Steem Dollars have Limits

in #steemit5 years ago

Safety, security, stability, and sustainability are very important design characteristics that our team is always attempting to maximize. We must balance many variables when creating cryptocurrencies, smart contracts, and economic incentives. In particular it is important to design systems that remain robust and predictable in all market conditions.

Steem Dollars have Limits

The idea behind a Steem Dollar is that it should almost always be worth about one US dollar. We have set rules in place to make this statement true 99% of the time by making the Steem Dollar convertible to a dollar worth of STEEM.

Anyone who promises you that any asset will always be worth something is either ignorant to some risks or a liar. This is true for bank deposits, gold coins, and crypto currencies. Banks can seize your funds, go bankrupt, have a bail in, or hyper inflate the currency until it is worthless. In other words you are never guaranteed purchasing power.

When it comes to the Steem Dollar, their purchasing power depends upon the market demand for STEEM. The Steem Dollar is really nothing more than a smart contract for a variable amount of STEEM depending upon an oracle. If STEEM is worthless than the Steem Dollar will also be worthless.

As the value of STEEM falls, the amount of STEEM required to represent a U.S. dollar worth of value approaches infinity. If left unchecked, the Steem Dollar could render STEEM worthless and when that happens all Steem Dollars become worthless too.

Black Swan Events need a Plan

It isn’t possible to prevent all black swan events, but it is possible to establish a fair set of rules for handling them. It is always best to define the rules before they are necessary so that everyone can take full responsibility for the consequences of their trading decisions.

There are two major black swan events that the Steem community and traders should have a contingency plan in place for. The first black swan is if the value of STEEM crashes so far that Steem Dollars represent an insurmountable burden on the STEEM price that sets off a chain reaction pushing the value of STEEM toward zero.

The second major black swan event is when the US dollar hyperinflates and becomes worthless as a day to day currency. In my opinion this is the more likely outcome.

Price Feed defines Value of Steem Dollar

The price feed can be viewed as a mathematical function that traders and speculators can trade against for determining the value of the Steem Dollar at any time. Right now we have defined the function to always equal the approximate marginal price 1 STEEM fetches on the open market.

There are two extreme cases, black swans, that must be considered. In one extreme the price goes to 0, in the other extreme the price goes to infinity. It is in the interest of everyone involved that the value of a Steem Dollar never hits either extreme. This can be implemented in objective terms by setting hard limits on the exchange rate range that is allowed.

We can set a maximum and minimum Steem Dollar price as follows:

maximum price = SteemSupply / (10 * SteemDollarSupply)
minimum price = SteemSupply / (10000 * SteemDollarSupply)

With these rules in place, Steem Dollar holders are protected against US dollar hyperinflation and Steem holders are protected against US dollar “hyperdeflation”. The witnesses are trusted to publish a honest price feed relative to dollars at all times, but the blockchain will enforce these hard limits.

In other words, the market cap of all Steem Dollars will always be between 0.01% and 10% of the Steem market cap. This will become a mathematical reality with the addition of two lines of code to the method that calculates the conversion price.

Sustainable and Fair

These rules would make the economic system of Steem sustainable and fair in all circumstances by clarifying the meaning of a Steem Dollar. With the clarified meaning, a Steem Dollar is allowed to have values above or below a U.S. dollar under certain market conditions. All traders can be aware of those conditions and trade accordingly.

By implementing these rules long before the STEEM / USD price gets near either extreme all market participants have ample opportunity to adjust their positions.

No Promise of Value

Steemit, Inc cannot and will not promise that the STEEM token, Steem Power, or Steem Dollars will have any value now or in the future. We aim only to create fair rules to approximate the relative subjective value each member of the Steem community brings to the table. Any value these tokens have will at all times be set by the free market through voluntary exchange.

Benefits over Alternative Approaches

In a prior post I outlined a solution that would covert 1% of Steem Dollars to Steem Power as a means of correcting the imbalance. This solution had the nice property of only exposing 1% of a person’s steem dollars to volatility at a time, but had the down side of making the life of exchanges and smart contracts everywhere very complex. Every smart contract would have to factor in the potential that a liquid asset like Steem Dollars could be partially converted to an illiquid asset such as VESTS. This great complicates things such as escrow transactions and side chains and exchange deposits. In other words, it had all of the negative properties on 3rd parties that could be associated with negative interest rates.

Some people suggested things like bootstrapping an economy around Steem Dollars or buying them back with Ad revenue. It isn't a matter of finding buyers for Steem Dollars, it is a matter of maintaining a debt ceiling. Simply moving Steem Dollars from person to person does not solve the problem.

Thanks for Feedback

We would like to thank everyone for the feedback they have provided and invite additional feedback. We are all in this together, lets make Steem the best platform for everyone involved.


I don't agree with the minimum price formula. That means if all SD in existence right now except for 1 SD was collected into one account and then converted to STEEM with a single conversion request, that 1 remaining SD would likely be able to claim 13503 STEEM (which at current prices is worth approximately $19,444 USD) through a later conversion. Now obviously, that is a ridiculous example, but it demonstrates how a sudden large decrease in SD supply due to conversions, can cause later converters to get a lot more STEEM than they should due to that minimum rule, even if the price of STEEM in USD doesn't change.

There is no need for the minimum price. If the USD hyperinflates (which I disagree with you regarding it being more likely than the other type of black swan), then the witnesses could just transition to tracking the price of some other asset with reasonably stable value. For example, the witnesses could instead track the price of some other currency, or if necessary maybe even the price of gold. An appropriate factor would be included into the definition of the price being tracked so that there isn't a discontinuous change in the SD/STEEM feed price during the switch over from tracking USD to some other asset.

