Curious Case of Steem Dollar (SBD): SBD is now lagging STEEM compared to its recent history.

Recently, Steem Dollar's (SBD) performance against Steem looked weaker. One Steem is now valued at 1.27 SBD.

Usually in short-term bear market such as now SBD's performed better than Steem. SBD's down trend could be due to Upbit's raid, since Upbit.com had been major driver for SBD's rise. Once SBD hit 8 times valuable than Steem. Or, it could be due to less demand for SBD from bot usage since most bots now accept STEEM.

Initially, SBD is designed to peg against one USD using Steem ecosystem. The Steem devs thought that mechanism for keeping up SBD around 1 USD using liquid Steem will work. It worked since SBD did not drop much below 1 USD. With SBD, contributors (e.g. bloggers, devs, businesses) are rewarded with liquid currency that they can cash in rather than non-liquid Steem power.

However, they did not think about a scenario where SBD is valued much higher than 1 USD. They might have thought why would somebody pay more than a dollar for one SBD. However, some whales or group, community may have figured out that keeping SBD higher benefits Steem earners. Due to low circulation, it can be pumped easily and it was pumped. Since Upbit addition it never come back to 1 USD.

Now there is a theory that reverse peg option may return SBD to one USD. That is when one can convert Steem to USD equivalent SBD. For example, if current market price of Steem is $3, then 1 Steem can be converted to 3 SBD.

Though it is easier option to peg for SBD but abrupt implementation will hurt overall Steem ecosystem. Before any implementation, witnesses have to agree on the proposal.

Now the question is what will be effects of revers-peg of SBD. Can Steem ecosystem get benefit from it? It is a hard question to answer. One thing is sure that SBD will work as backbone liquid currency for the ecosystem. In future all SMTs could be easily traded against dollar pegged SBD. Therefore, traders will feel comfortable keeping SBD.

Moreover, there is an external demand for USD pegged cryptocurrency. Tether and True-USD are backed by real USD fiats. On the other hand NuBit was designed to peg for 1 USD using BTC pair (i.e. Nubit's price is kept 1 USD by putting sell and buy orders using BTC). However, Nubit recently crashed and went far below 1 USD. Perhaps trader dumped it in huge numbers against BTC and Nubit foundation do not have enough BTC to sustain.

Can similar problem can happen to Steem ecosystem? If SBD goes much below 1 USD, Steem blockchain have to produce lots of liquid Steem. Steem inflation will increase further than it was designed. Will Steem crash further?

Or, Steem's price will rise organically due to demand from new flux of investors. SBD will be supported by both peg and reverse peg. It is complicated and perhaps we will not know the answer until it is implemented.

Interestingly, peg and reverse-peg can be implemented using SMTs since SMTs will use similar methods. Then with experimentation we will know whether we can design a Crypto (Steem) backed dollar or not.

Will SBD's recent bearish trend against Steem continue? Will it reach parity with Steem again? Time will tell.

Disclaimer: This opinion is not a financial advice, it my personal perspective and opinion. Please seek professionals for financial decisions.

Image sources: Most images are open sourced (e.g. Pixabay, Wikimedia etc.) with Creative common license. Some images are used with due courtesy to respected owners.

Thanks for reading.
@riseofth
Cryptominer since 2013, occasional trader and tech blogger