Steemit Blockchine Dollars

Steem Dollars are referred to with the symbol SBD, an acronym for Steem Blockchain Dollars. Creating
SBD requires a combination of a reliable price feed, and rules to prevent abuse. Providing a reliable price
feed involves three factors: minimizing the impact of an incorrect feed, maximizing the cost of producing
an incorrect feed, and minimizing the importance of timing.
Minimizing Fraudulent Feeds
SP holders elect individuals, called witnesses, to publish price feeds. The elected witnesses are
presumably trusted by those who have a vested interest in the quality of the feed. By paying those who are
elected, Steem creates market competition to earn the right to produce feeds. The more the feed producers
are paid the more they have to lose by publishing false information.
Given a set of trusted and elected feed producers, the actual price used for conversions can be derived as
the median of the feeds. In this way if any minority of individual feed producers produce outliers they
have minimal impact on the actual median while still having the ability impact their reputation.
Even if all feed producers are honest, it is possible for the majority of feed producers to be impacted by
events beyond their control. The Steem network is designed to tolerate short-term corruption of the
median price feed while the community actively works to correct the issue. One example of an issue that
may take some time to correct is short-term market manipulation. Market manipulation is difficult and
expensive to maintain for long periods of time. Another example would be the failure of a centralized
exchange or the corruption of the data published by the exchange.
Steem factors out short-term price fluctuations by using the median price over a period of three and a half
days. The median published feed is sampled every hour on the hour. As long as the price feed corruption lasts for less than half the moving median time window it will have
minimal impact on the conversion price. In the event the feed does get corrupted, network participants
will have an opportunity to vote-out corrupt feed producers before the corrupted feed can impact the
actual conversion price. Perhaps more importantly, it gives feed producers an opportunity to detect and
correct issues before their feeds start impacting the price.
With a three and a half day window, community members have approximately one and a half days to
respond to any issues that come up.
Mitigating Timing Attacks
Market participants have access to information faster than the blockchain’s three and a half day moving
median conversion price can react. This information could be used to benefit of traders at the expense of
the community. If there is a sudden increase in the value of STEEM traders could request conversion of
their SBD at the old, lower price, and then sell the STEEM they receive a the new higher price with
minimal risk.
Steem levels the playing field by requiring all conversion requests to be delayed for three and a half days.
This means that neither the traders nor the blockchain has any information advantage regarding the price
at the time the conversion is executed.
Minimizing Abuse of Conversions
If people could freely convert in both directions then traders could take advantage of the blockchains
conversion rates by trading large volumes without changing the price. Traders who see a massive run up
in price would convert to SBD at the high price (when it is most risky) and then convert back after the
correction. The Steem protocol protects the community from this kind of abuse by only allowing people
to convert from SBD to STEEM and not the other way around.
The blockchain decides how and when to create SBD and who should get it. This keeps the rate of SBD
creation stable and removes most avenues of abuse.
Sustainable Debt to Ownership Ratios