The social contract regarding the price feed should not be to track USD, but rather to track an asset with relatively stable purchasing power that has a well-defined computable price relative to STEEM, whichever the best asset for satisfying those conditions is at the time. Obviously, we would also want to avoid switching the assets we track unless it is truly necessary to satisfy that social contract. And the decision to switch and the particular asset to track instead should only be made after extensive community discussion (and enough time for stakeholders to reflect their views through witness vote changes) which includes the opinions of both relevant parties: SD holders and STEEM/SP holders.

If the USD hyperinflates (which I disagree with you regarding it being more likely than the other type of black swan), then the witnesses could just transition to tracking the price of some other asset with reasonably stable value.

We should have in parallel more that one "stable" assets. Why waiting the $ to collapse and then making the switch? (it will be too late if it happens too fast) We should give the option to the steemit users to get paid on any currency they want! Steem Dollar, Steem Gold, Steem Bitcoin, Steem Silver, Steem Yuan etc.. So in case one of the"stable" steem currency collapses only a part of users would be affected and not all the project! Right now we are vulnerable to a one point of failure and that is the US dollar value (how ironic would it be the steemit project to die because of a FIAT currency fail!)

At some point it might sense to switch to Bitcoin. Bitcoin would need to be much more stable and much more widely accepted before this is feasible but I don't see hyper inflation or deletion anytime soon.

There are trade-offs either way. US dollars will likely bring in more users outside of the crypto world, but it has a real threat of hyperinflation, given enough time. Too many markets, as you suggested, would cause confusion and create illiquidity in markets. Gold may provide a nice balance. Its likely to never hyper-inflate and its a single market that most users on earth can relate to, although with a bit of perceived volatility.

People perceive volatility in gold because they are measuring its value against fiat currencies whose prices float against each other. "Two sides to every coin", so to speak... which asset is volatile? the metal or the paper currency? It's a reflection on the instability of the fiat money system that exchange rates on currencies fluctuate so much against each other and nations engage in currency wars to game the system.

I don't understand how your conditions could be met if USD fails quickly.

Perhaps that is a good reason to find an alternative to the US dollar sooner rather than later.

Can u explain why you do not like this and downvoted Dan?

I posted a comment that I like the proposal. I downvoed it because I don't like seeing thousands of dollars sucked out from the reward pool day after day every time he posts a proposal or update on the development process. That's not Dan's fault, it is just my disagreement with some of the other voters.

@liondani, Yes communication from the team helps bring confidence but I'm pretty sure this is not the way to do it. When investors see thousands of dollars being paid to founders day after day, including voting for themselves to do so, it contributes to the narrative of this being a scam that is set up to enrich insiders. It isn't necessary at all, since the team already has a $100 million "pre"-mine and should be sufficiently well-compensated to post updates without draining the reward pool doing it. If not, then something else is very wrong.

As far as the trending list, i want a sticky feature for team updates or some other way of organizing them that does not drain rewards. 100% of well-run projects already keep their investors and users well-informed without being individually paid thousands of dollars for each update. This is not rocket science!

I still think Daniel's post's bring more value than it "sucks out" due the confidence it brings to the shareholders ! At least that is the case for me! Every-time he post's updates it gives me one more reason not to Power Down but to Power Up... I certainly want his posts on the top of the trending list to be sure nobody misses it...of course it doesn't need to be on first place or having a big gap from the next posts in value...

@smooth I agree with your action. Ned downvoted Dan's previous post from the same reason - to remove the reward from the post.
As Dan mentions below, an option to 'not pay rewards for this post' would be nice.

Also, did the Comment Reply chain get reduced to 4 instead of 6? I would have replied below to @liondani's comment but can't anymore.

Maybe votes' functions should be tied to how those votes are voted by others. You know, similar to what we have with typical democracies, not like the USA though. Current voting structure with Steemit resembles American elections - Money talks. Votes' effectiveness should move from bottom up. That is votes that are upvoted should count.

@smooth I think it would be helpful if there were a feature to "opt out" of the reward pool. still show the "value" for trending but some way of saying that you are giving the reward back, and have that be built into the system.

My question is what happens after the federal reserve can't push their forward guidance to the people any more, and they stop believing in the USD, their for cutting down its purchasing power.
And or if quantitative easing is brought back this time being bigger then the last three and the USD index drops .does that mean Steem dollar drops with it.? @dantheman thanks for the read your articles have been great to read.

SBD is linked to the US dollar (including all of the US dollar's warts) as long as that is feasible to do. Dan's post and the previous one are about what happens when it isn't feasible any more.

I LOVE the idea of pegging the value to gold instead of USD as USD will collapse at some point in time as all fiat currency's will. Yet gold has been used as money for thousands of years and will continue to be so.

As long as we are only pegging to the VALUE of gold, and not to the commodity itself, which can just as swiftly be confiscated or withdrawn black swan style.

And I do not agree with the max price. This means that SD would be worth less than 1 usd in (the very likely imho) scenario of steem having market cap of less than 21 mil USD , as of this writing for example. In other words the promise for about a dollar value of SD will not be valid for all current SD holders in the very like scenario of steem price returning to the levels we saw just 1.5 months ago.

I agree that it would be important to switch the peg if needed. Also agree that the idea of sd is stability and not fix to USD, although right now USD is the best way to do this.

