A Few Thoughts About The Decoupling Of SBD From STEEM

in #steemit6 years ago

One of the most common comments on my daily market snapshos is about how SBD will eventually "come back" and rise again. Almost every market snapshot post has at least one of these comments, in which people publicly express their hopes for a "moon SBD".

To be honest, I'm always baffled by these comments.

Because, most of the time, they denote a complete lack of knowledge about how this platform works.

Sometimes I think that people who join some blockchain experiment, like Steemit, should pass some sort of quiz, in which they'll have to answer some fundamental questions. Like, for instance:

  • do you know how much STEEM is printed every day?
  • do you know that there's a difference between SBD and STEEM?
  • do you know that SBD is supposed to be pegged to the dollar? If yes, do you know why?

I think this basic learning process will save some people from major disappointments. Because, in their search for a "moon SBD" they don't realize they're chasing the wrong rabbit. The rabbit that should be "chased", the fundamental currency of the STEEM blockchain, is, obviously, STEEM. SBD is a glorified smart contract on the STEEM blockchain, which is not backed by real USD, but by "1 USD worth of STEEM". In other words, it's a debt instrument. The more valuable SBD is against USD, the more STEEM debt it creates. And debt based economies, we all saw how they go. When they don't simply crash, they go out mostly in flames.

That's why a pegged SBD will keep the STEEM debt under control. And not only it will support a healthy economical environment, but it will also pave the way for other use cases, like e-commerce, in which a stable currency is crucial.

"But if SBD is supposed to be pegged to 1 USD, why isn't it?" some of these "moon SBD" supporters may ask. Well, because, you know, good ol' greed. As long as SBD is traded on the internal market, witnesses - who are people knowing how the platform work - will publish price feeds that will support the peg. It happened for almost a year. But from the moment it starts to be traded on an "independent" exchange, a currency is subject to market manipulation. And a currency with such a small circulating supply like SBD, a little bit under 14 million tokens, is very, very easy to manipulate. Speculators saw a huge opportunity to play out this token, which had a very low entry barrier and a huge potential. And we all remember it went as high as $10. 10x your money, easy-peasy. Of course, the temptation is huge. But the long term price is really not worth it.

Just to be clear, I think professional traders have their role in any financial ecosystem. They provide liquidity, they help with price discovery and they are useful workers. I don't think they are "bad" in any way. But they have a limited scope of skills. They know how to move markets and that's it. Well, the world is not made only by moving markets around. You also need farmers, pilots, teachers and a lot of other professions and activities. If the entire world will turn into a huge speculation, focused only on the immediate gain from the next transaction, humans will become the most endangered species on this world. They'll become the most toxic agent against themselves. So, while I acknowledge the role traders (speculators) are playing in this ecosystem, I don't think they should be always followed. Some use cases are not for trading or for speculation.

I would always be in favor of a stronger and healthier STEEM, and stay away from a jumpy and volatile SBD. And yes, the recent decoupling of SBD from STEEM - meaning SBD remaining stable (or going down, towards $1) while STEEM slowly appreciates - is a very healthy thing for me. And yes, for a while the rewards will go down, because they're paid partially in SBD. But in the long run, a strong STEEM will definitely be the right bet.

As always, the usual disclaimer: I'm not a trader and this is not trading advice. I'm a witness on the STEEM blockchain and I do my best to keep this blockchain within the initial vision, along with other witnesses.


I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.


Dragos Roua


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With STEEM-SBD relations we hit with a trade-off between low SBD obligation ration to STEEM and enforcing SBD to USD peg from the above.

  • on the one hand you need to print any amount of SBD needed to keep its price from rising with no brakes set.
  • on the other, you want to keep STEEM obligation to SBD tokens lower than 10%.

Essentially you hit a dichotomy. Either you have a token forcibly pegged to 1 USD or you don't control the inflation of STEEMs. This is the lesson we learned from such an economic construction.

