A fable about a Shepherd who also raises wolves

in witness-category •  2 years ago

Once


upon a time, there was a Shepherd, who did some rather peculiar things. In the little nursery paddock where he kept the ewes and their sheep, he was also keeping she-wolves who were making little wolf pups. Why someone would do this, I don't know, but I am here to tell you the story about what happened.

Every year, the sheep would all rut and have babies, and so would the wolves. The Shepherd would feed the old Ewes who were no longer producing new lambs to the wolves. But this was not enough for the wolves. In the night, they would creep around and eat some of the lambs as well.

Now, to explain why the Shepherd was raising these wolf pups, it was because many people believed they were better than Sheep. Why, I don't know, because the wolves were eating the sheep. Worse than this though, instead of killing the wolves, the people around the Shepherd were instead feeding the sheep up and then wondering why the wolves just kept rising in population and all that hay being fed to the sheep every year was costing more and more, and the profit of raising sheep this way was getting smaller and smaller.

Eventually the village idiot showed up and started shouting about this. "Hey, people, the wolves are parasites on you all. You feed them, feed the sheep to feed them sheep, and then you wonder why the cost of of your woolly socks keeps rising. DUH. Wolves only eat sheep. They don't make wool, or meat!"

It doesn't make any sense, right?

The wolves have got a pretty sweet deal at the expense of everyone else. Maybe hay growers are doing quite well also, but humans don't eat hay or wolves, nor can they clothe themselves with them.

Well, here we are with Steem. Out of the proportion of Steem that is newly issued and distributed, automatically 37.5% is paid out in newly generated SBD contracts that are pegged to the US dollar. Currently this constitutes 5.25% of the total market capitalisation of Steem and SBD (together, about 21 million, 1 million is SBD).

Now, the dynamics: Every time the Steem price goes up, naturally the value of SBD goes down. To maintain the peg, the SBD contracts sell off Steem to drive down the value of the SBD. So naturally this acts as a brake against growth in the value of Steem. It literally cannot go up, there is 5% of the total pool, if the price goes up 5%, then the SBD must sell off Steem bound into it to bring the value of the SBD back towards parity with the dollar, and to achieve this end, every bit of that 5% gain must be sold off by SBD to hold the peg.

So now you can see why the price has never been able to climb in the 8 months since the peak of the initial pump. Steem goes up, SBD sells Steem. It's not a mystery, and it's certainly got nothing to do with Whales, who if they were taking 100% care of their own interests and not trying to see Steem become widely adopted, would logically be liquidating their SP and going somewhere else with their money (not that there is many places money doesn't die the same way in the market...).

I just want to repeat that. Anyone still in Steem right now, who has whale sized amounts of assets, is serious about Steem. Most of them have lost over 90% of their investment already. If I was a whale I probably would have ditched long ago. The loss is bigger in number value (though in proportion it is equal for everyone).

Does a bank pay you interest to hold a liquid, instantly transferrable asset like in a daily transactions 'savings'?

Maybe, if they want to go into liquidation...

No, the opposite. Typical in Europe is an account fee of around €1 a month. If minimum wage is something like €1000 a month, then right off the bat you are looking at a cost for holding cash in the account of the order of about 0.1% per year. -0.1% should also then be the best interest you get on SBD.

You cannot as a witness in Steem set a negative interest rate on SBD. But the bank will not give you interest if you can instantly sell the money. Even if you are locked into a term deposit, 2% is a very high yield these days, no term deposit gets you over 6%.

Yet Steem Backed Dollars accumulate interest!

Firstly, to solve the problem, Steem Backed Dollars should have no interest accruing to them. I have had people say that you can't hold the peg without an interest payment. I say the opposite, there should be an interest charge.

Steem Backed Dollars SHOULD NOT BE BETTER THAN REAL DOLLARS!

Secondly, all liquid rewards should be in Steem. There should be a way to create, and destroy SBD assets properly. Without interest, in fact the SBD becomes the payment instrument and Steem the savings/transaction account, and Steem Power is the term deposit.

I don't believe there is any rational argument to support the interest payments on SBD, whatsoever, that have any relation to real world economics, in a situation where real USD cost you 0.1% in account fees (at least) and are depreciating in value against commodities at at least 2% per year (that's a halving of value every 10 years, by the way). There is much contention but I think that in the last 10 years in fact the inflation of the USD is more like 8% which means any term deposit paying under 8% is costing you while your money is locked away from you.

I think that people should be able to keep SBD, but it should cost the holder, not the rest of us, especially not people with big holdings of Steem Power, which in the Alice through the looking glass upside down is effectively via SBD a illiquid long term asset (like a term deposit) that is losing value to pay for SBD. You would laugh at a bank that offers to hold your money and not let you transfer it for a longer term, AND charging you for the privilege!

What is even more ironic is that is exactly what they are starting to do now. When the term deposit rate drops below inflation (which it pretty much is), everything is going upside down. You are being charged to deposit, and earning interest on debt. This is how it's working now with Steem, and thus like a microcosm of the global financial system, it is on an endless slid down into deeper and deeper debt.

Nobody with even the most basic understanding of even mainstream Keynesian economics would be able to honestly say that the great Maynard would have considered the charging of money sitting illiquid in deposit as a good idea (even if his assertion that cash should always devalue implies this). It's straight up idiotic, yet the word-weaving people use makes it sound the opposite. No, it sounds like magic to me, voodoo, a frickin shell game.

