STEEM's inflation is too high in 2018. Is the outstanding SBD becoming a danger to the STEEM supply?
If there is one topic I keep reading about regarding STEEM outside of the blockchain is the inflation myth.
I think in 2016 people took one look at STEEM saw the insane inflation at the start (the mining + 160% inflation), classified it as a shit coin and that was it.
Two years later anyone outside of STEEM still has that memory.
Of course, we know, the inflation was changed in December of 2016 to 9,5% (and lowering with 0.5% every year).
But no-one else seems to know this fact.
Here's a recent example pointed out to me by my friend @ezzy.
This person Davincij15 has become popular seemingly overnight due to his BTC predictions in the past.
He was interviewed by MMcrypto and he mentioned STEEM as one of his favourite coins which as you can imagine made me happy.
STEEM talk Starts from 34:54
But then the doubts start pretty quickly when the (incorrect) inflation is mentioned @ 36:00.
"It may or not may work with the high inflation"
But there is no high inflation. At least not as high as it was and not in the way they think.
@ezzy and I left a comment defending STEEM. (I also snuck https://steemapps.com in there, because we should spread that message for and wide).
Inflation right now:
But it doesn't mean STEEM is off the hook.
Current inflation in 2018 is higher than it should be.
Look at the numbers from coinmarketcap.
23 April 2017 = 235 million STEEM
22 April 2018 = 254 million STEEM
16 December = 302 million STEEM
From April 2017 to April 2018 everything worked fine. Inflation was 9% per year.
But it's easy to see that this year the inflation is a lot higher.
We are already close to 20%.
A large part is due to the SBD conversions that have been taken place and the fact that almost no SBD (1%) is printed, only STEEM.
Trouble is we still have 12,6 million SBD left waiting for conversion at some point in time.
And it's becoming alarming.
Every time SBD gets under 10% of the market cap of STEEM optimal conversion (1 SBD to $1 worth of STEEM) is possible and a ton of STEEM is created.
We are always so close to this 10% ratio and the lower prices go the more harmful it is.
STEEM marketcap = $67,067,836 USD
SBD marketcap = $6,858,437 USD
In other words, if SBD marketcap continues to drop we can expect a huge increase in STEEM tokens because every SBD can be converted to $1 worth of STEEM (and at the current price of 20 cent STEEM that is about 5 STEEM each).
Now we are obviously in this shit show because no-one expected SBD to ever drop below a dollar. But it has. And it's becoming a threat that should be talked about.
If STEEM drops to 10 cents (30 million marketcap) and SBD drops to 20 cents (2,5 million marketcap) it will be possible to convert every SBD to 10 STEEM.
It will theoretically increase total STEEM supply by 126 million STEEM.
I am interested in some thoughts about this and will contact some other witnesses to see if I'm right or wrong.
I have no problem with being wrong if I can learn from it.
Please share your thoughts.
EDIT
I have dropped the question in the witness channel, also contacted @timcliff.
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Get it Here:
The inflation of STEEM is based on the virtual supply of STEEM which always includes "actual" STEEM as well as the STEEM that is "locked up" in SBD. It is important to understand that the formula for inflation is set to approximately 8-9% per year, but the actual inflation can vary greatly from this over the short term.
If the amount of SBD starts at 1% of the total virtual supply (so we have a 1% "debt ratio") then the amount of STEEM represented by SBD would increase by 10x if the price of STEEM dropped by 90% or more.
Because of the fact that the debt ratio is always limited to 10% of the total marketcap (often referred to as the 10% "haircut rule") the limit of "damage" that SBD can do to STEEM is limited.
What is interesting is that the increased print rate that was implemented as part of hardfork 20 actually helped with the STEEM inflation. The reason is that the printing allowed us to get closer to the 10% limit before the price dropped, so when the price dropped, the SBD supply of STEEM was inflated less before we reached the limit.
To give a numbers example, if the debt ratio reached 5% (instead of 1%) right before the 90% price drop, then the amount of STEEM represented by SBD would have only increased by 2x (instead of 10x) when the price dropped 90%.
It should be noted that the impact of this is bad for SBD holders (their SBD is now currently worth less than $1 USD) but it was good for STEEM holders.
There is also more information on SBD here: https://steemit.com/sbd/@timcliff/sbd-explained
I hope this helped.
@exyle,
I hope SBD might be hard peg to $1 and STEEM bear market will end in 2019 with SMT updates! Then everything might be alright!
Cheers~
The inflation_rate is based on virtual_supply(STEEM + SBD).
The conversion is based on feed price(about 0.4x).
So I don't think inflation is affected by these factors.
Thanks for commenting, man.
This what I learned from the white paper.
As far as I understood it the current feed price is what it is because SBD is above 10% market cap of STEEM.
I am wondering what will happen if SBD will fall below this 10% again. Especially at these low prices. I have concerns a lot of new STEEM will be created.
he? this is a learning moment for me... ok.. If I buy steem I do it wrong? I must buy sbd and convert that to steem? So I could have tripple the amount of steem I have bought over the last weeks? That's out of a business perspective not the steem perspective.
oh sorry double the amount of steem out of sbd.
No, Read the first comment by @therealwolf.
I love all the calculations and comments you made about Steem. You deserve a $10 Steem price in 2019.
The first mistake was increasing the debt burden to 10%, I believe a prudent approach now should really consider lowering the debt burden to 3 - 5%...
I wrote several times trying to convince folks that was a bad move but they went ahead, now SBD is trading so low and Steem sellers continue to sell, its really nothing holding Steem and its looking for a bottom, I think its scary but if the trend continues and does not change soon, we going for all-time low....
The focus right now should be getting SBD above 1 dollar and using it as a monetary tool to soak up the supply of Steem, witnesses and large account holders need to make that sacrifice....
We got some good volumes on Steem lately but it did not do anything for price as sellers beaten down the price but it really important to sit down and come up with a strategy rather than hoping that Bitcoin rockets and Steem follows, even in that case, Steem sellers would always be around but if we can control SBD supply by lowering debt burden witnesses and traders can use it as a useful tool to keep Steem price trading with it via STEEM/SBD market and HODL effect that comes with it.
Upvoted so more people can see it
TEH RENT IS TOO DAMN HIGH, morning sir.
Your YouTube comment took a bit of finding. I gave it an upvote. Hope more people upvote it, so it gets nearer the top. I left a link with this post about Steem inflation https://steemit.com/steem-inflation/@fyrstikken/what-is-the-inflation-rate-of-steem-here-is-the-supply-table-for-the-next-20-years
The simple rule should to remove the internal convertion of 1$ of steem possible on Steemworld. Then remove SBD completely out of the system in the coming weeks.
SBD suck anyway and confuse newcomers.
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Very technical analysis. So converting sbd to steem actually helps the plattform.