The SBD:STEEM debt and payouts
Some might have noticed in your most recent payouts that instead of STEEM POWER/SBD it is STEEM POWER / SBD / STEEM.
Now, I am not a technical person and this is beyond me but what is happening has happened before and it worried me a little so firstly, don't worry, the system is designed this way. Secondly, this might be wrong so bear with me and go easy on the criticism.
Do you know what SBD Stands for? Steem-Backed Dollars. What this means is that for every SBD printed, some amount of STEEM also needs to be printed. Remember the problems that US-Tether had by not actually buying US dollars to back the stability? Steem has a mechanism to make sure it doesn't run too far into debt, it stops printing SBD.
The last time this happened was when STEEM price fell a lot and was around 7 cents. Low price means low market cap. I am going to use some fake figures to make it easier to visualize.
If STEEM has a market cap of 100 Million, the system is set up to back a maximum of 5 million SBD (5%) Remember the peg? and a 19:1 Ratio. But, if Steem market cap falls, the system starts correcting and will increase the ratio of STEEM to SBD.
When SBD price is at its normal peg (~1 USD) this isn't a problem when Steem is higher than it but like in the past when Steem fell very low, it meant that the 19 Steem printed didn't cover the 1 SBD. That is a problem because it means that STEEM can't BACK the Steem-backed Dollar and means the system is going into debt. Debt is bad, OK?
Now, SBD has a market cap of about 17 Million Dollars but Steem has only 400 Million. This means that SBD market cap is about 4.3% of total STEEM market cap. At 5%, ALL SBD stops getting printed but (apparently) between 4% and 5%, the system starts reducing the amount of SBD it prints and increases the amount of Steem.
SBD has been consistently above STEEM prices for several months but it is getting printed as if it is pegged at 1 dollar. This means the Market cap is increasing faster than it should be and even though Steem has also been rising, the ratio between the two has been closing. Now that STEEM price has fallen fast and SBD is still above it and there is a lot of high priced SBD on the market, the mechanism is kicking in to try and not go too far into debt.
Understand? I am only just getting a hold on this.
Ok, so printing more STEEM per SBD means that there is more STEEM to back the SBD, right? But, if SBD keeps rising and STEEM keeps falling, it is going to keep being a problem as the system still treats SBD as 1 US dollar (This is one reason why the peg is important by the way). So at 5% debt ratio, the Steem blockchain says, nope, and cuts ALL SBD printing to try to make sure that Steem is able to back the SBD that is already out there.
Now, I am not sure when the system decides to print SBD again after such an event. Anyone?
Ok, so what does this all mean? I don't know other than SBD is going to be decreasing in print if the situation continues and instead of having liquid SBD, it will be paid in liquid STEEM. What that means is that the steem paid is the equivalent price (based on the 3.5 day average) to SBD at 1 USD.
Do you know what that means? Well, before when you got paid 1 SBD (the system sees it as 1 remember) it had a market value of well above that (currently 1.60). But now, the system will pay it in STEEM at the 1 USD price the system sees it as. Essentially if only getting paid in STEEM it means to only get paid in STEEM market value. Because SBD is actually well above that, payouts have had a much higher real-world value recently.
So, now, posts will be decreasing in their real-world value as more Steem is printed and less SBD but, this is the way the blockchain is designed and would not be an issue at all if SBD had kept its peg. Also, remember that up until this point, people have been able to buy very, VERY cheap STEEM if they use the SBD they have earned on platform. Remember all those times I and others have said power up? Did you?
Anyway, I hope this clears up something and if some of the people who really know how this works can comment and correct it, I am happy to edit. This is about ten steps past the limits of my STEEM technical abilities.
[ a Steemit original ]
I would appreciate some help in the comments section if needed.