Howev, does a limit not make sense anyway? To prevent black swan events?

Why do you think the US dollar is the best peg now?

The social contract regarding the price feed should not be to track USD, but rather to track an asset with relatively stable purchasing power that has a well-defined computable price relative to STEEM, whichever the best asset for satisfying those conditions is at the time.

Yes, very well said. Most important is that we have some kind of stable currency, not that we have a currency pegged to USD.

Perhaps that could be a long term solution if the Steem Dollar hits the minimum price or appears to be close to hitting the minimum. But I think it's important that some sort of safe guard be in place in case of an extremely rapid price change.

You're not going to be able to switch what is being tracked on a dime, and even if you could, there's no way to know if what ever you're automatically switching to has the same problem as he USD.

Good one @fyrstikken!

I have my mac set so that Option+Esc runs the built in text-to-speech feature on selected text. I love it.

wow fyrs .. you rock man

Great post! It is always important for anybody who is looking to get into crypto or investing/trading in general to remember that there is no such thing as a guaranteed (Anyone remember Paycoin's outlandish $20 guarantee, that fell flat on its face?) as things change as new issues arise, new competitors form, and other things which are out of one's control.

Finally I'd also like to remind everyone that you should only invest what you can afford to lose. I know that I personally don't want to see posts down the line saying "X made me lose my house," or "I'm broke thanks to X."

@dantheman is committed to build a perfect stable coins on Blockchain.

IMO. The rules of Steem Dollars peg to U.S Dollars is so complex, you are always do challenging things! : )

#smartcoins in BitShares 2.0 is so easy to understand. And smartcoins like bitCNY, bitUSD is so stable for a long time. I like smartcoins : )

I much prefer this approach. Nice job to you and the team coming up with this alternative.

I'm still downvoting as a platform update though.

I still did not see theory with 100% cases covering. that mean that will appear some which will manipulate by wikness sides in market

You state in this post that the rules you put in place make it so that the SBD is worth $1 about 99% of the time. In my experience it is hardly ever worth $1. Right now it is worth around $0.90. I have read your caveat that you make no guarantees, but in the past month the SBD has been worth $1 less than 1% of the time, not 99% of the time.... I'm just wondering why there is such a disparity.

I think it's partly because many (myself included) didn't understand the role of the smart contract that is the 7 day conversion to STEEM. You and others have done posts on this to explain it so, I think, more people are taking advantage of this now and being rewarded for it. As more people understand this, I think, the price will be closer to $1. Right now, there are just so many technical details to figure out, most people aren't sure what's going on.

most people aren't sure what's going on

Bad information leads to bad decision lead to bad democracy.

Why do we use the Dollar then ? (Steem Dollar)

Did your team consider building the Steem Euro, or Steem Yuan, or Steem Yen ? Or was the choice naturally determinedly turned to the Dollars than towards other currencies ? ;)

We considered and continue to consider all such currencies. Simplicity is prefered if it can be achieved. In this case.

Perhaps, rather than one currency, a basket could be used. That way any strong moves could be absorbed, and often countered by the opposing movement of another currency. It wouldn't have to be complicated, as long as the basket was set and not adjusted further unless there was a major event. In that case, there could be a rule in place that drops a currency if it drops by more than XX% or rises more than XX%.
I don't know if that's a good solution or not... just tossing it on the table.

Dan is allowing that the steem dollar may not absolutely equal "1 US dollar worth of steem". There is the the canadian dollar, the australian dollar, and maybe we can allow the Steem Dollar, as a distinct unit of account. To address the second black swan event. We could have it redeemable for: 12 Japanese Yen, 2 rmb, 0.3 dollars, and 0.3 euros worth of steem. So we have mitigated the effect of US dollar inflation. We need only for the witnesses to modify their price feed of the Steem Dollar, if that is what the blockchain settlement logic uses.

@dantheman after your last two posts dealing with the value and stability of Steem/Steem Dollars I got to thinking.....I know scary thought but here me out please!

You seem to be worried (alot) about ensuring that steem survives and thrives and with the rash of recent problems with other cryptos I can't say as I blame you. So how about:

Instead of Voting Currency coming from a pool that doesn't exist (like the current system) you tie the voting value directly to a persons Steem Power. Meaning if they vote, it is their SP they are giving to the author.

If you combine that with some sort of mathematical functions to automatically limit the voting weight based on the amount of SP the voter has you will also solve the problem of people powering up their accounts and being able to control content or upvote content almost directly to /trending.

I was thinking something like this for the functions:

< 1000 SP vote weight = .001 X SP_Total
1,000 SP to 2,000 SP vote weight = (.001 X SP_Total) / 2
2,000 SP to 3,000 SP vote weight = (.001 X SP_Total) / 3
and so on.

The end result is that everyone's votes are now equal (more or less) and there is no longer any dilution of the currency because you don't have to keep generating massive amounts of Steem Dollars to balance out the system.

PS - If I am missing something, completely off base or just sound crazy please upvote me for trying! Thanks!

The second major black swan event is when the US dollar hyperinflates and becomes worthless as a day to day currency. In my opinion this is the more likely outcome.

Umm, I seriously thought this was already the case, or at least was heading in that direction rapidly.

We aim only to create fair rules to approximate the relative subjective value each member of the Steem community brings to the table. Any value these tokens have will at all times be set by the free market through voluntary exchange.

