later expanded on his argument, making the case that Steem Dollars add unnecessary complexity to the system without contributing much value.
The Data
I would like to make the case that the data proves Steem Dollars are in fact contributing quite a bit of value to Steem. The following graph shows the number of transfers that have happened on the Steem Network over the past 5 days, denominated in SBD and STEEM:
Edit: Here is a lifetime chart:
Over the whole life there have been 1236719 Steem transfers and 1854617 SBD transfers.
There are twice as many Steem Dollar transfers being made every day versus Steem transfers. This is strong evidence that people prefer to transact with a loosely pegged currency than with a highly unstable one such as Steem. Further evidence of this can be found in the persistent premium on Steem Backed Dollars above their pegged value, which in recent days has been frequently more than $2. It is almost always above $1 in bull markets, even up to $7 at times, but does not go far below $1 even when Steem is declining.
Not only do Steem Dollars compare well to Steem in transfer volume, but Steem Dollars are one of the most used cryptocurrencies period. The following graph from BitInfoCharts.com shows the transactions per 24 hours for some of the top blockchain cryptocurrencies:
Steem ranks 34th by market cap, and Steem Dollars rank only 339th, yet transfers alone account for more than almost any other blockchain. SBD and Steem transfers combined rank 5th by transactions per day, and when split up they rank 6th and 7th respectively.
Cryptos that do fewer transactions per day than Steem Dollar transfers:
- Dash, worth nearly $5 Billion
- Monero, worth over $2.5 Billion
- NEO, worth over $2.5 Billion
- Ethereum Classic, worth over $2 Billion
- NEM, worth nearly $2 Billion
- Tether, the pegged cryptocurrency which supposedly acts as the backbone to major exchanges such as BitFinex, Poloniex and Bittrex
- Almost all other cryptocurrencies.
Conclusion
Standing alone, Steem Dollars is a top cryptocurrency in terms of people actually using it. So is Steem, but notably people prefer to transact in Steem Dollars by a factor of two. The fact that people use it, prefer it to Steem transfers and are willing to pay a premium on the markets, shows that Steem Dollars are providing meaningful value to users.
Data in this post taken from SteemSQL, the database service run by @arcange. Coinmarketcap.com and BitInfoCharts.com used for charts.
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Interesting stats. Especially the volume, does that include the daily post payouts?
No, if we included those it would blow other cryptos away. This is transfer transactions only.
Wow that’s too cool.
yes very true as you say in this post.
In these two days, I noticed, especially the Steemians community exchanged SBDs to steam. in the sense of the word, sbd higher than steem price. and this is also an opportunity for steemians to add SP.
Question @demotruk: how is SBD 'pegged' to the dollar? Is there some system in place to make it revert to the value of +/- 1 USD?
SBD is a smart contract which allows you to extract $1 worth of Steem from the network. You can at any time convert SBD into the same dollar value of Steem using a "convert" command. Thus if SBD ever go below $1, arbitrage profit will cause it to eventually return to $1 on the market. The contract price itself is determined by a price feed maintained by the witnesses, it always uses the median price over the last 3.5 days on this feed.
The peg downwards is weaker than the peg upwards. If the price goes above $1, that theoretically makes Steem more valuable, giving more $USD equivalent output per Steem Power. Thus Steem Dollars should flow into Steem until they match again, although that takes longer to happen.
That makes sense. Thank you very much!
But I'm still somewhat puzzled, when looking at exchanges there are many buy orders for SBD at higher than 1 USD prices. When it's expected that SBD will eventually flow into Steem until the value is 1 USD again, why do people buy them at these higher prices?
My guess is that it's due to the low liquidity of the token, as well as the fact that when it goes up, speculators jump on board and compound the rise, they may have no idea what the token actually is.
It's also possible that people are speculating that it will be used as an 'exit' token for a general crypto crash. That shouldn't justify $2 or higher though.
Thanks for sharing - I was totally surprised the other day when i went to exchange some sbd for steem and sbd was near 2.00
I understand why Ned thinks this. I have long suspected that SBD creates confusion in the market. Steem has struggled to break free of the $1 mark. Is this due to confusion with SBD? Hard to say. I think once steem consistently holds a value higher than $2, that spell will be broken though. If it even exists.
I won't disagree that it adds a little bit more to the time spent before a user understands Steem. The point I will argue with is that it doesn't provide value in return, the fact that the Steem Dollar is one of the most popular cryptocurrencies around, even more popular than the base token, to me is sufficient evidence that users value SBD.
I don't find price driven arguments compelling, particularly at a time like this. If the price of Steem is up or down in the short term, we can't use that to support any particular cause, as market causality is notoriously hard to determine. Prices are irrational to boot when there is widespread euphoria. Amazon, eBay and PayPal were the survivors of the DotCom bubble, but not the leaders during it.
maybe the data from the last 3 days are not the most significant, since SBD jumped to 2$ in few hours. and, since people know it will go back to 1$, everyone sold his SBD.
but I also think SBD has to stay in the Steem system. otherwise it will be necessary to change the whole reward system.
Hi Paolo, in relation to your comment, I created a graph of the lifetime of the blockchain.
Some peaks and troughs seem suspect, it's possible I made errors in my query.
thx @demotruk. this is surely more significant :)
I have looked over the data for previous months, this is just what I was able to put into a chart in a short space of time. In fact a few months ago it was even higher than this.
I expect the trend of SBD remaing above 1USD as the number of active users on the platform increases once participants see merits in holding it as a medium of maintaining intrinsic value...However, once a better speculative game if Steem achieve an active user base of over 210K active users providing the the distribution of rewards improve on the platform and holders begin to speculative it would have more value in time
Wow!!! Excellent read! Good work friend as I was just wondering last night about and and Steem, and why sbd is good to have. New thoughts and insights came from reading this blog!
well the theory would be that the money from SBD would instead go into steem and steem would be the main blockchain. It really is unnecessary when you think about it. SBD don't do anything other then give steemit a 2nd cryptocurrency to deal with. If the money from SBD went into Steem we would see the price at a higher point then it is today giving the cryptocurrency a higher value.
The second cryptocurrency is more stable though, almost all of the time. It's usually around a dollar, and even when it goes lower it never goes lower by that much. While both Steem and Steem Dollars fulfill the purpose of transferring value, Steem Dollars are more stable, preferred by users measured in actual usage. It's not clear that Steem would actually lead to the same level of transaction volume if Steem was the only token and we were forced to use it instead. It may be that it does not meet the stability level that people would use it as they use SBD.
Nice bro
Great work