Witness Update - 2016-12-15 (Interest Rate Change)

I have always been a supporter of a strong interest rate on SBD balances. I think it makes SBD an attractive asset. I have written about how SBD interest is an absolute necessity. In the past, I've advocated for increasing the interest rate on SBD as a way to bolster the price of SBD.

But given the current environment, I feel it is most appropriate at this time to lower my APR.

The price of SBD has been normalized at around $1 over several weeks, during which time witnesses have been discounting their feeds. Some witnesses continue to do so, and will continue to do so for the foreseeable future.

It is my assumption that discounting of the price feed has a more immediate impact on the price of SBD in the current market. However, the interest rate should remain compelling enough for users to feel comfortable holding SBD for any length of time.

A discounted price feed can provide profitable opportunities for conversion which provide short term results, though not without risk. A passive interest rate (Proof of Stake) is necessary to provide an incentive to hold a price stable asset for any period of time. So a balance must be found between providing incentive for short term actions such as conversion, and long term holding with the expectation of appreciation over time.

We believe in SBD, and we want it to succeed. For that reason, we want it to grow at a measured pace. An APR too high might contribute to inflation in the SBD supply that leads to an unmanageable debt load. Yet, at the same time it needs to be "worthwhile" to the extent that people won't convert every last SBD... Like I said, we believe in it. We like having SBD around.

So how do we come across an appropriate figure for SBD interest? As @smooth pointed out recently, "The Code" says it's 10%...

But... that seems, well... kind of "pulled from a hat."

I've always heard this 7% figure, as a long term return from investing in the stock market. And I tried to find a good source from it, but had a hard time. A lot of stuff about it coming from Warren Buffet, but nothing concrete... It seems to be just kind of floating around in the ether.

But I figure that it doesn't make sense for us to offer higher returns than the stock market. Not for simply holding SBD, since we're supposed to be keeping it stable anyway...

So, I'm decreasing my SBD interest rate from the "default" of 10%, to a figure of 7% for now... Until I can come up with a better one... Like the rest of witnesses, I don't consider myself some oracle. But that's the best I've got for right now.

til next time...