RE: Steem Velocity Hardfork - Hardfork 20

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Steem Velocity Hardfork - Hardfork 20

in steem •  2 months ago

I don't think the current 'void' between 5% and 10% serves any useful purpose and it is clearly destabilizing to remove all supply or price influences on SBD within some fairly arbitrary range.

Apart from that we could quibble about exactly how things should work, like maybe the ramp should start a bit lower than 9%. But overall I agree with @blocktrades that the real debt control and safely value comes from the 10% limit, not this one, and I also agree with @timcliff that printing STEEM instead of SBD* is not useful because it just serves (all else being equal) to drive the STEEM price down, when the STEEM price being weak is the main reason the limit has ever been hit (multiple times now).

After all, even with the current 2-5% there is nothing to prevent STEEM from dropping another 50% in value after the 5% is hit and then we are right at the 10% anyway. 50% is hardly even a big move in crypto terms (we've already seen STEEM lose 90%+ of its value two or three times). Hitting 10% and risking the haircut is always in the equation, regardless of the printing rules. SBD holders should be aware of it and consider it rather than assume it won't happen.

One last point. The haircut doesn't kick in instantly it gradually phases in. So at 10% there is no haircut. At 11% there is roughly a 10% haircut, etc. There will be plenty of opportunity to see this play out and I'm sure even before 10% is reached, as it is approached there I'm sure there will be posts warning about SBD potentially becoming less-than-fully backed, and people who don't want that will have the opportunity to sell or convert their SBD (which may itself help resolve the situation). There's nothing sudden about the transition.

* An alternate rule we might consider (but I'm sure very few people are interested because everyone wants their 'free money') would be to stop printing rewards altogether when the debt ratio gets too high (rather than switching from printing SBD to printing STEEM), as this could be taken as a sign that the market is not valuing STEEM enough for it to be a good idea to continue diluting it.

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The gap between 5-10% is effective a buffer zone where there is no additional debt (SBD) taken on by the system, yet the convertability to $1 worth of STEEM is not yet threatened. To me it's a warning that not all is well with the supply of SBD.

Alternatively, lets say we run the debt level up to 9% and all the top witnesses claiming "All is fine - nothing to see here" as we keep printing SBD (adding debt) with reckless abandon. Then the STEEM price drops 10% overnite and we are suddenly in haircut territory. Then it drops another 20%.....not an abnormal short term price move....what are we converting SBDs at then? Very quickly we transition from mania to panic for those invested in the ecosystem.

THAT is a virtual cliff.

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Alternatively, lets say we run the debt level up to 9% and all the top witnesses claiming "All is fine - nothing to see here"

I'm not on board with the equating of "This is fine!" with not switching from printing overvalued SBD (which clearly benefits Steem stakeholders since we are taking 1 STEEM from the reward pool, converting it to SBD to pay out and then selling it to someone for >1 STEEM, an immediate guaranteed profit) to instead printing STEEM (with no associated immediate gain to stakeholders). They're just not related at all.

Saying to stop printing SBD means:

  1. No downward pressure on SBD, so even less likely to reach the point where SBD is at or below $1 and starts getting converted, which is the only way to reduce its supply.
  2. More printing of STEEM and therefore more downward pressure on STEEM, exacerbating the weak STEEM price.
  3. No benefit pulled into the system from speculators overpaying for SBD.

Again, either way it will still be pretty clear that the SBD backing is at risk when the debt ratio is 9% and haircuts start at 10%. I just can't imagine a situation where someone sees STEEM dropping rapidly but somehow people think that "everything is fine" just because of how the payout mechanism works. It makes no sense to me at all to make the connection between those two things.

Very quickly we transition from mania to panic

You're assuming mania at 9%? Or even 5%? After STEEM has hypothetically dropped by almost 90% as it has recently?

SBD holders need to understand that SBD is backed by STEEM only to the extent that STEEM has a high enough value to do so. Haircuts (in the sense of reduced backing, but not necessarily price) are part of the deal and should come as a surprise to no one if it comes to that. If you don't like it, just sell your SBD. The premise here is overvalued SBD (otherwise it gets converted and the supply does not grow regardless of the printing rules), so anyone who wants out can not only get out, they get a premium. If you stay in you are accepting the risk of haircuts.