Economist-guy out )

That's why a pegged SBD will keep the STEEM debt under control. And not only it will support a healthy economical environment, but it will also pave the way for other use cases, like e-commerce, in which a stable currency is crucial.

The central banks have tried to "keep the debt under control" for 100 years now, but all we have seen is one debt bubble after another one.

A strong argument can be made that the notion of a stable currency is equivalent to the search for a perpetual motion machine, or unicorns.

SBD flight to 14 usd was an obvious pump-and-dump mimiking as a minnows donation.

Recently I saw a guy who had tried to convince me SBD will match STEEM by... market cap. So delusional.
They'll pay out of their pockets for such an ignorance.

@dragosroua,
I got a clear idea about SBD peg thing! But I also got a question and hope you will provide me an answer!
STEEM Market Supply : It seems too high and it has no Max Supply as well. So, don't you think it will give a disadvantage to reach our goals?
If so, how this blockchain could handle that situation? I heard 10:1 SPLIT every 3.3 years time! Is that possible to do?

I appreciate your kind response on these questions!

Thank you~

Awesome article, I guess I should have read the white paper lol, I thought new steem is printed based on steem power reserves.

The more valuable SBD is against USD, the more STEEM debt it creates.

If I am understanding you correctly, you are saying that the price of SBD affects the SBD/STEEM debt ratio. If that is what you are saying here, it is incorrect. The debt ratio always assumes that SBD is worth $1 worth of STEEM, so regardless of what SBD is trading at - it will never count as more than $1 worth of 'debt'.

@timcliff
just want to know your opinion. Why don't we use another witness price-feed for SBD and calculate STEEM-SBD debt more precise from a market price of SBDs not the 1 USD assumption?

Because it is not 'debt' when the price is above $1. The blockchain is still only "on the hook" for $1 worth of STEEM if SBD holders redeem their SBD for STEEM by converting.

The debt ratio always assumes that SBD is worth $1 worth of STEEM, so regardless of what SBD is trading at - it will never count as more than $1 worth of 'debt'.

Can you please point me to the exact code / files where this is written in the STEEM blockchain? I genuinely want to see if this is exactly as you said, because I have a feeling it may not be entirely like that.

But even this will be as you point - which I'm not arguing against, I just want some proof in the code - an increasing SBD supply because of the increased supply by witnesses bias will generate more debt. Am I correct in assuming this? As in it will "flood" the markets with more SBD which in turn will create more STEEM debt?

These are the main pieces of code if you are looking to understand how it works.

This is the section of code where the 10% 'haircut' rule is applied, and it basically reduces the amount of STEEM returned from SBD->STEEM conversions if the debt is above 10%:
https://github.com/steemit/steem/blob/bb8ca476f33c08434274f2d76333fcb74cfa58b8/libraries/chain/database.cpp#L3111

This is the section of code that reduces the SBD print rate as the debt ratio goes from 2% to 5%:
https://github.com/steemit/steem/blob/bb8ca476f33c08434274f2d76333fcb74cfa58b8/libraries/chain/database.cpp#L3452

Here is the section of code that processes SBD conversions:
https://github.com/steemit/steem/blob/bb8ca476f33c08434274f2d76333fcb74cfa58b8/libraries/chain/database.cpp#L2228

You can probably skip digging through the code and just think about it logically though:

  1. Nowhere does the blockchain have any data about the SBD price.
  2. When SBD->STEEM price conversions are done, it only looks at the price of STEEM to determine how much STEEM to create based on 1 SBD.

[Edit] I missed your other point.

increasing SBD supply because of the increased supply by witnesses bias will generate more debt. Am I correct in assuming this? As in it will "flood" the markets with more SBD which in turn will create more STEEM debt?

If witnesses use a bias to artificially increase the STEEM price in their feeds, then it will print more SBD (which would increase the debt), but witnesses are not using a bias.

How will steemit ever become mainstream as long as it so complicate to grasp even for people like you guys.

People don't need to know how everything works under the hood in order to use the platform.

