Steem Improvement Proposal: Allow STEEM donations to the DAO

in #steem2 months ago (edited)

Background

Currently, donations to the DAO (aka SPS and @steem.dao) are allowed in the following forms:

  1. Transfers of SBD
  2. Beneficiaries which pay out as STEEM/SP or SBD; those which pay out in STEEM or SP are instantly converted to SBD at the current median feed price.

Proposal

This proposal is to add "3. Transfers of STEEM, which are instantly converted to SBD at the current median feed price"

This was not allowed in the original design of the DAO because of concerns that sending large amounts of STEEM and allowing them to be instantly converted to SBD could destabilize the supply of SBD, resulting in SBD dropping off the peg and imposing a haircut on SBD holders.

Rationale

While the above concern is theoretically valid, I now believe this restriction is overly cautious and should be removed for the following reasons.

  1. Any large donation to the DAO is itself a clear and immediate benefit to Steem. While there may be some downsides, the fact that someone is donating, say $100000 or $1 million or more to fund SPS proposals is itself going to be enough system-wide benefit to offset any resulting disruption. Who would not like to see large amounts of additional funds available for development, marketing, etc.? Surely Steem could use it.
  2. The DAO has shown itself capable of self-repair when it comes to SBD oversupply. The @sbdpotato proposal is currently in the process of ramping up to convert much of the excess SBD in circulation into STEEM, reducing the oversupply and haircut, and restoring the value of SBD to $1. In the case where a very, very large donation were made which created a large amount of SBD, a proposal could be created and funded which: a) converts this SBD into STEEM, b) uses that STEEM to buy SBD, c) converts that SBD back into STEEM, and finally d) donates that STEEM back to the DAO (which converts it back to SBD). The net effect of this process is to remove the excess supply of SBD from circulation while returning approximately the entire value of the large donation to the DAO (small losses, or gains, might occur due to slippage or conversion price changes)

Key benefit: a vastly improved SBD peg

The biggest deficiency of the SBD peg, going all the way back to the original white paper, is its inability to deal with any sort of overvaluation or "pump". The white paper essentially throws up its hands and declares that nothing can be done, asserting that allowing converting STEEM into SBD would be too open to "market manipulation" (an assertion which has been heavily debated, but with this new approach, we can set that debate aside and leverage the DAO as a safer approach with fewer untested assumptions).

With the ability to donate STEEM to the DAO, we gain a safe way to convert STEEM into SBD as follows:

  1. Fund a proposal which pays out SBD (similar to the current @sbdpotato).
  2. The recipient of the proposal payout is charged with selling that SBD for STEEM.
  3. The recipient of the proposal payout is charged with immediately sending ("donating") that STEEM back to the DAO.
  4. The donation would then be converted by the blockchain code into SBD at the current feed price (essentially, 1 SBD for every $1 worth of STEEM).

In the case where SBD is overvalued (meaning the market is demanding a higher supply of SBD in order to maintain the peg), the result of this process is:

  1. More SBD has been provided to the market (step 2 above), helping to reduce the market price and satisfy demand
  2. The DAO treasury receives back more SBD than it started with (steps 3 and 4 above).

To see how this works, consider the example of SBD trading at $2 and the proposal being funded for 1 SBD. In this case, step 2 above would sell the 1 SBD for $2 worth of STEEM, the $2 worth of STEEM would be sent back to the DAO, and then the $2 worth of STEEM would be converted into 2 SBD added to the DAO treasury.

Why is this important

Many of us believe that a stable value asset is an extremely valuable service to provide, which not only allows Steem community members to save money with some degree of protection from highly-volatile crypto markets, but also allows businesses and services to be built which rely on having a degree of stability. The SPS itself was built around SBD as a result of various real world experiences with other cryptocurrency-based funding systems which suffered greatly from native token volatility. In fact, much of the broader cryptocurrency ecosystem has shifted toward greater support of pegged and stabilized asset such as USDT and DAI.

Second, previous SBD pegging issues have caused a lot of problems for Steem. In addition to reputational damage ("Even their dollar isn't worth a dollar; what a failed project"), the pumps encouraged hoarding and led to a build up of supply which in turn flooded the market later. Overall we would be far better served with an SBD that is actually more stable, in my view.