Surely there is some way to limit the 'free market' effect on the value of the tokens. Something like what the NYSE does if there is ito strong of a push in one direction or the other, they freeze (suspend) trading.

a single exchange can suspend trading, but a blockchain is can not suspend transfers without death.

true, I was only citing that as an example though. There has to be someway to bolster the value if the 'free market' starts driving the price into the ground. How did BTC recover from all the hacks recently? Somehow they staved off the massive slides after every attack......that was where I was trying to go just didn't come out the way I had intended.

The USD will crash and likely in less than a year.
Of course this can't be guaranteed but Gold has been used as money for thousands of years and will very likely continue to be. Even if not as a money it has tremendous inherent value and thus will continue to be valued.

Some people suggested things like bootstrapping an economy around Steem Dollars or buying them back with Ad revenue.

Does my Blockchain "Shop" idea count as "bootstrapping an economy?"

Keep in mind, I had a plan to burn 1.25 million STEEM, just by allowing users to pick an avatar. That's not finding a buyer. That's creating a value add service that the blockchain sells, and since the blockchain doesn't need to buy groceries, it burns the steem again.

Dan, please try and read it if you haven't.

My second post on Steemit was about the mathematical reality that if the total value of all Steem is less (or even close) to the total value of Steem Dollars, the system will break down (if there is a "run on the banks"). It's like backing the dollar with gold... except here the gold is Steem which is extremely volatile and is not guaranteed to have a value floor.

I agree with planning for black swan events (or at least admitting their possibility). If people want Steemit to succeed and they can afford to risk some of their investment/earnings for what they believe in, it may be advisable to not "cash out" of Steem Dollars for Steem. That is very similar to adding selling pressure to the market. It can have a doubling effect on selling pressure as a user may trade Steem Dollars for more Steem today than they would have got yesterday, and on top of that may then go to sell the Steem for BTC.

From a development side, considering the drop in the $ value of Steem, is it worth considering a 75% to 25% (75% Steem Power to 25% Steem Dollars) payout? Possibly there is a cleaner way to accomplish the same thing. Or would this just compound the issue because of how people would view it? I'm all in with Steem Power and am proud to be a member, succeed or fail. Another idea would be to have a maximum number of Steem the Steem Dollar could be worth (i.e. 1). People may not like this...but effectively that could happen anyway if there is a run on the banks.

"Anyone who promises you that any asset will always be worth something is either ignorant to some risks or a liar. This is true for bank deposits, gold coins, and crypto currencies. Banks can seize your funds, go bankrupt, have a bail in, or hyper inflate the currency until it is worthless. In other words you are never guaranteed purchasing power."


and I just really, really appreciate you saying this right here, @dantheman.
Yet I am saddened that you even have to say it and will likely need to keep saying it.

In fact, if we could get some billboards with that on it, tattoo it on our foreheads or something...

It's amazing how many people, who previously didn't know a thing existed, and before knowing hardly anything about that thing, can have SO MANY EXPECTATIONS OF SAID THING.

I for one am in zen mode. I enjoy where this is, at whatever moment, day in and day out, and I appreciate the concept of this kind of platform because I know it is a game-changer no matter WHAT happens! I have no fear of losing anything, or disappointment, because it hasn't existed long enough for me to justify having any real expectations yet-- other than some epic possibilities!~

I love how Steemit is evolving all the time. Some people use this as a criticism but they forget the BETA tag on the site logo. I truly believe that we are witnessing a paradigm shift in connectivity , community and sharing with steemit.

While some of the thing you discuss go over my head, I do appreciate the pieces that I do understand.

While some aspects will need to be tweaked in the future, something I had no real grasp of (the 3 steem "currencies") made much more sense as I continued posting on steemit.

The ability to have steem power held long term keeps the value from plummeting when if a user were to just immediately try to pull out their millions of dollars.

steem is just a liquid token and steem dollars helps hedge against volatility also if steems proce were to drop to .50 you would get 2 steem. It's brilliant (hopefully I have the idea correct as I am no economist and others are far more qualified to speak about exactly how all three work).

I am becoming increasingly aware of the state of our fiat money and am convinced that unless it is overhauled, it will cease to have value. Not knowing how much money is in circulation has started to put up red flags (yes I am downvoting our banking sytem and hope @berniesanders will join me as he likes to be a trailblazer).

I don't know where steemit will be in a year or even ten minutes from now, but I honestly have more trust in you and @ned than I do in our government/banking debacle.

Historically, the pricing power of the USD has always gone down. And most currencies become worthless, before another "gold standard is created." So the scenario that the pricing power of USD declines so much that it is almost worthless is definitely possible. However, with the continued declining volume of Steem on poloniex and other exchanges day after day (, what would make one believe that the USD being worthless is the more probable scenario? Thanks!

I assumed that if the US dollar hyperinflated more people would be motivated to use STEEM Dollars instead, because if there is an app by then hopefully the SD could be a currency that saves us from collapse..

This could also create more of a need for a digital market place on Steemit and for the SD.

It is a pitty that it seems that there have to be rules besides an open market. If we listen to our anarchists here (@larkenrose and @thedollarvigilante and some more) then the dollar, as it is (Fiatmoney) is kind of a worthless piece of paper. In my opinion Steemit should not make the link too close to a worthless currency. If there is demand in Steem, who cares how much people are willing to give in return? I´d prefer a content-based currency (even if strongly volatile) over any Fiatmoney at any time...
Just my two cents.

It's just that Steem will not buy you a sandwich or an airplane ticket. Dollars will.

