Adjusting My Price Feed Bias Again + Relevant White Paper Explanation For This
After I announced yesterday that I'm adjusting my price feed bias, a few other witnesses followed suit and we're seeing a trend in which the current SBD imbalance is mitigated via price feeds, by witnesses. My current bias right now is 300%.
For this of you who asked why are witnesses doing this, below is a fragment from the Steem white paper (page 10) which is relevant for this:
Sustainable Debt to Ownership Ratios
If a token is viewed as ownership in the whole supply of tokens, then a token-convertible-dollar can be viewed as debt. If the debt to ownership ratio gets too high the entire currency can become unstable. Debt conversions can dramatically increase the token supply, which in turn is sold on the market suppressing the price. Subsequent conversions require the issuance of even more tokens. Left unchecked the system can collapse leaving worthless ownership backing a mountain of debt. The higher the debt to ownership ratio becomes the less willing new investors are to bring capital to the table.
A rapid change in the value of STEEM can dramatically change the debt-to-ownership ratio. The blockchain prevents the debt-to-ownership ratio from getting too high, by reducing the amount of STEEM awarded through SBD conversions if the debt level were to exceed 10%. If the amount of SBD debt ever exceeds 10% of the total STEEM market cap, the blockchain will automatically reduce the amount of STEEM generated through conversions to a maximum of 10% of the market cap. This ensures that the blockchain will never have higher than a 10% debt-to-ownership ratio.
The percentage floors used to compute STEEM creation are based on the supply including the STEEM value of all outstanding SBD and SP (as determined by the current rate / feed).
At the moment of writing, SBD was trading almost 7 times higher than the dollar and STEEM was at around $1,8.
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
https://steemit.com/~witnesses
If you're new to Steemit, you may find these articles relevant (that's also part of my witness activity to support new members of the platform):
Thanks for your explanation @dragosroua.
You got a 16.49% upvote from @postpromoter courtesy of @fproductions!
So basicly we get more sbd right? but also when other witnesses dont do this? Can you explain a little what exactly happens by this? What effect will this have aswell?
300% is fair enough.....
I actually didn't know that there was a feature built into the Steem blockchain like that. Thanks for letting us know about this feature.
So this is why the rewards are higher in SBD rather than Steem right now.
learned something new :)
Do you think the debt-to-ownership ratio currently represents a problem for the platform that a price bias will fix?
What are your thoughts on people who use the convert function right now and how much worse that will be for them if a price bias is in effect?
I've been answering questions since last night from people who are converting and freaking out about the result because they don't understand how that smart contract works (and how they'd be much better off selling in the internal market or on an exchange). I think a price bias would make that even worse. In May when this happened, it eventually came back down. It appears to just be a pump and dump. What we can do, I think, is educate people with posts like this and lead by example on what to do when SBD are priced over $1.
That's exactly what I do too, with this.
The convert to STEEM feature is not meant, IMHO, to work in an isolated way. Both price feed bias and the 3.5 days conversion are stability mechanisms and they should have a combined effect.
I think the current pump and dump must be mitigated somehow. The best counter measure, so far, is the price feed bias. As the pump is slowing down, price feeds will adjust. It's not a perfect counter measure, but it's the best we have right now.
The debt-to-ownership ratio was ok in the initial STEEM setup. SMT changed that a lot, in the sense that it will create a lot of STEEM buy pressure (part of this pump and dump may be related to some whales wanting to get a hold to a lot of cheap STEEM, in the anticipation of SMTS).
I think we will see more crazy swings as the first SMTs will be launched.
You didn't really answer my questions though. If the purpose of the price feed bias is to help when the ratio is out of whack and the ratio isn't out of whack right now, I'm confused why we need it right now? It will just further hurt people who convert because they don't know any better.
You say "it must be mitigated" but why? What harm is it causing right now? I'm not talking about in the future with SMTs, but right now.
It must be mitigated because, as a witness, this is what I signed up for. People who voted for me or who proxied their votes through me are expecting me to do what's in the best interest of the network. I'm not a lone wolf jumping on any opportunity and then leaving, I have a responsibility.
Of course there are "good" things happening because of this broken peg, like if you get a 5SBD payout you actually get a 35USD equivalent in fiat. But if we, as witnesses, are not enforcing the base rules of the monetary system, it will spiral out of control (these are the exact words used in the white paper, by the way).
I am not clear on how this works can you expand on it some @dragosroua So if the SBD gets to high the steem to SBD ratio is off so then how does this work to correct it?
by increasing our price feed bias, we shift more rewards to be paid in SBD, hence increasing the SBD supply. Ideally, when a token is in high supply, its price will go down.
Thanks for sharing this update
So witnesses could correct this inbalance quicker than if they weren't adjusting their price feed bias?
good update, thanks for sharing!!