Thoughts on a Proposal to Buy and Burn STEEM using the DAO
What if we used the SBDs in the SteemDAO to buy and burn STEEM?
I floated this idea several years ago and it got some good traction, but just not quite enough to really get this idea off the ground and turn it into an official proposal funded by the DAO.
However, that may be all about to change.
Currently there has been some discussion among community members and top witnesses about the idea of using SBDs going into the SteemDAO to buy and burn steem. Many are in agreement that this is a worthwhile endeavor to take.
The reasons for this are several:
The first reason being that SBDs have been trading for well north of a dollar for years now. While that is great for content creators on the rare occasion we are actually earning SBDs, it makes the dollar pegged stable coin well, not really a dollar pegged stable coin. There isn't much of a point in having a dollar stable coin unless it can reliably trade around a dollar. This proposal will likely help push SBDs back down towards a dollar over time.
While pushing SBDs down may sound like a negative on first glance, the idea is that the excess value currently in SBDs gets transferred over to STEEM. The process of selling SBDs to buy and burn STEEM should likely put upward pressure on the price of STEEM over time. Also the proposal would be stopped if/when SBDs started trading at $1 again.
The massive amount of SBDs currently sitting in the DAO represent a liability to the STEEM ecosystem should they be hacked or fallen into the wrong hands somehow. This proposal would effectively reduce that liability over time while transferring that excess value back to STEEM where it benefits all users of this platform.
So, how would this process work exactly?
It is really quite simple and completely transparent which is great for all of us.
The idea is that a proposal would be created for 2,400 SBDs per day to flow into a designated account called steemdao.burn, from there SBDs could be shipped to steemdao.maker to be sold on the internal market. The reason for separating into two accounts here would be so that we can customize and test the amount of the 2,400 SBDs we want sent to steemdao.maker each day. For example, we could send 100 SBDs to steemdao.maker per day (initially for testing) and the remaining SBDs in the steemdao.burn account would be shipped back to the DAO.
Once the steemdao.maker account sells the SBDs on the internal market and receives STEEM, this STEEM would be sent to the @null account where it would be effectively burned and removed from the circulating supply of STEEM. This entire process would be automated with no interaction between people unless there is a problem and intervention is needed. The transactions would be onchain and visible to all which is great for transparency purposes. The development of the steemdao.burn and steemdao.maker accounts and accompanying bots would be created by the @roadofrich Blokfield team. They have a long history with STEEM and a great track record of integrity and doing great work.
*The only concern here is with the liquidity on the internal market, however the Blokfield team has created and been running a market making bot on the internal market for some time now and they have assured that liquidity definitely will not be a problem.
What are your thoughts on the idea and forthcoming proposal?
Overall this seems like a worthwhile proposal that will benefit everyone in the STEEM and Steemit ecosystem. Currently there are many large steem holders and witnesses that are onboard with this idea and think the benefits could greatly outweigh the risks.
Please let me know your comments, questions, concerns, and ideas in the comment section below. This proposal has the potential to raise the price of STEEM, restore SBDs closer to their intended peg value, and remove a large liability from the STEEM ecosystem.
The plan is to release a official proposal in the coming weeks once we get more input from the community and have all the details ironed out.
Happy STEEMing!
@rme @steemcurator01 @steemcurator02 @steemchiller @justyy @remlaps
The same great idea like some of us had a long time ago, but this time I'm very positive about us getting it finally realized. With what we have planned so far, there is no risk for anyone involved, as we will make sure that only the defined SBD amount from the hourly payment will be used and the rest will automatically go back to @steem.dao (starting with just 100 SBD daily for the initial testing phase).
So, all unused funds will be returned on an hourly basis, which allows us to react quickly in case something does not work as expected. The 2400 SBD is the max possible daily amount to be burned. This will very slowly decrease the total available DAO funds (currently 4.5M SBD) by just ~ 46K SBD per year (as there are constantly new funds coming in from inflation).
Yes and in all honesty at some point in the future it may make sense to use significantly more than 2,400 per day to really have an impact, though baby steps first and all. :)
Yes, might really be the case, but it's good to have this max limit for now, which gives us enough room to experiment for a year or so. If investors are not happy with the results, they can stop supporting the DAO proposal at any time. If we see that it works as expected but could work even better with some more juice, we would create a new proposal with a higher amount. A very fair and transparent solution.