I understand it is yet to be determined if a Steem has a future.. But I'm still hoping and promoting. :D

Is this the beginnings of a crypto-fed for SteemDollar? Whatever the community decided we must keep it simple, liquid and decentralized. I prefer the idea of a floating rate for Steem Dollar and the ability to convert SD directly to SP.

Someday I'd like to see the Steem Dollar being accepted by merchants worldwide as a viable store of value. The Steem Dollar could be seen as the new Paypal.

Nice explanation. My only suggestion would be to reduce the "inflation" or interest on steempower. This would alleviate market sell pressure. You could also reduce the time it takes to power down, this would put more steem on the market also reducing the inflation of steem power. Eventually there should be a balance between what is on the market and what interest is being generated. I believe this equilibrium will occur when around 10-25% of Steem is on the open markets for trading, tipping and marketplace transactions.

I dunno. I kind of think steem power is designed for the express purpose of generating an insane interest so that there will be incentive to hold onto it, buy it, and use it very wisely. The longevity is what gives it its power, the interest is what gives it it's lure, and the power is what gives it it's incentive to invest, at least at first. I guess it would need to taper eventually.

That would remove all the buy pressure. Why would anyone ever buy Steem if you reduce the value of Steem Power?

I never said reduce the value... rather reduce the ridiculous and unsustainable rate of inflation to something reasonable in which case I think more people would be interested in the platform. Also allowing more flexibility into and out of steempower would give stability and confidence in the markets.

While it would appear that the price of steem is set by the open market, the reality is that the value of steem comes from the user base. The true value is being set by the amount of steemit users. The steem price on the open market simply fluctuates according to what was the last price someone was willing to trade a steem coin for another currency or coin. However, the price is forced up by demand or rarity. As the steemit user counts grow, the need for more coins grow, with that extra demand, what people are willing to pay for a coin goes up. This demand is countered by the amount of steem being created.
So, these are not acurate numbers but let's say there is 120 million coins in supply, and this increases by 480 million a year, or approximately 4 times it's present supply. Let's also say that we have 70,000 users. Simple math would suggest that our user base would have to grow four times larger over the next year (the same rate as the coins being created) just to keep the price of steem constant. This does not factor in steem power, because a large portion of steem being created get's put directly into steem power. The simple math above also doesn't factor in how much is right now being held in steem power by all the users. So what's the real supply numbers???
All that I can say conclusively is that the value of steem comes from the growth and size of its user base. The size of the user base needs to increase until its user base demand for steem far out weights the rate of steem being created. And the size of the user base increases because of good content. Good content draws more participants, and keeps them here once they join.
So to simplify all the above: A stable or growing steem price comes from a constant increase of users, in my opinion, because of quality content.
(an example of good content is my new comic "Steem Funnies" .. please check it out for a quick laugh I know I just ruined my comment above by a desperate blog plug. But come on, I need some upvotes :)

So if we can not keep up this rate of growth then the Steem would die? I'm not developer and like to keep things simple. This kind of post by Dan makes me think of the negative things that could happen. I have never been and will never be the doom and gloom kind of person but why even bring this up?

In my opinion were barely even started yet. 70,000 users is nothing compared to where we'll be in a year or two.. and if the steem coins get created at rate of 480 million per year that means the follow year will only double supply, and then the following year will only increase it by a quarter and so on.. So once the user base grows, the price will soar.

so @ned downvoted your last post, what's going on?

@ned likes to negate my profits on publishing announcements. I upvote my own posts to discourage people from piling on for curation rewards. It is our method of declining payment for certain posts until the GUI team can give me a checkbox prior to submitting the post.

@dantheman, I couldn't hope for a better example to illustrate how broken the flagging concept is: @ned needing to resort to the abuse flag to achieve his goal. The founder of a platform misusing (or abusing) his own platform. This is ridiculous.

We really need to sort it out and the only option I see is reintroduce the downvote button and make a clear distinction between flagging (affects reputation) and downvoting (no impact on reputation). As it is now, it's just terrible UX - we really can't afford this to continue.

I made a post today arguing for this.

If one of the founders and creators of the system is doing that, it should tell you that your idea of what the feature means is incorrect. Indeed I would argue that calling it strictly and exclusively an "abuse flag" is too rigid. It is a flag, certainly, but whether it should only be used for abuse is simply opinion. Clearly @ned does not see it that way.

It can even be primarily an abuse flag and still be used for other purposes. That said, I agree with you that there should be a downvote option distinct from flag.

See where people walk -- and then put the walkway there. It's a flag. If we are supposed to think of it as a reward reduction make it look like one.

If one of the founders and creators of the system is doing that, it should tell you that your idea of what the feature means is incorrect.

It also means that there is a total confusion and lack of consensus among the users about what this flag is supposed to be doing and when to use it. That's why I call it a UX disaster.

Some reputable authors clearly unhappy with their posts being flagged without a reason, while one of the founders indicates that it's OK to use the flag indiscriminately. Utter mess.

It can even be primarily an abuse flag and still be used for other purposes.

If the flag is used for other purposes, it loses its main functionality: a warning sign for the reader and a way to give feedback to the author. It essentially becomes a payment reduction tool with the unexpected side-effect of (sometimes) degrading someone's reputation.

OK, I'm not gonna raise this issue again - I don't want to abuse your or @dan's patience. I am glad you are one of the few people who understand the urgency of the problem. My mission to convey it ends here.

I upvote my own posts to discourage people from piling on for curation rewards.

