SBD Change With Hardfork 20. Playing With Fire?

in steemit •  2 months ago

If you don't already know, SBD is debt. It is a promissory note that guarantees the holder 1 US dollar worth of STEEM for every SBD.

Is Hardfork 20 change to SBD playing with fire?

The total debt (SBD) in existence is covered by STEEM market cap. As long as the ratio of the STEEM market cap is much greater than the SBD debt, then there is plenty of STEEM to cover that debt. When SBD is 2% of the total STEEM market cap, then SBD print rate is reduced a little and users are paid in STEEM to slow the creation of SBD. As the ratio of SBD climes towards 5%, less SBD is printed. Once SBD debt reaches 5% or greater compared to STEEM market cap, then no SBD will be printed to stop new debt creation. There is a void between 5% and 10% SBD to STEEM market cap. If 10% is ever reached, then there is a "Hair Cut" that kicks in place where the STEEM blockchain will no longer honor SBD conversions to STEEM at the 1 US dollar worth of STEEM rate.

In hardfork 20, SBD debt will not slow down SBD print rate until the debt ratio reaches 9% and will drop dramatically as the debt ratio reaches 10%. Once the debt ratio reaches 10% or more, then SBD will loose value as there will be a reduction of SBD conversion rate. The purpose of the change to the higher debt ratio is to keep SBD in supply to help lessen a run on SBD price as we have seen in the past.

I think this is extremely dangerous. The current system has a conservative buffer between 2% and 10% debt ratio before a sudden drop in SBD price takes place. Now that this will be reduced to a range between 9% and 10%, there will be very little to prevent the SBD price from a sudden drop in value. This seems like a good mechanism for a fiat system that is fairly stable, but we all know the cryptocurrency market is volatile. It is just the nature of the currency. It is reasonable to believe that if we reached 9%, then the "haircut" could very well happen. For all those users that want SBD to be a stable currency, this mechanism may allow SBD to become unstable.

I don't believe this is good for SBD and the Steemit economy. We want a stable SBD price, however upper price instability is not a bad thing. I don't think trading more upper limit SBD stability for less stability at lower limit is the answer. When SBD fluctuates high, then the only thing that is bad is people need to calculate the conversion rate. The benefits are that SBD brings revenue into Steemit and encourages more Steemit users. In my opinion, trading higher SBD price stability by allowing lower price instability will only cause SBD to lose strength.

I personally think that witnesses or Steemit Inc need to contract educated economists to provide their evaluation before changes like this are put into place.

What are your thoughts?

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I never thought about it like that but now that you put it into perspective it seems more like reactionary update based on the current market than a change that will be there for the longevity of the steemit platform

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I can do that If I have a bottle water

Great summary! I am split here because while O agree on the risks you present here, I think that the move is more likely to incentivize SBD holders to actually use them whether to convert to STEEM, promote posts or other expenditures. I’m sure that this will be explored in more detail as the ratio has just been triggered so it gives witnesses and the community a month to research this.

My thoughts - I have no idea what your talking about - lol.

I'm bookmarking this post and revisit it later. Hopefully it'll make more sense later.

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It's somewhat similar to the fed reserve when talking about how much currency gets minted into the system. Too much currency being created rapidly can make it lose value.

That's how I understood it anyway

I can assume that as long as printing is stopped, the payment will be in STEEM and SP. Now the other side of the coin is that they will also give more weight to STEEM? since it is the most sold in other wallets.

I did the translation into Spanish.

https://steemit.com/steemit/@lanzjoseg/cambio-de-sbd-con-hardfork-20-jugando-con-fuego

Thanks @socky for this clear explanation. I guess this is the reason why right now bids are being paid in STEEM and SP only (no SBDs).
But, is there any on-line source to consult this SBD debt percentage?
Do you therefore recommend storing STEEMs better than SBDs and operate directly with them in the future?