Interesting. I agree with your three points: (i) I'd like to see the SBD peg actually work, and that would be good for the ecosystem; (ii) Simple supply and demand would suggest that the value might shift from overvalued SBDs to STEEM under this regime, and it can be stopped at any time if problems are observed (at least in theory); and (iii) the current high value of the @steem.dao wallet could attract hackers and other bad actors. Adding to that, I'd also note that it would probably reduce the virtual supply, which would reduce the daily inflation.
But, there's no such thing as a free lunch. Here are a few tradeoffs:
Overall, I guess I am in favor of giving it a try, but only if the trading activity is managed with multikey wallets that require agreement from multiple independent parties. I might also suggest starting with a lower amount, maybe 6-1200 per day.
I reserve the right to change my mind, though 😉. I've only recently starting thinking about the idea of the SPS providing a floor under STEEM's price. I'd like to see more data as time passes. Not sure where that's going to lead.
Interesting thoughts here. The idea is to start with 100 SBDs sold per day and then if there are no hiccups ramp up to the proposal amount of 2,400 per day. And yes I agree with multikey wallets being used. There won't be a situation where one person can enrich themselves at the expense of everyone else, and on that note remember we can remove votes from the proposal if things do not go as planned.
Your point about the DAO being robust gives STEEM value is interesting but probably not one that is currently playing a factor. Perhaps if the price of steem were to get low enough this may come into play, though.
The odds of this proposal burning all the SBDs in the fund is likely slim to none, though we won't know until we try it. Currently there is roughly 2,400 new SBDs flowing into the DAO every day and the fund has almost 4.6 million SBDs total. My guess is SBDs get back to a dollar long before we chew through that many SBDs. Especially considering we are doing a proposal for 2,400 SBDs per day. And remember, we aren't burning an asset for the sake of burning an asset, we are transferring that value over to STEEM where we will be buying off the exchanges (buying on internal market but that supply comes from Exchanges) and likely positively impacting market prices.
Using DAO SBDs to buy Steem seems like a good idea to me. In an ideal world I think it would be better if that purchased Steem was then allocated to valuable projects, but finding trustworthy projects to spend on is not an easy problem so burning is a reasonable alternative. I think overpriced SBDs are bad for the ecosystem, it's not even clear to me that high SBD prices are beneficial for content creators.
I like the burning idea simple because it benefits everyone in the ecosystem equally. Allocating to projects in almost all cases as been a waste of resources in the past. It takes a special project to create more value than in takes in and we have only see a handful of those.
Regarding SBDs, I actually think having overpriced SBDs is very beneficial to authors and I think it also helps pull the price of STEEM up as well when they are pumped. However, it is not what they were designed for and it doesn't do anyone any good if we can never earn them. So, while there are pros and cons to both I think having a dollar pegged stable coin trading near a dollar is probably the best way to go, especially if we can transfer some of that excess value back into STEEM.
We are Into the game
Let's see 👀
Hmmm its a good idea 💡 steem coin should be strong 💪
Be together with https://steemchat.org
I am pleased that this idea has not yet been dropped. I followed the earlier discussion with great interest.
I fully support the idea under a few side conditions (which are basically the same as @remlaps).
By starting with 100 SBD per day, the proposal does not reduce the DAO account balance, but as a test it makes perfect sense. In order to achieve a reduction, considerably more would have to be sold and burned. Whether this amount can still be covered by the internal market remains to be seen.
Of course, it is important that there is enough left over for development proposals such as that of the-gorilla. However, with the current daily available amount of around 45T SBD, there is still enough.
Yes, roughly 2,400 new SBDs flow into the DAO daily. We won't start eating into that 4.6 million SBDs until we start burning more than are created each day. As you alluded to we need to do significantly more before we have to worry about depleting the DAO for other projects.
Three forces may drive down the number of SBDs flowing in every day:
On the other hand, if the STEEM price goes up, that means that there are less STEEM per SBD, so that would drive the number of daily SBDs up.
So, depending on how things play out, 2400 could eventually be well above or well below the daily distribution into the SPS. (and that ignores the discussion of SBD interest rates, which might also pump SBDs into the SPS)
But yeah, to make a large reduction at today's values, it would probably need to be much larger. I'm happy with easing into it.
Yes good point, though assuming this thing runs for years and years may be a bit presumptive. :) It will be interesting to see how market forces react.
Just a though i had .
An alternative to using SBDs to buy and burn STEEM is for Witnesses to signal a higher STEEM price than the current market value. This approach would strategically adjust the debt ratio, prompting the printing of SBD to authors. Given that SBD is supported by few exchanges, this method minimizes the need for trust in any centralized entity. By leveraging the Witnesses' ability to influence STEEM's perceived value, we can effectively manage the SBD supply, maintain its peg, and enhance STEEM's market position without the complexities and risks associated with manual or automated burning processes.
