During the second half of last year, the entire market for cryptocurrencies lifted off. Not just Bitcoin, also Ethereum and all sorts of alt-coins whether solid or windy dramatically increased their value. The only exception was: Steem Dollar.

It seemed just like it was forbidden for SBDs to leave the area between the value of the US-Dollar and the Euro. No matter what happened and how much Bitcoin & Friends rose and fell and rose more again, there was nothing new on the SBD front. That caused me to suspect that there might be some price fixing (bad word) pegging in play to keep the Steem Dollar price near its main market competitors Euro and Dollar. All users that I had a discussion about it dismissed it or asked for proof - which I hadn't.

But, it looks just like I was correct all along.

Something happened on November 22nd 2017 and it wasn't pre-Christmas feelings by Steemit users...

One Of The Jobs Of The Witnesses Is To Pick A Price For The Steem Dollar

A few weeks back it was @paulag who confirmed my suspicion about the price pegging to the US-Dollar, when I mentioned my theory in a comment. She pointed me towards this article by @sc-steemit who discussed his position about APRs in case he becomes a witness.

To me, this was in fact the smoking gun for price pegging. With APR it even has an official acronym, although I'm not sure what exactly it means. Average pricing rate maybe.

The important message here is: Yes, there is an official policy to fix the Steem Dollar price to a certain arbitrarily chosen value.

Reasons for this can be plenty, but I won't detail them. If you're interested, look at what they or they have to say about it - should be pretty much the same. ;-)

This Is How They Do It

I am not 100% sure if I got that part right. But I am not the only one. Even witness @yabapmatt admids not to "have a full understanding of the exact mechanics behind all of this". At least he's honest and apart from that I have learned that not unlike politicians witnesses too give out regular statements and just as in the case of politicians nobody reads them. Maybe we (no, not a royal we) should read stuff like that more often this year.

Anyway, it looks like the price pegging works via an interest rate for Steem Dollar in our wallets and the main role plays this ominous option called "savings", which since I have started here doesn't give out an interest at all and therefore didn't have a function for me so far. The idea is to offer an interest for SBD (or Steem) savings in case the price drops too far. This would incentivize users to store their SBD there and take it out of the market - with the consequence that the supply goes down and the price up again. Classic economics. Works always - at least in theory.

In this mechanism the top 20 witnesses (btw, you should refrain from picking markymark as witness) enjoy a central position. They pick an interest rate they deem to be the correct one. And since it's proven that economists can't pick the correct interest rate, why not letting programmers pick it. You can find the list with their current picks on this Steemd site. All top witnesses are listed there and you can find the interest rate under column APR.

Two columns left of that is the desired SBD price and it looks like they all like it somewhere between 7.50-8.50 US-$. In the ranks below the top 20 you can find a couple heretics who even want to pay an interest rate but they don't have a say currently.

This means, you can assume that the SBD price won't go far beyond 8.50 US-$, unless the top 20 witnesses change their mind - or until the price peg gets broken (again).

A screenshot from my savings. I added the smallest amount possible to see what happens: Nothing.

The Reason Why SBD Jumped From 1 to 10 Dollar Was Not "The Market", But A Design Flaw That Got Relevant

The last planned price design for SBD was obviously flawed and therefore it could be broken by a Korean Exchange named UpBit. You can clearly see this in the chart when the price started to break out the first time on November 22nd at end of last year. I don't know too many details about it because it's not really important. They probably did what George Soros did to the Bank of England in the early 90s. You can read about the UpBit incident here.

After that, they couldn't hold the price peg and had to readjust it and now they seem to be desperately trying to peg it again, now just on a higher level than before. My hunch is that eventually it will be Steem and not Steem Dollar that breaks out of that, but that is a speculation and a topic of its own.

Important to understand is that the many speculations and analysis why the price is finally rising now are either wrong - or at least they give reasons only of secondary importance.

The supreme cause for the constant price was the prior price peg to the US-Dollar at parity made possible by the Steemit witnesses, a decision which got overtaken by reality at the end of November.

The relevant magician witness list according to Steemd.

