RE: Witness Discussion – SBD price and reverse peg
There's absolutely no point having two volatile tokens on one blockchain, with one of them representing a debt on the other. This is a two-token system with an explicit purpose for each of them. If we're not going to even attempt to peg SBDs as intended, then we should just get rid of them altogether.
The argument that "It will reduce post rewards!" is a piss-poor one. There's more to growth and stabilization of a blockchain and its tokens than "Let's reward all the minnows!"
We have tools available for pegging. We need to use them. There's no sense in asking for more parameters/functions when the current ones aren't even being used by most witnesses. Try actually using the current tools. If that doesn't work, we can try adding new ones. If those don't work, then we'll have our answers about whether or not a peg is realistic.
If we don't want to be bothered with any of that, then get rid of SBDs. That is not my preference. I think there is great value/utility in having a stable currency/asset for this blockchain. But if nobody cares about that, then we don't need to waste time and effort trying to peg it and we don't need the added risk of a debt instrument.
There is no real tool for downward pegging, other than waiting it out, which is what was done the last time SBD went higher, and did eventually work. That will likely work this too, but it makes SBD useless (essentially "disabled"; right now nearly all of it is on exchanges being traded by speculators) as a stable currency much of the time.
The only conceivable method that exists (outside of reward-based initiative such as my @burnpost) would be a positive bias on the price feed, and that is not a good one because it amounts to increasing inflation above the defined paramaters, with not even any future remedy to absord the newly created coins. It is neither widely supported by stakeholders nor recommended by the white paper (which admits that in the original, flawed design, little if anything can be done if SBD is valued about $1).
The proposed improvement of adding a method of converting STEEM to SBD does not increase inflation, and can be reversed later if it becomes necessary due to changing market conditions by converting SBD to STEEM.
I don't necessarily agree with this. The tool for downward pressure when SBDs move off the peg is to reduce or eliminate the incentives to buy/hold (interest rates) and to increase the supply to meet the higher demand (bias). The increase in supply obviously takes time to reach the markets, but it would still provide downward pressure (assuming the parameters are actually changed by enough witnesses to reflect market conditions, which currently doesn't happen).
I think that consensus changes for increased supply is actually a good mechanism and the preferable one if we're talking about token inflation. Even if the new supply ends up creating more than the market demands (which would be the obvious goal for short- to mid-term price spikes anyway, in order to bring prices back down to the desired peg), parameters can then be adjusted to incentivize holding or converting SBDs to STEEM if SBD prices happen to over-correct.
But this is why witnesses should be well-versed in the blockchain protocols and price/token parameters and at least have a basic understanding of currencies/markets/economics. This can't happen if people don't care or don't understand and if they're not paying attention to the markets (or if they're completely absent witnesses altogether). We can have any tool imaginable at our disposal but it won't mean much if people don't know how to or just don't care enough to use them. If the problem is simply that witnesses don't care about pegging or don't know how it works, then none of this even matters and this should be a consideration for our witness votes.
Why doesn't it increase? Whether we use bias or use a conversion function, more SBDs will be created. The former at least allows consensus protocols to manage the increase of supply, but both serve the same purpose, which is to meet market demand for SBDs.
I'm not necessarily opposed to a new conversion function. I'd just like to see the current tools actually tried before we condemn them for being useless. In any case, we probably still have quite a bit of time to figure this out and there's no reason why we can't test both or either method - and whatever we try won't be a quick fix. Unless we're assuming that SBD speculators are always up-to-date on the internal mechanics/sentiments/changes of or with Steem, which I believe is rarely ever the case, there's no reason to expect that any immediate changes to protocols or parameters will yield immediate results. I'm OK with a slow return to the peg via slow increase in supply to meet demand, if it can be done.
This is something I'd like to see more of when making protocol changes that yield bad results. But I think I'm dreaming a bit there.
The interest rate has been 0% for a long time.
Because it is a conversion. STEEM is converted into SBD which means STEEM is destroyed and SBD is created, so the net inflation is zero. A conversion from STEEM to SBD and back to STEEM would result in the same amount of STEEM that we started with (assuming no price change, or alternately, averaged across the range of positive and negative price changes). That is not the case for a bias, which permanently prints and distributes more rewards (because the blockchain in that case believes, incorrectly, that its market cap is higher and can therefore 'afford' to distribute more according to the predetermined schedule, currently about 9%/year).
Overall it is not a well-targeted method for dealing with the SBD value due to this distorting of the assumed market cap and the resulting permanent net increase in rewards/inflation. It also screws over people who perform conversions from SBD to STEEM by shorting them on the STEEM received (since it is assumed to have a higher price). Of course, no one should rationally be doing these conversions now, since it converts a $6 SBD into 1 USD worth of STEEM, but some users have anyway. This has become less of an issue now that SBD conversion was removed from the GUI.
The undesirable side-effects are the reason most witnesses and stakeholders don't support it.
What about allowing 100 pct Sbd payouts? This would allow the natural stabilizers to work twice as fast and is a minor change.
I see an amazing opportunity to dominate store of value coins if we increase the cap of Sbd. A stable coin at 6x the cap would be a great addition the the landscape. “ the stable value coin” of crypto should be backed by something decentralized like ether or steem.
But we can only win this battle if we straighten out Sbd quickly!
Imagine the ability to print the dominant stable value coin (through steem power). This would surpass blogging influence as the reason to own steem power.
