Hidden Opportunities: How the Return of SBDs is Reshaping the Steem Ecosystem and Benefiting Investors

Authors are excited because SBDs are printing. IMO, however, this might actually be more important to investors than to authors. Here's why....

In Supply of STEEM decreasing, 7 years ago, @dan pointed out that when the STEEM price goes up, the virtual_supply goes down. It took me a while to understand why, but eventually I concluded that it has to do with the fact that SBDs represent a debt in the form of STEEM. The virtual_supply is comprised of all STEEM in existence plus all STEEM owed to SBD holders. When STEEM's price goes up, the number of STEEM to pay off the debt goes down, which reduces the virtual_supply.

But.... that only works when the market cap of SBDs is below 10% of the overall value of STEEM + SBD supplies. i.e. when SBDs are printing. Once the 10% threshold is crossed, the blockchain activates protective measures that prevent the price of STEEM from affecting the supply size. So, the recent crossing of the 10% (and 9%) thresholds means that the virtual_supply is free to reflect price changes again.

By itself, this is already good for investors, because lowering supply while demand holds constant should increase prices. To some extent, rising prices will encourage prices to rise further (subject to other market forces, of course).

Since we've had about 15 months with no SBDs, that means we've had 15 months where there was no possibility of lowering the virtual_supply (except by burning tokens, of course). Now that the 9% and 10% thresholds have both been crossed, we can see what the effect has been on virtual_supply and something else - new STEEM production. Here's something that we haven't seen since 2022, so let's take a look.

In the top-right visual, we see an easily perceptible drop in the virtual_supply from 498 million to 492 million, and in the bottom row, we see why. Before yesterday, one SBD was worth 3.97 STEEM. Now, it's worth 3.48 STEEM. (Internal blockchain price, not external markets)

Remembering that one SBD represents a debt, by the blockchain, of $1 worth of STEEM, we realize that the blockchain's debt was just reduced by 12% in a day. [(3.97-3.48)/3.97].

All of that may be unsurprising, but there's something else that may not have been written about before - and might not be obvious. Look at the visual of new STEEM production in the middle of the slide. I didn't have that visual back in 2022, when SBDs last printed, so this is the first time I've visualized this 3^rd order effect.

As a result of the decrease in virtual_supply, we also see a decrease in expected STEEM production from 3.12 STEEM per block to 3.08 STEEM per block, which scales to a reduction from 89,913 new STEEM per day to 88,822 new STEEM per day. (not counting token burning or witnesses with missed blocks) Here's a zoom-in of that visual.

And, if STEEM goes up further, both the virtual_supply and the daily rewards production will decline further.

So, the dynamics for authors are complicated. Yes, as long as SBDs are valued above $1, each post's reward value is higher than expected. But, higher prices bring more authors and a smaller rewards pool. Also, there's no guaranty that SBDs will maintain their elevated values.

On the other hand, for investors, the benefits are clear. Even if the price of STEEM falls and SBDs stop printing again, or if the external price of SBDs reverts to $1, the daily reduction in new STEEM production still means that future supply sizes are being permanently reduced.

Data source with visualizations from PowerBI.

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Thank you for your time and attention.

As a general rule, I up-vote comments that demonstrate "proof of reading".

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Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.

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^{Pixabay license, source}

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