Finally, we have never seen how well SBD could perform with an upper peg. It is possible to could turn out to be very stable and effective, ultimately gaining the trust of the market and even becoming positive black swan for Steem. The potential market for a successful and trustworthy stable cryptocoin that is fully-decentralized is enormous, already in the billions and perhaps someday into the trillions.

Of course, not everyone even agrees that SBD is valuable to Steem at all. In fact, some have argued for its removal altogether. I do not believe there is consensus for its removal, but the purpose of this proposal isn't to debate that issue. As long as SBD exists on Steem, we ought to at least make it work as well as we possibly can, to at least avoid or minimize its dysfunction hurting Steem. This proposal offers a sensible path forward to an upper peg which would protect SBD from pumps and also transmit the benefits of increasing SBD demand to the broader Steem community (via increased DAO funding).

Resistant to Abuse

This method of improving the DAO and SBD peg is highly resistant to abuse. Let's consider some possible "attacks"

Attack 1: Attacker donates hundreds of thousands or millions of dollars worth of STEEM to the DAO in order to destabilize SBD. Mitigations: As noted above, Steem gains large amounts of valuable funding to be used to improve the platform, excellent compensation for any potential disruption, and the disruption can be still be quickly self-cured through the DAO using an @sbdpotato -like proposal. Not a serious problem

Attack 2: Attacker pumps the price of SBD and/or STEEM and "somehow" attempts to leverage the ability to convert STEEM to SBD via DAO donations as well as a some sort of self-paying proposal to recover the resulting SBD in a manner similar to the "market manipulation" scenario in the white paper. Mitigations: a) the DAO has shown excellent resistance to frivolous proposals since many stakeholders support the "return" proposal as a defense; such an attacker would have a hard time getting their donation back via any sort of payout. b) Payouts from the DAO are limited to 1% of the treasury per day, which means in the case of a very large donation, even if somehow the attacker could manage to get their proposal approved, they would be limited in the rate they could possibly recover their donation, greatly limiting the effect of any market manipulation (the market would need to be manipulated for weeks or months for this to really work). Not a serious problem

Attack 3: DAO proposals which serve to help maintain the peg (by either increasing or decreasing the supply of SBD, as discussed above) involve large amounts of DAO-owned treasury funds being sent to a contractor on the expectation that they will be returned (in one form or another). A dishonest or incompetent contractor could steal or lose the funds. Mitigation: DAO proposals pay out gradually over a period of time. The rate of payout can be set so as to maintain the risk of loss at an acceptable level far below the total amount of funds. The processes as described require the contractor to return the funds promptly, and funding can be stopped at any time if the contractor is not returning earlier payouts. If market conditions are such that a high rate of disbursement is required, multiple contractors can be used, or alternately a multisig account can be set up to serve as the contractor. Not a serious problem

While this probably does not enumerate every conceivable method of attack, overall it should be clear that the existing limits inherent in the DAO (the 1% daily aggregate payout as well as the willingness of many stakeholders to vote for "return" and stop abusive proposals from getting funded) make any sort of exploitation very, very difficult and unlikely.

When can we get this done?

Whether this could be included in the next upcoming hard fork is debatable. From a code perspective, it is probably not very complicated; the code to convert STEEM to SBD already exists for beneficiaries and would need to be repurposed for donations, as well as removing the existing code which explicitly blocks those donations. That's not a huge change, but also not completely trivial

If it were up to me, I would push to include it because: a) the coding changes while not trivial, are still relatively simple; and b) the existing design of SBD is pretty much a ticking time bomb when it comes to more SBD pumps, which could once again cause a lot of disruption to the community and platform, as well as reducing the credibility and market opportunity for SBD going forward. Gaining the ability to stop these pumps and instead use SBD demand to boost funding for the DAO sooner rather than later is a big advantage.

However, I wish to make clear that the purpose of this proposal is not to advocate for including this change in the next hard fork, but to encourage discussion of including it in any future hard fork.

Summary

In my view, the balance of risks strongly favors allowing STEEM donations to the DAO, which in turn allows us to greatly improve the SBD peg in a manner that was not possible prior to the introduction of the DAO.

