STEEM and SBD rocketing together? It's Impossible.
A fun and simple thought exercise I had today led me to the title of this post.
The base of it is the following facts deduced from my earlier post on SBD:
- The printing of SBD is based entirely on the STEEM price feed.
- Post value is really in terms of STEEM, and the amount of STEEM in the rewards pool is fixed by the blockchain.
When your post payout says $24 and the price of STEEM is 3 USD, what it really is telling you is that your post is valued at 8 STEEM. This is the real value that does not fluctuate based on the market. You will get 6 of that STEEM, and at 50/50 payout you will end up getting 3 STEEM POWER and 9 SBD.
Now just think about that. You get the following conclusion:
- The higher the value of STEEM, the more SBD will be minted.
STEEM and SBD have an inverse relationship! Not only that, but it is multiplicative. A ten-fold increase in the value of STEEM yields a ten-fold increase in the rate of SBD minted (whereas the rate of STEEM printing is entirely fixed/capped). The price of SBD will drop in this scenario. The growth in demand would have to match to keep the price up, and intuitively, it does not have a chance. Imagine the amount of demand it would take to drive STEEM up, and imagine needing a much greater amount to match the supply of SBD as it keeps printing at a much higher rate that STEEM. Crazy...
At this point, I hope to have convinced you of the title of this post. Now the question is...
What can happen?
Two (okay fine, three) scenarios to think of.
STEEM Mooning, SBD Stabilizing
You might be worried about the SBD price crashing to 0 in the scenario where STEEM blows up like crazy. But actually, it's not a problem. It's exactly what interest rates are for to encourage holding SBD.
This is the expected state, as outlined in the white paper.
SBD Mooning, and STEEM Staying Flat
I am just starting to explore this possibility. Is this possible? Let's consider an SBD value of 20000 USD, and a STEEM value of 1 USD. Everyone uses SBD as a store of value. Conversion function of SBD to STEEM via blockchain is completely useless (unless the intent is to keep burning SBD and deflating STEEM).
At this point it's safe to assume everyone is using 50/50 rewards to get the benefits. Greed should cause some to swap SBD for STEEM in order to get more of the payout for their own posts, and that should increase the demand and the price of STEEM and decrease the price of SBD. It's not a stable situation.
However, if you were following this post, in theory there is a scenario where SBD stops being printed at all. Then we can imagine a freakish scenario where SBD supply is completely fixed and valuable, and STEEM is stagnant. As in, everyone stops using STEEM because payouts are worthless, but SBD is just the best store of value out there because we've all agreed to use SBD as a currency. Is this the scenario some of you SBD HODLers are envisioning? I doubt it. Also because that means witnesses have no incentive to continue securing the network, because they are paid in STEEM. Hmm... I think that's enough to rule out this freak scenario.
SBD and STEEM crashing to 0
I forgot the bonus scenario that some of us are scared of. Value evaporated! I don't think this is even worth entertaining, as it means the entire experiment failed and everyone jumped ship. Sure, it could happen for a number of reasons, but there's nothing interesting to discuss here.
Conclusion
If you want a very fast summary, here it is:
- Higher STEEM price leads to higher rate of SBD printing.
- STEEM and SBD cannot both be arbitrarily high, as the supply of SBD will explode and bring its price back down.
- Of all scenarios of either STEEM or SBD mooning, we ruled out all possibilities other than the one the whitepaper outlined: STEEM moons, SBD stabilizes.
Anyone an SBD HODLer after reading this post? Then we need to talk.
I've come across this post through reddit, and I have to say as someone who's recently been thinking about the Steemit structure and been engaged in discussions of how SBD "should" be returned back to around $1 each (I disagree), this post was very interesting.
I'd start from the end, apparently the SBD supply increase isn't enough, which is why witnesses have actually began printing more SBD, to reduce its value, see this post by @dragosroua.
The real issue with SBD mooning is that it only has downward pressure - it has no value to external users except as another cryptocurrency. Steemit has more value because of its large marketshare, and also that some people may want to actually buy it in order to gain Steem Power.
There is one part of your conclusion that isn't true, since many cryptocurrencies' price is arbitrarily high, it's quite possible for both Steem and SBD to be arbitrarily high. The question is how you define "high" for each. Some would say any such value for SBD over $1 is "high". Sure at some point it's better to just choose 100% and keep powering down, but at that point some of it is semantic.
And both could be "high", equivalently high, so to speak.