I would advise against this. There are reasons why the blockchain demands a market price from the witnesses. For example, even if the haircut rule applies. Some blockchain mechanisms are based on this.
It would also be less transparent than selling and burning.
That method would be way easier to realize, of course, but it could be treated as market manipulation. Doing it with a DAO proposal gives investors a chance to support or stop supporting the operation at any time.
Just another thought
Signaling a higher STEEM price within our Steem blockchain's internal market by witnesses is a strategic mechanism we use to manage the debt ratio and stabilize the SBD supply. This process allows us, as authors, to get rewarded in SBD, which we often use to buy STEEM in the internal market before moving to external exchanges. By doing so, we limit the supply of STEEM until the debt ratio adjustments occur. In this scenario, witnesses can revert to the original price from exchanges and repeat the process. We don't see this as price manipulation, but rather as a way to optimize our internal market dynamics, fostering stability and resilience without directly affecting external market prices. This method ultimately benefits our entire Steem community by maintaining a sustainable model.
Yes I mentioned this as well as an idea in the past, but I think this option has many more risks in terms sentiment and trust lost in the market place. I understand that it would be done for very specific steemit circumstances but I know many will view this as disingenuous and those concerned will say what is to stop them from signaling the price at $100 (or any massively high number) to enrich themselves(authors) with SBDs?!
Right. That's a good argument. We would decide for ourselves what price we are satisfied with.
We witnesses would not only lose the trust of the market, but also that of our voters.
Let me make one caveat. Imagine an asset that investors have bought in the hope that it will increase in value and they will make a profit. Then they see an announcement that the price of that asset will be purposefully reduced to a certain point. What will investors do? They will get rid of the asset as soon as possible. The start of your initiative can trigger a sell off of SBD and it will hit $1 faster than we can transfer any value to STEEM.
In my opinion, your initiative should be linked to the start of charging interest on savings in SBD, say 30% per annum, to be more than competing blockchains. You probably have a question, why create additional inflation of an asset that is already being actively sold off?
Even if SBD will be worth $1, it means that investors will be able to get 30% per annum in dollars. No other banking institution can provide such profitability. SBD will become an attractive investment asset, and we will post-fin its excess value to STEEM.
Over time, STEEM will easily grow in value higher than HIVE, which will lead to a mass migration of users from that blockchain to this one. Most will come here to earn author rewards, but there will be those who will sell their HIVE and buy STEEM or SBD. In this way, we will receive a transfer of value from competitors to the Steem blockchain.
After seeing the stable growth of the price of STEEM and the large annual percentage of SBD, I think other investors will also be interested in investing in STEEM/SBD.
It makes sense. @jondoe what do you think about that?
I would assume increasing the interest rate on savings we would have to do a hardfork, no?
No, it is not needed. This opportunity is always available to witnesses. @remlaps wrote about this in detail in his post: Thinking out loud: When should the witnesses start paying interest on SBDs in savings?
I was misremembering the interest rules. It's possible to pay interest on SBDs without a hardfork, but as I understand it now, interest would probably go for all SBDs, not just the ones in savings. @danmaruschak brought this point to my attention, here.
It still might be worth considering, but it changes things up a bit. I guess SBDs on exchanges and SBDs in the SPS would also earn interest.
How would we pay interest without a hard fork? Wouldn't this adjust the inflation rate, or at least redirect it?
AFAIK, it's managed by a witness parameter. I don't know the exact details, but I guess it's basically just an average of the value that's set by the 21 witnesses who validate blocks in each cycle. The blockchain was paying 10 or 15% interest on SBDs when I first got here.
To the best of my knowledge, the capability was never removed. It's just that the witnesses all set their parameters to 0 when prices went down.
Ah, this explains why my SBDs did nothing when I put them in Savings.
Wow that is really interesting. I have been here since 2016 and I never remember SBDs paying an interest rate... Perhaps it was coded but never actually run? I feel like I would have remembered SBDs paying interest...
I created an infographic back in November, 2016. Here's what I posted at the time:
Obviously, I'm hazy on details, but maybe interest accumulated and paid out once per month? No time now, but maybe I'll check later to see if I can find any payment transactions from the time period.