Obviously the users are not educated enough to stop voting because of minimal curation rewards...
So my suggestion is when a post is already voted enough and someones wants to upvote it that a message window pops up that sais something like this:

Have in mind that this post is already discovered from many curators and the curation rewards from now own will be minimal for this post! Are you sure you want to spend your Voting Power without efficiency?

A check box to disable the voting adding monetary value to a post would be awesome, especially if it was enabled for everyone. I have a post up right now that I told people in the title not to vote on as it isn't intended to get any revenue, just a response. Would love to have this feature.

The issue is that some other way of giving visibility is needed. Perhaps it is as simple as calculating the payout in the normal manner (and using that for visibility) but with a flag indicting that it won't actually be paid out.

That is somewhat close to the idea of using something akin to the karma system of slashdot. Both for post and upvote/downvote. It comes with various reasons (tags) for upvote downvote, and gives feedback, as well as affecting the mechanics. Perhaps ways to upvote without giving money, or affecting the SP/SD ratio that this particular vote gives (or how the author prefers their reward). Will have to think about mathematical implications for such a change, of course, but I consider something like that worthwhile. Maybe even being able to specify the recepients of the reward, so that agregated posts could automate the payout for the authors they feature.

What about 2 flags? First one is a warning flag. Those who use the warning flag give the indication that the hammer is cocked and the downvote is ready to be fired. If the warning isn't heeded...full flag. Perhaps even add a 5 minute minimum for a warning flag before a full flag can be used.

That would indeed be handy. For the time being, you'll have to use the cli_wallet to manually set a post's properties such as allow_replies, allow_votes, allow_curation_rewards, etc..

awesome...heh clever (good point about there being limits to all types of dollars)

Ah I see, was afraid it might have been a civil war! It still looks as though the vote bots that monitor you for posts aren't discouraged, voting earlier and earlier before 30 minutes in an attempt to beat one another, for example, @weenis, @bue, @mini, @healthcare, @boy, @bunny, @moon, @helen.tan, @yarly*... They used to follow me too but looks like I'm off their list haha..

amazing man, SURREAL

Thank you for your thoughtful breakdown. I did not know what to expect when getting on board with steam a few days ago. But reading posts such as yours gives me confidence that Steemit can weather whatever storms may come. Excited about growing with this new community.

you misspelled steem.....shame on you!

maybe he meant the gaming platform haha

How did that happen??? I guess it pays to poofreed! :-)

Maybe I'm missing something. Is it not possible or is it just undesirable to have a variable interest rate on SD?

Interest rates have a floor of 0%. If the SD interest rates were dropped to 0% and people were still hoarding SD rather than converting it to STEEM (so that SD supply decreases), it could theoretically be possible, especially under the scenario of a rapidly declining USD price of STEEM, for total SD supply to be able to claim an amount of STEEM greater than 10% of the total STEEM supply. That starts to approach a dangerous debt-to-equity ratio which if left unchecked can cause the value of STEEM to suddenly collapse. To protect against that black swan, either the total amount of SD supply needs to be capped relative to the USD value of the total STEEM supply (which was @dan's original "bail-in" proposal that many people didn't like and also imposed considerable technical challenges to third-party services), or alternatively the amount of STEEM that 1 SD can claim (via conversions) needs to be capped (which is in his new proposal in this discussion thread). So the maximum price on SD conversions is still necessary to protect against that black swan even with variable interest rates.

By the way, interest rates are already variable. As in they can be changed by the witnesses at any time. As of now, it has remained 10% since July 4th. But if SD was to have a large premium for a long period of time, you can bet the interest rate would be dropped. It could also be dropped even without a large premium on SD. SD holders get absolutely no guarantees about what the particular interest rate on SD will be.

@arhag, for those wanting to convert SD to SP, what is the formula to determine the amount of SP from 1 SD?

SD has a variable interest rate. Interest rates are an imperfect tool for monetary policy, as central banks around the world are experiencing right now.

Thanks for this @dantheman, I can feel your intention and understand that we must also take good care of the steemit economy because keeping it strong will help preserving its purpose.

What do you think about establishing a signup fee for future registration? Would this help the economy?

Very helpful post, but I think you are neglecting something in the explanation that would be helpful to me. Isn't it true that setting the max and min prices for Steem Dollars still doesn't protect the value of this debt instrument in the black swan events you describe.

Let's take the case of Steem becoming worthless, this just means my Steem Dollars will only allow me to get a maximum price = SteemSupply / (10 * SteemDollarSupply). This maximum price could be paid to me in a bunch of worthless Steem that I can't exchange for any useful amount of dollars.

Unfortunately I'm having a hard time conceptualizing what it means in the other direction, but I suspect a similar issue is at play in reverse.

So how do we increase the market demand for Steem? What would make a person buy Steem or Steem Dollars and how to advertise it?

if the steem currency is connected to USDA, what happens when we hit the dollar collapse? Does steemit currency crash too?

As the US dollar loses value (inflates), Steem and Steem Power appreciates against the dollar. But because the Steem Dollar is pegged to the US dollar, if the US dollar collapses, so would the Steem Dollar, which is why Dan is suggesting limits to the US dollar peg.

well as a British guy i can tell you after Brexit and seeing my so money devalue 20 per cent , maybe more ! I don't want my investment in crypto attached to anything, especially dollars as i think all that those that see far enough ahead are waiting for this monopoly money to crash like the Fed intended. We need to be isolated from this No? Why not resort more to a peg on Bitcoin and be 100 percent crypto ? I mean I think most people here have no faith in paper money, the reason for being here in the first place !! Its saddens me to see Steem connected to this horrible and clearly tired dollar, maybe better Norwegian kroner ?? ; - )

Steem dollar collapsing in value would not represent a stability risk, it would just make steem dollar less useful.

