How to fix Steem Inflation? - RESCUE PLAN

in steem •  2 years ago

neon steem.png

The price of Steem is very worrying, the amount of inflation is eating up the value of it, and it is tanking day by day. The developers have implemented some austerity measures to slow down the devaluation, but it is not helping. What do do now? Panic? Nope.


THE SOLUTION

I have experience working as a quantitative analyst / market analyst for quite a few years, and I have studied Austrian Economics thoroughly, so I am quite privileged with economic knowledge ,and I know the markets very well. Let me share my ideas with you and possibly with the devs if they read this ( @ned @dantheman, please read!).

First of all we know that capital controls/austerity doesn't work, even the Keynesians agree with this, but their approach is to just spend/borrow limitless amounts, which is nonsense on their part , which in our case would destroy Steem, as the price is already falling too badly.

So what to do? Well we need to stabilize the price of Steem, but without restricting spending. This is tricky, because if people are powering down constantly and cashing out into Bitcoin, then this won't help us. So how to do it?

BBS - Bitcoin Backed Steem

It is quite easy, create an asset, for the Steem platform that is backed 1:1 by Bitcoin. It could be a smart contract or built on Bitshares, I am sure @dantheman can pull it off, after all he founded Bitshares.

We all know that Bitcoin is like a reserve cypto-currency with real value, while Steem doesn't have any real value yet, It will have once Steemit will incorporate P2P trading or other valuable systems, but for now Steem is only backed by speculation. This is not good.

If the devs would create an asset that would be backed 1:1 by Bitcoin, and swap the Steem Dollars with this asset, it would fix Steem's price collapse.

You would have to buy Steem in order to get this asset, so Steem would have a positive trade balance, and the asset would be exactly like BTC, so Steem would gain value proportional to Bitcoin.

We could also have a 1:2 peg or 50% reserve ratio, so that it can be more flexible, and then the daily curation rewards would be limited by Bitcoin's value increase, + 50% if for example Bitcoin's price doesn't increase that day.

It would be a more realistic / conservative method than it's current limitless inflation. Steemit is technically in hyperinflation now, so adopting this Bitcoin based asset, would be like returning to a gold standard or a 50% gold standard.

We are all libertarians/anarchists here, so let's actually use the Libertarian Austrian Economics theory, and not just pretend. Austrian Economics will save Steem, but it needs a reform of it's monetary policy.

  • So either create this BBS onchain and replace the Steem Dollar with it
  • Or create it offchain via Bitshares, but Steem Dollar has to go either way (I explained why in my previous post)

Make Mises & Rothbard Proud!


Upvote, ReSteem & bluebutton


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As I understand white paper inflation should lower later on by itself.

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That doesnt help if the demand is falling too. We need to both increase the demand, and stabilize or decrease the supply. I would leave now the supply as it is, I think if SBD is removed it should be fair. However the price of STEEM should go up again, so that people can earn again big rewards. For that we need to back it up with an established currency like BTC.

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I hope that more demand is waiting on sidelines to jump on when steem hits 1 or 2 cents. That at least is my plan. If steemit go down we are fucked. I'm sure I can't help. That's why I don't worry to much.

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Well after this Steemfest thing happens, we can get a lot of publicity, so that could help. But no matter how much users we get, until these fundamental issues are addresses we will go nowhere. It's better to fix them now, than later, when millions will depend on it.

I don't know if your idea is good or not, but I need to state publicly:

I am not a libertarian, I'm an anarchist, not an an-cap.

Long live anarchism! Capitalism sucks.

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My idea is 100% capitalist. What we have today in the world is not capitalism. I think you don't know the definition of real capitalism.

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Capitalism is an economic system based on private ownership of the means of production and their operation for profit.[1][2][3] Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets.[4][5] In a capitalist market economy, decision-making and investment is determined by the owners of the factors of production in financial and capital markets, and prices and the distribution of goods are mainly determined by competition in the market.[6][7]

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That doesn't sound evil to me. What's wrong with property and property owners managing it? Seems to be the natural state of things.

