Converting SBD to maintain the $1 peg

in steem •  last month

I've read for several months about the SBD being pegged to $1 and I knew that the peg was ineffective on the upside: given the fact that the SBD is quoted on exchanges and that the supply is low (only about 15 million in circulation), the SBD proved vulnerable to "pump and dump" schemes.

Back in November - December 2017 when crypto was in a craze SBD was "pumped" to $14! From there it started a slow but steady descent ...

As I said in previous post:

  • the value of STEEM is proportional to the size (and growth rate) of the community
  • today, most of the community is made of people who love crypto (in general).
  • since steem has been around for more than 2 years, it is reasonable to assume that we took in all the "cryptophiles" that we could take in.

Trying to bring yet more crypto people to steem is a "zero-sum game" - they would have to come from other blockchains. Convincing them to drop their emotional attachment to Nxs or Ardor or Ark or Neo or whatever in order to embrace Steem is going to take a lot of effort and generate a very low conversion rate.

Too few people come here from different walks of life (real bloggers, writers, etc.). When they come, they sometime feel estranged because the rules of interaction of this community are not familiar.

  • thus, we need to expand usage of the steem blockchain outside the crypto-friendly population.

The SBD $1 peg is one of steem's most powerful arguments for broad adoption

Without it, the only people accepting SBD would be those willing to take exchange risks. All those people fall into one category: speculators.

While speculators are useful to a financial ecosystem, they have STEEM to speculate on (and pump) all they like. Speculative interest is unfortunately a double-edged sword as volatility drives away people who would like to have a classical currency ("medium of exchange" + "unit of account" + "store of value")

Thanks to the SBD peg, someone accepting SBD as payment for goods or services could be relatively sure that "tomorrow", when he'll need to replenish his stocks of raw materials (and pay with fiat) his rentability calculations won't be thrown off by a fall in the fiat value of SBD.

Which brings us to our current problem:
SBD-below0.95.PNG

On Coinmarketcap, the value of SBD descended below $0,95. Given the price of STEEM, one SBD buys now around 1/0.815 =~ 1.227 STEEM.

However, if you remember what SBD is (a "debt obligation" that promises to pay you "1 dollar worth of Steem") then an arbitrage opportunity appears. Because STEEM is worth about $0.78, "1 dollar worth of STEEM" means 1/0.78 =~ 1.28 STEEM

Which means that it makes sense now to buy SBD in the internal market at around 0.815 and then convert the SBD to steem (thus raising the price of SBD and taking SBD out of circulation)

However, the "convert SBD" option seems to have disappeared from the Steemit web interface (beats me why). So if you want to try this out, I can point you to steemworld.org by @steemchiller where you'll find it implemented under "Balances"

convertSBD.PNG

As this is the first time for me that I'm trying this out, I experimented on 36 SBD ... and learned that I have to wait 3.5 days for the conversion to be effective (I knew that from the whitepaper but "knowing" something theoretically is so different from being able to integrate knowledge in your decision-making processes ...)

I went further by buying SBD with 100 STEEM from the internal market and then launching the conversion on the resulting 81.257 SBD. I will see in a couple of days whether I receive indeed more than the 100 STEEM I've spent in the purchase.

conversion.PNG
yes, I've also approved two great witnesses, @pharesim and @netuoso between two conversions

Stay tuned to find out how much STEEM I'll get from that conversion.

Other posts you might enjoy:

If you know what witnesses are and agree that people commited to keeping this blockchain ticking play an important role ...

(by simply clicking on the picture - thanks to SteemConnect)

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Ok so 3,5 days later I can officially confirm that under the current market condition the conversion is profitable!
profitable-conversion.JPG
As you can see in the above picture the 81.257 SBD which I got in exchange for 100 STEEM in the internal market were converted to 91.863+14.772 = 106.635 STEEM, a yield of 6.635% for 3.5 days which gives of course a homoungous APR if you compound the interest.

And of course because I'm not shy of doing maths, I "tripled down" as the SBD is quoted $0.94 on Bittrex

Bought SBD in the internal market for 300 STEEM and launched immediately their conversion - I expect 318 STEEM in 3.5 days.

tripled-down.JPG

That's an easy $1800 the day STEEM will be $100 ;-)

I read that Steemit eliminated the convert to STEEM option because many users did not understand the operation (wait time) and were actually using it when SBD was higher than $1 which would result in losses for the user so they they opted to eliminate it. Look forward to see your results as it seems like a great arbitrage opportunity.

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I seem to remember reading somewhere that it remains risky (because of the 3,5 days cool-off period) and is not recommended unless the price of SBD goes below $0.95 - which was the case here. But we shall see ...

Appreciate the mention and the vote @sorin.cristescu

You mentioned the convert option getting removed from SteemIt Condenser. Just wanted to let you, and anyone else, know that it is also available on https://condenser.steemliberator.com which is a fork of SteemIt Condenser with some minor modifications such as: add beneficiaries while making a post, convert SBD to STEEM, and new branding.

Every once in a while, while testing a new PR, I will also merge it and deploy it to that website so the PR can be tested live before getting merged. (SteemIt is reluctant to re-enable the conversion because it is seen as an advanced feature that the majority of users will not benefit from -- but I think all my users are advanced enough)

I'll be really interested to look back in 3.5 days - thanks for the live demo Sorin....

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indeed, I'll post here the result

Good movement! and this conversion helps to maintain the peg to $1.

Finally, just to mention that, after 3.5 days, the blockchain will convert the SBD taking the median price of the last 3.5 days. You can check it on steemnow

Yeah, also previously the rewards used to slip in 3 parts(sbd+steem+steeppower) but, now sbd part is missing from the rewards too.

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steem is too low so the specific blockchain smart contract does not produces any more SBD

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I hope everything will back on track soon.🤞

The real growth will come when people will start using Steem as other social media sites.

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and for that we should hope that HF 20 gets user on-boarding right

Coins mentioned in post:

CoinPrice (USD)📉 24h📉 7d
ARDRArdor0.096$-0.4%-18.55%
ARKArk0.626$-2.6%-27.4%
SBDSteem Dollars0.967$0.51%-4.82%
STEEMSteem0.779$-1.07%-19.81%

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