100% of author rewards from this post will be donated to @steem.dao (I forgot to set the beneficiary so I will do the conversion and transfer manually after payout)

Sort:  

I agree to this proposal, best simplest way to tackle reverse conversions without too much dev effort.

We're fighting and bitching over crumbs here as far as I can see.
Steemit.inc is struggling for survival.
So who do you expect will donate 100K or a million dollars?

So who do you expect will donate 100K or a million dollars?

In practice, no one, but that is the threat of destabilizing SBD which was the motivation for banning STEEM donations. I had to address it to make the argument that even that hypothetical case is not a threat to the blockchain. That it is unlikely to occur in practice arguably makes it even less of a threat, but in any case, I don't think that it is a serious concern either way.

i think its way too late but idea itself is a good call

The DAO could purchase SBD from the internal market automatically at the market rate instead of printing new SBD

This would make the existing major weakness of SBD with respect to overvaluation/undersupply even worse.

It would work fine if there were another dynamic source of SBD supply within the system such as reverse conversions (STEEM-to-SBD), but there isn't.

Seems like a beneficial change to me, with not much downside. I'd vote for it.

This could influance about the value in my opinion

hello steemit and i hope that you dont spam me , i need some support from you . i m using this website since two years and i couldnt increase my account at all . peace to you all from north africa .

Thank you, this is great. I'm in favor.

Thanks this is great I would like to say this is a great offer and we should get advantage by this offer

Thanks for the post.

So the concept is to be able to donate steem to a proposal which effectively removes that steem from circulation? Thereby reducing inflation?

The Steem Improvement Proposal involves donations to the DAO treasury (transfer to @steem.dao), not to a specific proposal. The treasury funds are then available for funding proposals, as long as those proposals are approved by voters (currently there are six active proposals being funded; you can see them here: https://steempeak.com/proposals)

The DAO treasury is held in the form of SBD, and currently holds 234241 SBD. You can see it here: https://steemitwallet.com/@steem.dao/transfers

Currently it is only allowed to donate (transfer) SBD. This proposal is to also allow donations in STEEM, which would be instantly converted into SBD at the current exchange rate. Yes, the STEEM would be removed from active supply and certainly from the amount of STEEM in circulation, although it remains part of the total supply, since SBD counts as supply too.

I am in favor. I will support it.

@smooth, can you think of something about SBD potatoes and burnpost littering the trending. I am a supporter of the intent and the math behind the project. But even at $25 cap, it is still on trending. What can we do?

Also does the curation for these post goes to curators? If yes, then that is not burned/converted. Therefore the posts become easy target for the optimizers and optimizing bots trying to maximize curation reward. Now I can be completely off the rail on this, and in that case I apologize. Just trying to educate myself on this.

I've been thinking about what to do about these but I don't have any great answers beyond what is being done.

I do think the $25 cap is too high. Even without any overvoting, $25 will show up pretty high on trending some days. I would reduce it to $5 or $10 and make more posts per day.

Ultimately a big part of the issue here is that Trending is misnamed. It should really be called "Most Voted" in which case no one would be surprised that these show up, right?

As for curation, the curation algorithm is designed to address this automatically. Repeated high value posts that get high votes (whether it is these or just a consistently popular author) will attract earlier and earlier votes which return more of their Trending rewards to the reward pool. Burnpost gets most of its votes between 1 and 3 minutes which means 40-80% of curation is returned to the reward. Voters get something, which is fair IMO because they are consuming their valuable vote power, but they don't get anywhere near as much as they would get doing actual curation (more effort).

What about posting them with a “invisible” tag. I single special tag. Will they still show up on trending? I guess so...

It was my recollection that the 'experimental' tag used to do that in the early days of Steem. That was the reason I originally used it for burnpost. It seems, though, that posts tagged experimental now do show up, possibly because milkers were using it to hide from downvotes. Same with comments.

It is a tricky problem in an open system when any feature which can be used for good can also be abused for harm.

