How do we fix the peg without popping the SBD bubble? I may have an idea.
I have an Idea
Would a slow puncture maybe do the trick?
Earlier today I posted on why the current peg is bad for STEEM. I believe that the current mechanics of the peg are bad for STEEM, but that a peg on SBD is needed to create a stable cryptocurrency which can be used as a method of payment by merchants who want to accept crypto as payment.
The Background
After reading many posts and comments, and having some robust conversation on the topic, I think I may have a solution of sorts. Whether it is a complete solution, or even a viable solution in terms of implementation, I don't know, but it's worth putting it out there even if it sparks an idea from one of the geniuses out there who know infinitely more than me about how it all works...
I'd like to put forward an idea to the Witnesses and Developers of STEEM, on how we can bring the peg back into force at $1 USD = 1 SBD, without "flicking a switch" and causing a shock crash of SBD, people making huge losses and possibly losing sentiment in the platform. This is a long-term approach, with a maximum of 94 days to reach the 1USD peg mark, or sooner if the market gets there naturally within that period. Perhaps something like this would help...
The Plan:
It's short and sweet.. here goes:
- Set the target peg. This could be be $5 USD if we wanted it to be, but let's keep it at $1 USD, which is the way the platform designed it.
- Introduce a SBD price feed into the platform.
- Use that feed to implement a two-way SBD<--->STEEM conversion.
- Keep the 1USD=1SBD peg value for rewards payouts.
- Set the peg a the current SBD price feed value. This becomes the new peg ceiling, and can only be moved in a downward direction until the peg target it reached.
- At 00:00 GMT each day update the SBD peg price downwards at the new 3-day moving average. That peg stays in place for 24 hours. If the price has gone up, reduce the Peg price by 1.7% to force downward pressure on the price.
- Once the target peg level is reached work off the 3-day moving price feed, with a cap set to $1.01.
The Anticipated Result
The peg is now back to $1 =1 SBD, and with 2-way conversion in place, it will be more difficult to exploit or manipulate the SBD price upwards, as it will just be converted at the cheaper peg rate on platform.
This will unlock STEEM from SBD, and it will be free to be traded on the market without SBD dragging it up and down (which is what appears to be happening at the moment, but it may just be coincidence). It will be a gradual process which should mitigate any major losses as people sell their SBD into STEEM or other cryptos while the price goes down, making SBD return to the peg target quicker. With the peg slowly moving down with a 3-day price, any gains made by "playing" the conversion rates against external markets should be minimized, and the markets will generally follow the pricing drop. The big thing here is that there is no "shock" by locking in the peg far below the current market price, and that we don't have to wait to see if the market corrects autonomously.
We should then see the true value of STEEM appear, and it will be unlocked to go as high as it can without being led by the SBD price movements.
On a side note:
One other thing I'd like to see is a rewards slider which we can set our rewards to any split between SBD and SP, at 5% intervals. We could choose to take 100% in SBD and gain no vests, or we could go 20%/80% if we like too. Just a thought.
Thanks for taking the time to read this. I hope it at least sparks some out-of-the-box thinking on how to fix the peg without it causing major disruptions or losses to hundreds and thousands of people.
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The problem with this, or really any similar proposal is that there is no way to tell what can trigger a "shock" crash. Markets can exhibit chaotic behavior, like snowflakes falling on a mountainside. All is quiet as the snow accumulates until, at some point, the snowbank suddenly gives way and there is a huge avalanche.
Even though this proposal doesn't by itself force a crash, it may still trigger one, as market participants realize the inevitability of soon adjusting back to $1. Or doing nothing at all we may still have a crash (as I write this SBD is down 16% in the last 24 hours, which isn't quite a crash, but shows that big down moves for no particular reason are very possible).
The only reliable way to avoid a crash is to set the peg high and lower it slowly over a period of time. This may, somewhat perversely, require the peg to function to increase the SBD price even though it is grossly overvalued, just to prevent it from falling more quickly (i.e. crash). That doesn't require an explicit mechanism at all, only a consensus of witnesses to adjust the price feed accordingly, and then remove the adjustment over a defined schedule. (To have a reliable peg regardless of the peg price still requires adjustments to the mechanism however.)
That's exactly what I am proposing: a slow lowering of the peg to the desired level. A 1.7% drop per day would give us 94 days from $5 to $1. If the market moves quicker we could lower the peg sooner, or enforce the slower reduction rate via the SBD feed. That way the price of SBD drops slowly in a controlled manner, avoiding a crash.
The mechanism must change. We could find ourselves faced with a SBD pump to well over $10 again very soon, but if we have a plan to implement a slowly moving downward peg, that may prevent a massive pump at the very least. The first step is to cap SBD.
Yes you are right. When you wrote
I misread that as implying that it you would allow SBD to float between $1 and the ceiling. But in fact you meant there would be a strict peg that could not move above the ceiling, more or less the same as what I suggested.
In any case, this does not require a SBD price feed, which is fortunate because a code change like that would be significantly more substantial.
What it requires is:
Bingo! That's a lot easier than I explained.. but I don't know how the cogs turn all that well. It that can be done, then it just takes agreement, and a minor change to enable bidirectional conversion.
Could this work in practice?
I've considered some interesting approaches as well that require a price feed for SBD to really know what's going on. If we had that, we'd have a lot more flexibility.
I have concerns about giving out SBD without Steem Power as SP is what secures the network in terms of voting in witnesses. If people up just for short-term gains, it could centralize the Steem Power holders even more which, in a way, weakens DPOS security in terms of who can effectively elect witnesses.
I think having a SBD price feed, and capping SBD at a fixed, higher peg for conversions is a good start. It will stop SBD pumping up again at the very least. The peg can be enforced downward on a slow and controlled decline towards $1, which should prevent the scenario of a crash happening.
To do this we have to have a two-way SBD <--> STEEM conversion function. The SBD price can be manually adjusted by consensus over however long is needed, instead of coding in a feed.
I can see your point about 100% SBD and how it may be counter-productive. People could always power down instead if they want to get SBD out.
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Very nice suggestions. Hope the designers of steemit get to read this post. Yhanjs for sharing this great insight
there is a lot of merit to this idea, may be more effective than what they are currently trying
Hello @bmj
I would like to add an economic view on the discussion, based on fiat currency economics. I think it is a needed perspective, since we are talking about how Steem economics should works. Could you take a look?
https://steemit.com/witness-category/@phgnomo/sbd-usd-peg-taking-exemples-from-the-real-world-economics
Here, another 10 cents..