Update: Found one
Upvoted by soulfuldreamer through sc03 account
Yes, the interest rate is determined by us witnesses with the property
sbd_interest_rate.The interest rate contained in
dynamic_global_properties.sbd_interest_rateis calculated as the median of the props of the 21 witnesses who validate the blocks in the respective round.The SBD paid as interest are additionally produced. So even if no SBD are printed. This would of course be counterproductive (currently) .
The inflation rate would be increased by this measure (at least in the current situation), as the current SBD supply would increase and thus also the virtual supply.
There may be "sweet spots" where printing SBDs causes STEEM prices to rise enough that the virtual supply goes down, even though sbd supply goes up. But, I have no idea how to predict where they are, if that's even possible.
Yes, if the price rises above the printing threshold, things can look very different. The mechanisms in this situation are not quite clear to me either... but who really understands the market :-)
Sorry to bother you again. I am not against your proposal, but since we are already exchanging ideas here, I wanted to say something. The economy is a very complex thing, which is influenced by many factors. Often, actions with even the best intentions can cause harm. As I already wrote, I am afraid that the sale of SBD followed by the purchase of STEEM will not be able to bring the expected benefit. With your bot building capabilities, I would consider another option.
From an economic point of view, the ideal would be for someone to buy STEEM on the market and burn it. But no one wants to burn their own money. Maybe you should think about starting a grid bot (or DCA bot):
I am sure you are well aware of the functionality of these tools. After receiving funding from the DAO in SBD, you could run a bot that would trade the SBD/USDT pair. The resulting income could be used to buy and burn STEEM.
The advantages of this method are obvious:
I am not following exactly what you are saying here... If a proposal was created for SBDs that were then sold for USDT (instead of sold for STEEM on the internal market), the end result would be the same as our proposal of sell pressure being put on SBDs no?!
The grid bot operation mechanism is shown in the animated picture:
In this way, the bot not only sells, but also buys back at a lower price. That is, it many times buys at a lower price and sells at a higher price, thus generating profit. The profit generated can be used to buy STEEM and burn it further.
While i am not against the proposal, and strongly believe that we need to do something to STEEM . to keep up the momentum. below is my statement on this proposal.
"Providing SBD to a single user from the Steem DAO to sell for STEEM and subsequently burn the STEEM introduces several technical concerns. The large-scale conversion of SBD to STEEM can create significant market volatility, disrupting liquidity and causing unpredictable price swings. This action may lead to slippage, where the user receives less value for SBD due to insufficient market depth. Furthermore, burning STEEM removes it from circulation, reducing the available supply which, while potentially increasing scarcity, can also distort natural economic incentives and affect the inflation rate. The concentration of such transactions through a single user increases the risk of market manipulation and could undermine the decentralized nature of the Steem ecosystem, ultimately affecting the stability and perceived fairness of the platform." .
This will need more study, and if multi-key cannot be implemented then i would like to request that @steemchiller takes lead on this project, I believe nobody else is honest enough to be trusted for such project. I am with a Big NO , if someone else is doing this.
Selling SBD to burn STEEM offers multiple benefits that enhance the value, stability, and attractiveness of the Steemit platform. By reducing the supply of STEEM, stabilizing SBD, encouraging long-term investment, and fostering community engagement, this strategy supports the overall health and sustainability of the ecosystem. As Steemit continues to evolve, such proactive economic management will be key to its success and longevity in the dynamic world of blockchain technology.
The sales will be done using 100 SBDs initially for testing which have little to no effect on the markets. Once that number is ramped up to 2,400 per day it will be done on an hourly basis ( roughly 100 sbds per hour per my understanding) and not all at once. There are several teams creating liquidity on the internal market currently, one of which informed us that it would be no problem to sell the 2,400 per day...
It is an interesting premise and I wouldn't be opposed to testing the theory but it seems like the ability to pump SBD in the past has caused STEEM to pump. Like I said I'm not opposed to it but in some respects I wonder if it makes more sense to actually spend the money to build and promote the ecosystem. There haven't been as much of that and it is interesting that STEEM and HIVE still have somewhat similar market caps.
Why not do both
Certainly should be able to in a lot of respects. We could do so much with that considering there is over $9 Million sitting there basically.
Yes, there is that, though there is nothing stopping outside groups from pumping SBDs should they so choose. Selling 100 SBDs per day is literally nothing, and even if we ramped up to the full amount of 2,400 per day, that is still only $5k worth of selling at recent prices... not likely to have a huge impact either way. If we decide to increase this amount at a later date then this might become more of a discussion I think.
It is an interesting mental exercise. Selling the debt for the base asset.