To me this seems an inherent risk in creating a token pegged to USD. If you don't want that, peg it to something else like gold or GDP or something, or simply make a stabler coin that isn't pegged to anything but is just less volatile. For example, without thinking through the implications (and the self-reference gives me pause), I think you could have a coin that would be pagged to the 12-month trailing average value of STEEM itself. That would be far less volatile than STEEM without involving an external reference asset.

I do like the gold idea, or perhaps a basket of precious metals. It could however increase SBD holdings as it would compete with SP as a hedge against dollar inflation, plus remain liquid. Not sure if that would be a problem for Steem long term.

Gold would be best in my opinion. I guess investing in steem to try to avoid the dollar collapse would be a bad move then. lol

Investing in SBD to avoid a US dollar collapse would be a bad move. Investing in Steem (esp SP) might be just fine.

I think the idea of a third long-term-store-of-value asset that is less volatile than STEEM, but not subject to inherit the problems of USD has some merit.

Steem is taking a beating.

very informative! sharing!

These seem reasonable measures, and far less complicated than your earlier idea. Congrats!

I have a slightly off topic question. Do guys like you and @ned still browse the new sections on Steemit? I imagine designing the site itself takes up a good bit of your time.

Not often. I cannot even keep up with all the articles that show up in my feed, hot, and trending. Sometimes I glance through new, but I rarely have time to read things there.

I like your honesty

I appreciate how the team is thinking through these possibilities as I've wondered if a removal from the dollar peg would ever be required. I agree that the most likely scenario is hyperinflation of the US dollar. This is why I plan to keep powering up.

That said, have you considered a peg to gold or a basket of precious metals? While there could be some short term volatility, metals have proven over time to maintain buying power against fiat.

If and when the US dollar hyperinflates to the point that the limits are hit it is inevitable there will be a discussion about whether an alternative peg target makes sense. Possibly STEEM itself will be usable as a currency (which would be affect of remaining at the feed limit) at that point but more likely witnesses would agree to feed something else like gold or the basket you describe (perhaps phased in over time). The blockchain doesn't know the difference, whatever value is fed in will be used.

EDIT: See @arhag's top-level reply for more discussion of this.

The US dollar helps to bootstrap the system IMHO, as it is the world's most popular currency, at least for now. The average new user is most likely not going to care about some basket of precious metals or commodities, or even gold.

In fact, if the US dollar does collapse it may give credibility to steem and cryptocurrencies in general as users will see the value of their steem skyrocket alongside the value of their collapsing dollars.

The best case scenario IMO would be a seamless transition from one stable currency to another if necessary. Of course I'm sure that would be easier said than done.

Hi Dan! @dantheman

I'm not sure of the best way to contact you so you can actually read what I want to share, so I am simply posting this in the reply section to your most recent article.

I have been mulling over how the community can help Steem grow, and I've come up with an idea. Please read it and tell me what you think.
Thank you.

  • Ryan

Assuming Steem market cap stays constant, and SBD is not destroyed, and the 10% interest on it stays constant, then SBD will make up 10% more of the total Steem market cap every year (ie if it's 3% now, then will get to 3.3% next year). Curious on peoples' thoughts as to whether this means we're likely to eventually hit the 10% limit proposed in this post. Also, does anyone know what (value of SBD)%(market cap of Steem) is right now?

It is currently at 1%, the 10% interest rate will not last for ever. Assuming a flat market cap and a supply approaching 10% then we would have to lower interest rates.

Thanks. Also, in the long run (if I understand correctly, not sure on this) 3.875% of the market cap of Steem will be paid out as SBD for content rewards each year. Doesn't this also contribute to us moving towards that 10% limit quickly, and reaching it in less than 3 years (assuming market cap is flat)?

I'm not clear on whether It's another 3.875% of Steem value given as SBD for content creation rewards per year, or if it's 3.875%/2 in SBD, and the rest in SP. Would really appreciate a clarification from someone.

Interesting post. I think that there are limits on anything. Maybe there is a flexibility factor that could be implemented.

Nice post.

Though the technicals may be beyond me, I appreciate the fact that they are communicated in simple, clear terms that mitigate any potential misunderstandings or confusion in the general market.

This reminds me of my early BTC mining days. I made 2 per day .001 at a time.

Happy I kept them though. Now I can be Steeming all day :)

Its great how Steemit devs interact and pool on the communities skills and feedback as it all moves forward. Great way to operate. Keep up the good work Dan.

Value is also character... the scientific/economic perspective doesn't always dictate outcome or law

bravo !!! you calculation seems to be right ---
maximum price = SteemSupply / (10 * SteemDollarSupply)
minimum price = SteemSupply / (10000 * SteemDollarSupply)

So when will we replace SBD with SBSDR's (Steem Backed Strategic Drawing Rights)? Having read some books by James Rickards, I'm thinking the future world reserve currency will probably be SDR's.

That's what MakerDAO is doing.

Interesting. Wasn't familiar with it. I'll check it out.

I wrote a blog today about Bitcoin and Steem. I explain my case while visiting Area 51.

Let's Party Begin!!!!

Sorry for the off topic, but has the 100% creation rate for STEEM changed? I wrote an article about SP seemingly passively increasing >200% a year .