What can we do about burnpost? I understand the original intent behind it and I support it. But it continue to "trend" and occupy the landing page of steem. We are getting serious on on-boarding, and if new people coming in just sees burnpost (Potates are lower now!) it just makes us look bad. Please do something about it so that they do not show up on trending. You know the argument against it is mounting. I am sure you can come up with a solution. Can't burnpost be at least capped like Potatoes? This is an optional project, right?

First of all, @sbdpotato and @burnpost are quite different, and I'm not sure they should even be lumped together in any discussion. @sbdpotato is raising funds, and is now getting most of its funds from SPS, which makes capping payouts relatively harmless. By contrast, @burnpost raises no funds, and is instead a method by which voters can vote for 'None of the above' when it comes to distributing rewards. Capping rewards would be overriding the will of the voters and IMO @burnpost should rather remain neutral. If you think @burnpost is getting too many votes, take it up with the voters, or create better, more compelling content that is more attractive to voters than 'None of the above'. (I've already stated my view that probably the best solution overall is for "Trending" to be renamed "Most voted" or "Most rewards", which would be a more accurate description of what it actually means, and get rid of the misleading implication that it is actually the most interesting or attention-worthy content.)

I added a line suggesting that voters consider later votes to reduce trending. The burnposts are now down to one per day, along with comments (but the comments tend to trend less). To me that seems like pretty reasonable accomodations to those who want to minimize the impact on Trending, but I'm open to other constructive suggestions.

On your claim that 'the argument against is mounting' I think we will have to agree to disagree. From my perspective, the true measure of support is the voting, and everything else is a bunch of hot air. As long as it continues to get votes, that tells me there is significant (even in some sense very large) support. As you can see from Chart 9 here, not only does it continue to get votes, but support for burning has generally continued to increase.

As far as getting serious about on-boarding, I think that is nonsense. There are only a small number of accounts created per day and a good chunk of those are created by @steemmonsters, which doesn't even use the social rewards system at all (data is here). And of those small number of accounts created, very few ever become or stay active users.

In four years we have had all sorts of different populations of posts on Trending, none of which has ever done much to drive growth or increase successful onboarding, and after four years I doubt very much that we are going to ever see Trending be a true driver of growth. Without a new UI and/or use case for Steem becoming popular (which could be revised steemit.com, could be another site, could be games such as steemmonsters), I don't see this changing. Voters seem to agree, and increasingly prefer to preserve some value in the Steem ecosystem by reducing selling pressure and burning rather than blindly continue a failed model.

Donation in Steem to DAO are good and easy to make.

But in long Term the "today" Sbd need to be removed from rewarding.

Next is to rebuild them to a copy of DAI. So we have no longer inflation abuse problems and a stable coin its scaleable.

The Reward SBD cant scale.... The DAI one can.

With a Stablecoin that works 100% ( and its scaleable), we can get the best feature Steem can have.

  • Community Benefit
  • SMT benefit
  • Internal Trade Volume Benefit
  • Dapps benefit
  • Makes Steem more valueable and liquid
    ....

Is a win win win situation

Otherwise next bull run Steem will perish and look like a super scam.

Congratulations @smooth!
Your post was mentioned in the Steem Hit Parade in the following category:

  • Pending payout - Ranked 1 with $ 108,15

I think it is a good idea

This may be way ahead of time because currently the peg is broken downwards but why not? It's simple and the community has been asking for reverse conversion for some time now.

Right, this isn't addressed at the current situation (which I see being handled by both @sbdpotato and normal market dynamics) but the well known vulnerability to SBD becoming overvalued, which has happened repeatedly and is almost sure to happen again at some point if the structural issue is not addressed.

BTW, the STEEM price is only about 18% away from returning the SBD peg to $1, and that number steadily decreases as more SBD is converted (by @sbdpotato and others). That's a bit of a move, but hardly extraordinary. It was briefly there a few days ago, but the higher price just didn't hold.

Thanks for the post.

Excellent work

Congratulations @smooth! You have completed the following achievement on the Steem blockchain and have been rewarded with new badge(s) :

Your post got the highest payout on one day

You can view your badges on your Steem Board and compare to others on the Steem Ranking
If you no longer want to receive notifications, reply to this comment with the word STOP

Vote for @Steemitboard as a witness to get one more award and increased upvotes!