I've responded to your referenced post, I've been meaning to ask for clarification. Feel free to follow the discussion there, but the short of it is that it is not accurate: the witnesses have not actually increased price feed bias relative to market. (Awaiting confirmation but I've gotten verbal confirmation from others)
To address your last point, yes it is possible, but unlikely. The main point I want to make here is that the SBD supply will simply be flooded over time as the printing rate increases (due to Steem price). The demand simply can't keep up at high steem prices. I of course don't have definitive proof but the proportional increase in the print rate is not something to laugh at. I'll need to draw some graphs to really hammer this point in.
Thank you for your input!
Another consideration.
There are a lot more pieces of Steem on the market than there are of Steem Dollars. Suppose that you're right and if SBD is considerably higher than its Steem-value, then it'd go down due to increased supply that will outpace demand - but one of the questions is not what will happen eventually, but how long it'd take, and the wildly varying amounts of Steem versus SBD might also play a factor in making this potentially a very long and gradual process.
True, but the main point is that the process is faster the higher the steem price.
I read the discussion. I'm confused too.
Especially when you see our rewards still come in 50/50 split. Does it mean witnesses are the ones who get paid in more SBD than Steem now? I have no idea...
I think this whole thing might be explainable in voice chat or even text chat, but via the messages I too just ended as confused as you are as to what is going on.
I believe I am right about it now, and would be happy to chat with you. I'm on discord with the same name as well as steemit.chat
I meant that a chat between you and dragosroua could clear up that chain.
If you write it up, I'd love to read it. If not, I may have time for a chat later on.
By the by, which Discord channel are you referencing? There's a "default" steemit one?
Oh yes, that probably could have been in a chat. Why didn't I think of that... But there's nothing to write about for that thread. The entire summary of how payouts and price feeds work are in this post at the top already.
Actually at this point of time, I find the over valued SBD to be honest is not useful for what I envision; that SBD is more of a stored value and it becomes so high that people only have the interest to convert it to fiat currency only.
For me, I hope that one day STEEM and SBD will grow beyond just something you print and hold (until the price is right to sell), where STEEM and SBD will actually be a substitute of (falling apart) fiat currency in the steemit community to get away the controlled clutches of the fiat manipulation, a totally sovereign "crypto nation" who not only produce their own earnings through quality content, but more-so is an entrepreneur that trades from goods to services with STEEM / SBD on a daily basis.
I might get some boo hoos from many here, but I personally would really like to see these 2 currencies either stabilise or gradually rise in value instead of this fluctuating mooning in the market.
Thanks for giving me a better idea how the SBD and STEEM is calculated during maturity period.
upvoted
Agreed. It gets easier the higher steem gets. I do think they both will stabilize at some point, and it will take time. I know I'm pretty impatient about it too but the reality is still that this is still a young platform.
Well, it can only stabilise when people start seeing this beyond just an item / share in an exchange to make money .
Then, it will grow and stay strong; and it needs to start with simple people like you and me to see it in a larger vision; just like the first few merchant adopters of bitcoin during its initial stage.
I'm saying that even if we do nothing and people value the platform, it will happen by itself. Which is an interesting property to have.
I'm saying that people that don't think like you and me are going to get burned when steem's platform really takes off.
The more I think and write about it the more convinced of this I am. Better the market understands these properties sooner so we can correct faster though-- about that you are right.
What I hope to see, is SBD returning to around $1 or even $2, but STEEM going up over $10 and rising. @ironshield
I hold a lot of SBD to get a huge ass delegation as long as the SBD price remains high.
In 3 months it could be 1:1 and I would have saved a lot of SBD. But if the price of SBD increases more than Steem again I would have made a loss but I don't think that happens.
@eonwarped thanks for sharing this been reading about your conversation with Phi Phi on this but still don't get it but as long as it's good news for us I wouldnt mind at all. I'll learn this Soon^^
I learned a lot from this post, thank you for that.
I have never thought about it in this way.
Until today, I thought the SBD price is meant to be a dollar. and it's just the algorithm that fucks up. but now I understand that it can be even higher than 9$? that's insane! I was so scared to see the day where SBD is valued at $ again.
SBD was $16 last week.
I know, doesn't mean I didn't think it will go down to 1$ soon.
Yes it can, it is free market after all. But as I've been telling people, the craziness will end. This thought exercise convinces me of it even more.
My head really does want to get around it, it does but it's not happening right at this moment.
Yeah I am with you. :)
It's okay. The moral is the same: SBD will stabilize eventually :)
Simply put making it all so clear
Great post
Hi @eonwarped, I just stopped back to let you know your post was one of my favourite reads and I included it in my Steemit Ramble. You can read what I wrote about your post here.
If you’d like to nominate someone’s post just visit the Steemit Ramble Discord
Wow thank you!
That is something I wasn't aware of. Thanks for explaining how it works, I always check both prices to see if they go together. Now I know it's impossible