I agree. If the purpose of SBD is to act as a stable peg, then it should function as such. This notion of "let it ride" is short-sighted. There have been plenty of arguments made down this thread about the advantages of an SBD peg, including the ones @reggaemuffin mentioned in this post. However, if we're not going to have it function as a peg, why have it at all? SBDs are simply a second token from the same blockchain. As designed, they serve a specific function. If that function isn't necessary or even desirable, it should be done away with. I'd rather not do that, as there are very good reasons for having a stable token alongside a more volatile one, but if that's not of concern, then let's abolish them.
Getting rid of SBDs is a horrible idea. Obviously we are in a bullish market right now, but we need it for the flip side if SBD starts to become under 1 USD, and there are many tools at our disposal to encourage its usage (not the least which is the fact that you can redeem them for 1 USD worth of steem at steem market prices)
I don't understand what the rush is. We are still a premature market, as long as there is promise that the peg can be held when everything matures, I don't really see why we can't simply wait. At 4$ USD, we are printing SBD at 4x the rate than we were before.
Are people saying that the reason we aren't getting full blown adoption is that the SBD is not stable? I feel that this is backwards-- SBD can't be stable until STEEM has proven to be successful. And the way this is designed, that's how it works: STEEM's price / marketcap being high will allow the peg to work much more easily.
Edit:
Actually, I take this back: we don't absolutely need it. But it would be very nice to have a token that behaves more predictably once the STEEM ecosystem has proven itself.
Agreed. Steem has to mature more before things like making sure it is pegged to a dollar even become warranted. The unintended consequences of a switch now would be bad for steem and steemit as a whole. There is a psychological factor behind all this as well.
The creation fee of Smart Media Tokens will be correlated with the nominal value of SBDs, interchangeable with an equivalent dollar amount of steem per the SMT White Paper:
"Issuing a smt_create_operation requires payment of smt_creation_fee. The amount required is set by the smt_creation_fee field of dynamic_global_properties_object. This field may contain a value in STEEM or SBD. If specified in SBD, an equivalent amount of STEEM will be accepted, at the current price feed. Initially, smt_creation_fee will be set to 1 SBD, and no means will be provided to update it."
The originally envisioned characterization of SBDs being pegged to the US dollar when the steem blockchain was first developed two years ago has been unquestionably disproved by free market supply and demand forces.
Perhaps deep pocketed buyers are accumulating SBDs to raise their nominal value as a means of increasing the cost of entry into the SMT creation market whenever SMTs are ultimately launched.
SBDs are akin to scarcity tokens on the steem blockchain. The free market should determine their value.
That won't work because "an equivalent amount of STEEM will be accepted at the current price feed" means that 1 USD worth of STEEM can be used regardless of the value of SBD. That is a little unclear in how it is written, I agree.
It is indeed unclear. As I read it, the USD value of 1 SBD will determine the SMT creation fee. If 1 SBD is $10 USD for example, and steem is $5 USD, then an equivalent amount of steem would be two. Therefore, as the nominal value of one SBD rises due to demand, then the associated number of steem to match that value would change accordingly.
I just don't understand how any blockchain can assure that the value of a token derived from it can be pegged to some external asset. Therein lies the main issue with SBDs. Unless Steemit Inc. has $1 USD in the bank for every SBD created by the blockchain to assure that the value of SBDs cannot fall below the $1 USD amount, then the claim of a peg is unavailing.
SBDs are described as an experimental asset in the SMT white paper and I think it's time to admit that the free market is telling us all that the experiment of trying to fix their value to $1 USD is quashed and cannot be sustained in the face of random supply and demand forces.
Other stable coin designs have been shown to work better, so simply inferring something from 'the free market' response to this one flawed design is taking a misleadingly narrow view. That said, you are not alone in believing that stable coins are impossible and won't work.
Thank you for the exchange of ideas.
It is the exchange of ideas that I am ultimately driven by. Thanks for the discussion as well.
And I appreciate both of you and everyone in this thread! It helps me understand whats going on more clearly!
Thank you!
And I appreciate both of you and everyone in this thread! It helps me understand whats going on more clearly!
Thank you!
Short of them delisting SBD and being personal guarantee of 1 SBD = $1 USD it will always have volatile on the open market. Even junk coins in the cryptocurrency market sky rock and boom all the time.
Even with break points/line in the sand of when certain market condition is met witness deploy mechanism to counter. That will only have some success at best some times which has always been clear in forex. Even long withstanding policy bends and breaks over passage of time. Even more so in smaller market caps.
As well if the Dollar collapses does that mean SBD will collapse at the same time??
That is always the issue with fixed exchange rates.
As it stands everything is too connected with BTC every time it takes a dump majority of crypto markets bleed in value.
There was some earlier discussion on this where it was observed that stakeholders via their elected witnesses can choose to switch the peg to something else (gold, silver, basket of commodities, etc.) if that did happen.
As smooth noted - the peg can be to any asset, really. It's just a matter of choosing which one and adjusting the protocols/parameters to reflect that. Some have asked for a peg to BTC or gold. But I think the most stable would be the widely-accepted currencies like USD. Even their fluctuations in price/value is far less volatile than nearly all other assets/commodities, and certainly cryptocurrencies.
This is not quite true. In the regime where STEEM is successful, STEEM's supply will simply send SBD prices down, and we will need the other tool to prop up SBD (interest rates), or simply just the conversion mechanism itself that burns SBD's for the equivalent of STEEM. Yes, it may still be slightly volatile, but it will be much easier to control.
Agreed on the point about smaller market caps. That's just makes it easy for manipulation.
If you want to have stability on this blockchain, making a drastic change on how it works is the last thing you want. The suggested change here is drastic and tells the investors who have invested in our blockchain that it's not to be trusted. If the tools that we have are not working, then the intended purpose of the instrument was not though out well enough. But since the market has found a use for it anyway, it doesn't make sense to me to go against the market.