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I'm simply resopnding to the claim that I don't know the definition of real capitalism, a preposterous claim that I easily refuted, because the definition is public and universal.
Changing the language is a bad way to try to drive home your point.
And capitalism is not evil, but it is a system of structural oppression, where those who are not born into privilege have a very hard time to get anywhere, let alone reach a decent living standard.
Property is not "natural" it is a modern invention ,and it's the basis of capitalist structural oppression.
We have one world, and we have certain resources, acutally we have abundant resources, and they need to be shared.
Not sharing enforced by a governments, but sharing as an inherent part of the structure of society, of how we govern our communities.
The obvious ideal is that the decisions and the control over resources should be local, and benficial to all within the local community.
This is the basis of the communalist ideal.
Local "democracy" (real democracy) mutual aid, collaboration , and stewardship over the eartth following ecological principles.

The idea that you can "own" something beyond neccesary personal property like a house or a guitar, is an abstraction, and destructive to the whole of society.

Considering nature to be property that can be exploited for profits, and people as workers that can be exploited for profits , is the essence of capitalism, whether or not this capitalism is supported by state violence, or in some anarcho-capitalist dystopia, where capitalist structural oppression over the planet and the people would be enforcced by private "security" firms.

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The idea that you can "own" something beyond neccesary personal property like a house...

So you can legitimately "own" a house? Then that means you can legitimately "own" the land on which the house sits. And you can likewise "own" the wood - and thus, the trees - from which the house was made. You're admitting that exclusive claims of land resources for the benefit of one individual is legitimate - and even "necessary." This contradicts your anti-property theories.

And capitalism is not evil, but it is a system of structural oppression...

I suppose if you see property as evil (which you obviously do not, since you think private ownership of land resources is "necessary"), then you'll naturally think that using such property for financial gain is "structural oppression." Does it matter to you if this "capitalism" actually improves the living conditions of those who participate in the economic system? Or do you only see the relative "poorness" of certain people as proof of its shortcomings, regardless of why those people are relatively poor compared to others? Do you only fault "capitalism" for all of the poorness, or do you look at other factors that may be causing it?

Property is not "natural" it is a modern invention ,and it's the basis of capitalist structural oppression.

Modern, as in, just the last couple of centuries? Or modern, as in, since the dawn of "modern" civilization? And are we talking about "property," or are we talking about the nonsensical attempt to distinguish "personal" property from "private" property? I'm not a communist, so I don't make such absurd distinctions about claims of ownership.

My toothbrush is mine, whether I only use it myself, or let my friend use it for a nickel per brush when needed. I don't instantly become an evil oppressor when they need to clean their teeth and don't have any other way to do it, do I? Or should I just let everyone who needs a toothbrush use mine until its destroyed, then use my own time and labor to acquire a new one for myself to use - and for everyone else who needs to use it as well? Maybe they should get their own toothbrush or fairly compensate me for using and wearing down mine?

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Yes and we have none of that because the government interferes with everything. Look I am not going to debate capitalism here, it's a bit offtopic to this article. But we could debate it elsewhere. Right now we have a common goal to make Steemit succeed, and we should work on that.

Can you please explain the main difference between "Bitcoin Backed Steem" and "Steem Backed Dollars"? Is all we are doing pegging to BTC instead of USD, or is there more to it than that?

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  • SBD is backed by nothing except inflation, and that 10% interest which is also inflation. It's not backed by dollar, probably because of regulatory issues. So it's basically thin air.
  • BBS would be backed by Bitcoin in a 50% or 100% reserve ratio, where the coins could be locked away in a multisignature account or whatever, but when a person buys BBS the maintainer would also buy equivalent value of bitcoin.

Example:

For example 50% reserve ratio. Jonny buys 1 BBS with Steem, smart contract gets executed, 0.5 BTC is bought on market and locked away, Jonny gets 1 BBS and 0.5 BTC is locked away maintaining it's value. This would back Steems value since it adds liquidity and demand to Steem, while it also creates a token that is tredeable and really backed.