Hey @dantheman, I just realised you flagged one of my old posts a while ago and my payout disappeared because of it. It was this one here. Just wondering why it got down voted? I didn't copy anyone else or anything. Would love to hear back.

Hope you're well,

my hope is the attachment to the US dollar is just to make you feel comfortable initially and once things are full steem ahead and there is enough trust built up -- it can release the peg and be freeeeeeeeeee

Is this article meant to soften us up for the collapse of the value of Steem?

I see. Complex stuff. I am new to Steemit and crypto-currencies in general, but Steemit has impressed me so far. Thanks for taking the time to explain this.

I would also like to thank you personally for upvoting my work yesterday morning, "Causality, Consciousness, Natural Law and the Trivium Method". I learned more about Steemit by that happening, as I was unaware of how the upvoting and Steem Power functioned to provide value to content. Thank you very much for helping a new content creator out. I hope I can keep posting my work and have the community find value in it. I will continue to learn more about Steemit as well, great platform. Revolutionary! Take care. Peace.

The second major black swan event is when the US dollar hyperinflates and becomes worthless as a day to day currency. In my opinion this is the more likely outcome.

It would be wise to have multiple stable market pegged assets like in Bitshares (Gold and BTC come to mind), and allow users to choose in which currency they want to receive their payout. That way when the USD spins out of control, people will naturally decide to convert their SBD holdings to Steem Gold or Steem BTC or both and change their payment preference to receive half their payout in Steem Gold or Steem BTC. Since all these assets are backed by Steem, the conversion of one asset into another can be done by the network. That would make Steem the modern equivalent of the philosopher's stone :)

Simply moving Steem Dollars from person to person does not solve the problem

Except when the person is a more financially and sophisticated person who is aware of and responsive to incentives: typically arbitrageurs and market makers. If economic activity is increased, money velocity increases, which means that more SBD pass between the hands of market makers. With the right incentives to encourage market makers to convert the SBD back into Steem, this could help mop up excess SBD liquidity. On the other hand, without a vibrant economy, people are likely to be less active, and let their SBD parked for longer, increasing the inertia of the SBD money mass.

Another thing to possibly leverage is the will of SP holders to accept a haircut rather than let the network fail and jeopardize its reputation which would have such a bad effect on the price that SP holders would anyway lose even more. This is the principle that Maker DAO is using. Holders of MKRs have given ETH to the Maker DAO and know that should a blackswan occur and fail to be stopped by other mechanisms, they would be exposed to getting a haircut, the incentive being that they are paid what basically corresponds to insurance premiums in the form of interests on the ETH they deposited.

Steem Power could be given the role of the Maker stability fund. Or we could have another form of more risky but more rewarding vesting where whales would likely want to put some of their funds to help protect the network and increase their returns. We could decide for instance that this new type of vesting shares would be entirely hedged against inflation. That's great for whales.

What if we had a way to convert our SD to SP directly in a matter or seconds, I'm sure it's not complicated on the blockchain. That would be easy to use and would burn SD immediately based on current price feed. The current process of burning SD is rather slow and not easy to understand for the normal user. It's a simple and effective solution which would burn lots of SD and it would decrease debt.​

thanks for reconsidering

When we come out of BETA and the UI is updated I expect demand to increase for STEEM. On your RoadMap it states you will remove the BETA badge when time is right.

Oh man, I missed all of Dan's posts this week.

First of all yes, we want to make steemit the best olatform for everyone involved. I have a question that I was asked, and and I'm wondering too, so if anyone cares to comment?

Which is best to hold for steemit? SBDs or Steem? Which one do you think bring more stability?

Thank you to anyone who cares to answer, and I apologize if I'm sounding like a complete caveman!

I am quite surprised to find out you still have black swan events anywhere on you mind.... :)
I thought buying SD with the steem you have rewarded yourself and keeping the 'peg' at about 1...1.04 makes you happy these days. :)

Was about to upvote...but the popular believe about "dan's post being a good up-vote value" is quite wrong. My experience shows they are not, and I usually find facts more convincing than words.... as a matter of fact after minute 21 for this one in particular it is not..

I'm not gonna lie I am not good with money, and so this sort of topic opens up my eyes to how things get done on the side of money marketers. I know Steem is bright and new as is many connections being made out here daily. I just hope and pray that people treat it right, and that security protocol holds true to itself regarding the blockchain.

I'm just learning about it all and don't have much else to offer other than supporting others out here when I can. I work as a independent contractor most days and just started that gig thank god. It's bringing in some good money as well, and so the potential to invest into Steem Power is there for me. I will only invest what I'm willing to lose, and so come time to earn if and when the market becomes stable over time, and if Steem as a community holds up as well as a networking website. That would be awesome to experience, and so with that being said I'm going to continue to be out here to help add to the community which ever way I can for the free time I have to offer up.

Thanks Dan and Team Steem for working so hard to come up with a potential solution for the average networker, blogger, curator, investor, online entrepreneur type out here. We all have something to gain, and seek a method that truly works for us all and one that's fair.

Steem dollar better than steem.

That depends on what the US dollar is worth and the perceived value of Steem in the free market.

Since all supplies of money, whether they be Steem Dollars or US Dollars or Bitcoin are created out of nothing and only have value because someone or something demands them, I think this is a good approach to help stabilize the value of the US Dollar. The last thing we need is people carrying around shopping bags full of US Dollars try to buy some Steem.

As of now, there is not much danger of that. US Dollar inflation is near zero, while Steem supply is rapidly increasing with a rate in the hundreds percent.

Interesting to reflect on, one year later.

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