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RE: What is Steemit? | Steemit Education Series | Episode 1
Do we have to follow the series or can we already ask advanced questions ?
I understand the logic behind the creation of the SBD as a "stable currency" but I can't make sense of the rest of the explanation in the whitepaper. The mechanics for producing price feeds for the SBD seem to have broken down four months ago so I'm not sure what to make of it all
This is exactly what I am wondering about right now; the position of SBD in the Steem blockchain and reenforcement of a USD peg. The top 20 witnesses are to decide what to do and we can expect a consensus soon. I think SBD will be pegged to USD to fulfill its role as defined in the whitepaper.
The SBD part of the whitepaper is purely related to economics and finance in nature. I'm afraid I am not a qualified person to comment on that explanation.
A stable currency is a currency which holds its value and is difficult to fluctuate by design. A stronger USD peg would make SBD stable in value (consider USDT, for example) and we will always have SBD's value around $1.
Steem's price will be decided by the open market where it will be traded freely while SBD will act as a stability instrument. For instance, if an event, like SMTs launch, takes price of Steem to $10 but you know it may come back soon, you would be able to buy 10 SBD with one Steem at that high price. With those 10 SBDs, you can buy 2 Steem when price of Steem comes back to $5 and so on.
I'm afraid the explanations in the whitepaper are confusing. A peg to the dollar on an outside market (an exchange) would require Steemit Inc. to keep a large amount of dollars and a large amount of SBD in reserve and use both to compensate the market-price fluctuations. For instance if SBD goes to USD2 then Steemit would intervene and sell SBD (from the reserve) on the market to push the price back to 1. If on the contrary SBD would go to 0.5 then Steemit Inc would use the US dollars in its reserve to "mop up" - buy SBD on the exchanges in order to bring the SBD price back to $1
But this is not how it's been designed. Here the system is closed and the marketplace is the blockchain internal marketplace. The SBD is a proxy for the price of Steem on the outside exchanges. I'm speculating here: when a witness sees Steem trading at $2 on coinmarketcap it tells the blockchain to increase the generation of SBD so that there are 2 SBD created for every Steem created by the blockchain. Due to increased supply of SBD its price should go down with respect to Steem (with the objective of staying close to USD 1). When STEEM reaches $10 for instance the blockchain should generate a lot more SBD than it generates steem (as steem power for content production and curation).
The idea being that authors and curators receive SBD which they convert to steem (according to the whitepaper) and then sell on exchanges (to live) which in turn should bring the price of steem lower and compensate.
But this is still not the whole picture. I think I miss one or more initialization parameters related to "the value of an user" and the percentage of the reward pool being attributed by a vote given with a power of 1 SP ...
I think I have something to assist you in understanding SBD more. The availability of SBD on external exchanges means that it is part of a free market where supply and demand factors in. Price can fluctuate due to many reasons and so it did.
The option is not available in the wallet at the moment but there use to be a CONVERSION option from SBD to Steem.
When the peg was broken, the conversion feature was removed perhaps. One of the reasons the peg broke was that the SBD/Steem conversion was just one way. Had it been two way, users would have been able to convert Steem to SBD when Steem value was high and convert back to (more) Steem when the value was low. SBD would have stayed inside the blockchain in such a case and the price could not be manipulated on the external exchanges.
The recent discussion around pegging involves suggestions to implement two way conversion too. Let's see.
One of the most effective determinent of SBD generation is value of the votes. How vote value is calculated may be a bit complex but at least 37.5 % of all the votes that happen on the blockchain result in SBD (0.375 SBD from a $1 vote). That's a major consideration in knowing how SBDs are generated.
The factors that affect vote value affect SBD generation as well. I hope it adds to your knowledge around SBD and vote value.
Thank you very much, this is an extremely useful link which demystifies (in a positive sense) further the steem blockchain. As an IT architect, I now begin to understand the main entities in the steem data model - especially the interpaly between the "reward_balance" pool and the "recent_claims". very, very useful, kudos !