When Jonny Sells it, he gets back 1 BTC, thought only 0.5 BTC is available, so it would create some inflation to maintain the peg, but nowhere near what SBD creates.

Thought it could be 75% , 90% or even 100% reserve, whatever the devs are comfortable with, but 0% reserve (currently) is the worst choice of all.

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For the 50% that is actually backed by BTC, it seems like the user is essentially owning BTC but just calling it something different.
For the 50% that is not actually backed by BTC, it has the same problem as the current SBD model. If the user wants to "cash out" their BBS the blockchain is going to need to produce enough STEEM to buy those BTC. If the price of STEEM compared to BTC has gone way down (similar to what has happened today), it will still need to hyper-inflate in order to generate the amount of STEEM it needs to buy up the remaining 1/2 of BTC.

The main two differences seem to be that:
Half of the "cash out" is basically done ahead of time
The other half is pegged to BTC instead of USD

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  • Well no it's not like BTC because our "BBS" asset would not be tradeable, but with Steem, so it would be a smart contract on this blockchain, that would swap BTC-BBS-STEEM in trio.

  • The ratio can be debated, but this would be much better than what it is today. Sure a 50% backing is still inflationary, but much better than 0% backing. It's not enough if you peg it, you need to back it in order to maintain the peg. And you cant use dollar, because that would essentially make Steemit a money transmitter and fall into the regulation dungeon, with KYC you name it. So we can only use cryptocurrencies that are not regulated. Bitcoin is the perfect reserve currency IMO.

  • Well yes the same restrictions could apply, if the reserves are shrinking, some limited capital control can be done to created, or perhaps positive rewards like increasing STEEM POWER long term interest rate

  • We could also reform STEEM POWER, in such way that longer interest rates could be bigger than short term interest rates. So for example those that hold SP for X period without power down, get bonus interest.

A lot of the monetary policies can be reformed to incentivize holding and dis-incentivize selling, even positively without imposing capital controls. Again I am not in favor of capital controls those should be reserved for worst case scenarios.

But playing around with the interest rates could incentivize people, I guess I have to write a new article about it, you gave me a few more new ideas.

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So holding a reserve is definitely an interesting idea. (Like Fort Knox holds a reserve of US gold.) You are right that it would most likely need to be in BTC instead of USD because of the regulations. With today's market conditions, the 50% that is held as 'reserve' would help to combat the inflation. The flip side though is that if the BTC goes way down or STEEM goes way up, then the money that had been put into the reserve would essentially be lost/wasted (or at least significantly reduced). I would argue that it is essentially a hedge, and would more or less have the inverse effect of the 'non-reserve backed debt' portion of the coin.

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  • Yep, and it would be transparent, whereas the Fort Knox Gold is very dubious
  • Well that is why we select BTC because it's the biggest on and most widely used, so the risk of going down is small. In fact I would argue that BTC is better than USD, since the USD has a higher inflation than BTC, so while the BTC risk is uncertain, the USD risk is guaranteed.
  • It's not hedge, we know that BTC's price is more or less upward trending, if not for anything else, but for the fact that it has the lowest inflation rate amongst all currencies, so it would be wise to save in BTC rather than ETH or OneCoin (haha).
  • No it would lift everything up, Steem would still be the basic currency, and this asset would bring a net positive transaction balance into Steem, adding net positive demand to it regardless of what happens to the asset itself (but BTC should be stable). Since people have to buy Steem first before getting access to this asset, Steem's value would be dependent on this asset's trade volume.

Brilliant idea! Upvoted, followed and resteemed

Or just change the supply growth parameter as @Ned mentioned in a recent "NED Talk" ...

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That is fixing only half of the problem, and people will earn less that way, probably not a good incentive for newcomers.

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Sure, content producers would earn fewer STEEM, but the value per STEEM would be higher.