Lotta truth in that statement. Does anyone even understand where the internet comes from? Don't think so. As long as it works to DL porn and surf Amazon and FB no one cares about the details. ;)

ty ... i don't yet understand, but maybe someday i will review

Thank God for seeing this part of your comment. Content creating minnows need rewards - sbd is generated by content and the only way for poor people to get on here - the only way to get STEEM without investing.

SBD is the "rare coin" only generated by content. If that is not of value here - what is? Lots of minnows getting rewards and creating good content is what makes the platform appealing to bigger fish who buy their way in and grow the place.

Do we want lots of people posting here or not? It's complicated enough without trying to understand the money and how it is generated.

If I get another weight loss author to try to post here - I'm going to tell her she can reach her audience and needs to make $10 rewards on a post to get the "do follow" for Alexa. I'm not going to tell her to figure out the cash flow of the place.

Yeah how many people know how an engine works that drive cars

If the entire world will turn into a huge speculation, focused only on the immediate gain from the next transaction,

The spanish (and portuguese) economies during the age of the conquistadors ( after 1400 AD) comes to mind. ( all that Aztec GOLD!) It destroyed the economy of both countries..they still have not recovered.

Hmmm. Well I wouldn't pass your test @dragosroua as I don't know how much STEEM is printed every day. I assumed you mean created rather than literally printed. 😁

So is SBD going down because of what the witnesses are doing or because speculators have stopped speculating?

Do you think it's likely to keep going down now or is there no way to tell?

So is SBD going down because of what the witnesses are doing or because speculators have stopped speculating?

A combination of two.

Do you think it's likely to keep going down now or is there no way to tell?

As long as the markets rules will be in place - and one of these rules says: "bigger supply, lower price" - then SBD will go down to the peg, IMHO. And of course, as long as witnesses will support an increasing SBD supply.

Oh dear @dragsoroua. I've been holding onto my SBD waiting for something to change before powering up so I could get at least 1 SP for 1 SBD like I have in the past. 😢

Sounds like that's not likely anytime soon.

Hi Gillian, whilst I would be first to admit that @dragosroua knows a LOT more about the blockchain than I do, remember that this is just his opinion.

@ned has said on more than one occasion that he's stumped as to why SBD would trade so high - and he developed the platform.

But the market does as the market does. Yes, there's a relatively small supply and yes, its therefore an easy market to manipulate (pump & dump), so no, I wouldn't just get rid (i.e. power up) of all your SBD just yet.

In the long-term, Steem is the currency to invest in, not SBD, but it's likely there'll be another SBD pump at some point in the not-too-distant future (and no, this isn't insider knowledge - just a hunch based on historical data).

Thanks for your input @m-ssed-t. It's good to hear other opinions.

An SBD pump would suit me just fine! 😁

I also enjoyed the short time recently when we actually earned Steem although I've forgotten why that was now.

All of us who are here as new users should have access to your brilliant post, I really believe that we enter Steemit and any crypto-monetary platform for money but no idea how it works or how that internal world develops or is generated. I follow you and reesteemear.

I would always be in favor of a stronger and healthier STEEM, and stay away from a jumpy and volatile SBD. And yes, the recent decoupling of SBD from STEEM - meaning SBD remaining stable (or going down, towards $1) while STEEM slowly appreciates - is a very healthy thing for me.

For a while i have been blinded by misconception of the entire game, thanks for clarifying this matter, however i have always been in favour of steem high, but i didnt know the sbd had such implications on the steem

My question is this, why has the sbd taken so long to keep going this way? Can anything actually be done to change its subjugation to the market?

Can anything actually be done to change its subjugation to the market?

Yes, and actually some witnesses are doing it. The only thing that can be done is to increase the SBD supply, which is done by increasing their price feed bias. Look at the steemd.com/witnesses and see which are the witnesses with a positive bias (meaning over 0%). Those witnesses are setting up the race at which the SBD supply is increasing.

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