The Whole System Of Emulating A Classic Fiat Central Bank Can Work, But I Have Questions

Besides the the obvious question about the competence of the current witnesses when it comes to economics, finance and adjusting a dynamic system in a complex environment without breaking everything - and not just programming (sic!) - I have the following questions about this matter (in order as they strike me):

1. Where does the money come from for a positive interest rate? (A hard fork with faster iterations?)
2. What is the overall mechanism to prevent the price from rising too much?
3. Why is/was parity of SBDs to the US-Dollar an official goal? Is it still a goal? How important is it considering the massive pressure?
4. What are future acceptable levels for a peg? (would be great to get not just a number but an acceptable price range)
5. Are there other implicit pegs, objectives and controlling relevant numbers discussed among witnesses when it comes to the currency price?
6. What economic background do the witnesses have? (have you ever read a book about monetary politics? Which one?)
7. Is there a policy for Steem as well or is it supposed to roam freely while Steem Dollar is the controlled asset?
8. Have there been activities in the past to prevent Steem from leaving a preferred price range as well? What was/is the preferred price range for Steem?
9. How much "ammunition" does Steemit have to hold a new peg - and what is the ammunition again?
10. What's your plan to fight off "attacks" by the FED or the EZB?
11. Are there further mechanisms and tools planned to observe and analyze the fundamentals of SBD/Steem like overviews over internally traded volumes? And are there plans to create more transparency to allow a better and more reliable price setting for witnesses, user and speculators?
12. Have you learned anything from the incident when the peg got broken in November? And if you did, what have you learned?

I'm sure others have questions about this, too, and I will give it some more thought and I will surely have another few questions about it myself. From an economic/business/market perspective, this is a very important issue, much more important than the petty little war waged by idiot user @bernie and his comrads in the witness stand. Because the price is traded globally and in the open. It's definitively not some internal thingy and therefore it should be treated as a matter of highest importance for Steemit.

As I can imagine, at least some of the questions should already be answered in posts and/or the white paper(s). I would appreciate it a lot if you could point me to them and there to the specific passages, so I don't have to read everything.

I believe it is very, very important to create as much transparency about this issue as possible. After all, it is a matter that already now affects tens of thousands of users and speculators who scratched their heads more than just once so far. That's why it is in the interest of the platform and the currency to run the monetary policy of the whole Steem Universe in the most reliable and predictable way possible.

Because it's transparency, reliability and predictability that make a currency work, stable and valuable. Just ask the Swiss. Or is this Zimbabwe?

#Please let me know in the comments what you think of this. Is Steemits monetary policy good? Does it need to be improved? What would you change?

Thanks a lot!!

These are the top 100 witnesses:

@jesta , @abit , @adsactly-witness , @aggroed , @agoric.systems , @aizensou , @anarcho-andrei , @anyx , @arcange , @arhag , @ats-witness , @au1nethyb1 , @ausbitbank , @bacchist , @bayareacoins , @bhuz , @bitcoiner , @bitrocker2020 , @blockbrothers , @blockchained , @blocktrades , @blueorgy , @boatymcboatface , @bue , @busy.witness , @cervantes , @chainsquad.com , @charlieshrem , @chitty , @clayop , @complexring , @curie , @cyrano.witness , @datasecuritynode , @delegate.lafona , @demotruk , @dragosroua , @drakos , @felixxx , @followbtcnews , @fubar-bdhr , @furion , @fyrst-witness , @good-karma , @gtg , @hagie , @ihashfury , @inventor16 , @jatinhota , @jerrybanfield , @joseph , @klye , @krnel , @kushed , @liberosist , @liondani , @lukestokes.mhth , @masteryoda , @neoxian , @netuoso , @nextgencrypto , @patrice , @pfunk , @pharesim , @picokernel , @prc , @reggaemuffin , @rival , @riverhead , @roadscape , @roelandp , @sc-steemit , @silversteem , @sircork , @skenan , @smooth.witness , @someguy123 , @steem-id , @steemed , @steemgigs , @steemitboard , @steempty , @steemychicken1 , @suggeelson , @swelker101 , @tdv.witness , @team.alpha , @teamsteem , @thecryptodrive , @theprophet0 , @timcliff , @ura-soul , @utopian-io , @viva.witness , @wackou , @witness.svk , @xeldal , @yabapmatt , @yehey

PS: Sorry for having to post this a second time, but it's important to me. If you want to know what happened to the first one, look at who voted for it.