As a Witness operator, it is part of my election platform that I want to see the elimination of all automatic creation of SBD, to allow users to create or destroy (releasing the underlying Steem back into their balance) SBD, and I want to see the elimination of positive interest rates on SBD. If nobody can agree on either side of the table, then it should be set to zero. It still would be a better buy than a real US dollar but at least it won't be stealing (so much) from Peter to feed Paul (Peter holds SP, Paul holds SBD).

I am now setting my SBD interest rate to zero, and in protest, which is quite mute really, I am setting my bias so that I am selling SBD for 50 cents and buying it for $2 on behalf of those using the 'conversion' function. Which, I should point out, I don't think anyone uses. That right there is another issue, aside from genuine creation or destruction of SBD by account holders voluntary choice, there is no point in having conversion when you can transfer it. Without transferrability, SBD can do nothing claimed of it.

Transferability in the real economy comes at a cost, not at a profit. Liquidity is a cost. Interest is paid on loans because money now is more expensive than money later. Or, it should be, if it wasn't being printed to oblivion, which is how the whole system is upside down.

For those who think my position is extreme:

Even if you don't want to see the automatic production of SBD removed, you can surely at least agree that you should be able to unwind SBD contracts, and not just transfer them. If my hypothesis is correct (and I can't see any reason why it is not) then genuinely being able to delete SBD would help steem price rise, or more correctly, stop braking it as it goes up.

Steem is coming to a crisis point

The cost of operating a witness goes above the pay rate when Steem drops much below 5 cents. The price is falling through towards 8 cents now and absolutely nothing indicates that this is going to change.

No witnesses, No Steem.

I think if SBD could instead of being automatically created, be bound out of Steem or unbound back to Steem at will by account holders, and that SBD had a charge on it of around the rate of inflation of USD supply (somewhere between 2 and 5%), that within the month Steem's price would pump hard all the way back past $1, the rewards system would be able to pay a decent rate to authors for their work (it's now pretty much only possible for a hundred or so writers to make any reasonable amount of money on Steem). The whales would stop powering down so much and the endless drama in the forum relating to distribution and payout rewards would become far less vicious and less visible.

Let's stop the Fed from stealing our Steem! Make SBD like real dollars, devaluing at the same rate.

I am declining payout on this post because I am so far across the threshold of being tired of watching every effort I make to keep the value of my Steem account come to nothing and even slowly sliding backwards. I stand with the Whales who have stuck around up to this point despite all the loss of the value of their investment, and against the Dollar Worshipers who are getting a free ride on Steem Power holders with the illogical interest rate on a liquid asset.

Enough! Basta! Genug! Genoeg! Dostatuchno!

😎


We can't code here! This is Whale country!

Vote #1 l0k1

Go to steemit.com/~witnesses to cast your vote by typing l0k1 into the text entry at the bottom of the leaderboard.

(note, my username is spelled El Zero Kay One or Lima Zero Kilo One, all lower case)

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What you are saying here sounds very reasonable. I would love to hear a comment from Dan on this. I'm thinking of voting for you as a witness.

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https://steemit.com/steemit/@dantheman/steem-dollars-have-limits

As the value of STEEM falls, the amount of STEEM required to represent a U.S. dollar worth of value approaches infinity. If left unchecked, the Steem Dollar could render STEEM worthless and when that happens all Steem Dollars become worthless too.

What he does not say is the reason why Steem (and SBD) becomes worthless, is because below a certain price, witnesses servers cannot be paid for.

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Thanks lok1. What I don't understand now is why we don't implement your suggestion immediately? This is a know possibility that is destroying steem and playing out before our eyes. It makes more sense to protect those who value steem and steem power and are prepared to ride the turbulence than let SBD destroy the lot. The dollar is a menace anyway.

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Well, I think the topic is up again and for very good reason because as I keep saying, we are fast approaching the point where witness servers cannot be paid for. This should be alarming, because the network is the heart of this.

But there is some threshold, after which SBD becomes pegged not to USD, but to Steem market cap, at least, such proposal was discussed several months ago, or am I wrong?
Anyway, there is urgent need to try different approaches... Thank you!

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Yes, the idea has popped up several times but after 6 months thinking that the world has turned to the right when I consider the price chart, and never a recovery, ever. Not a real one. The curve is on a slope.

It should be more organically bound up and unwound is the main point I am driving towards. This should not be in the control of the witnesses, users should determine this by their own activity. This is also why it should cost you (more) to hold them, they require more accounting work than the Steem. Steem we have of course the tax of new currency issue that distributes to support the system. So the cost of holding it should be more than Steem. And before anyone forgets, the free transactions are based on the idea that holding Steem is a benefit to the network (!). (IE, NOT SPENDING IT).

I don't fully get this, sharing and hopefully you get a debate with some other witnesses going

Upped, resteemed, witness vote, and changed my interest to 0% as well. I had it at 1% for a few weeks, then back to 2%, but I get what you're saying. Stop creating and giving out more SBD just so people "hold it".

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I have been thinking a lot about it and I think the simplest change is to simply allow witnesses at their will to set interest charges on SBD holdings. They will slowly decay through charges upon each transfer with an interest fee instead of an interest payment. It just requires allowing a negative value. You can try putting one in but it shows an error saying it cannot be less than zero (actually, I think the error actually says less than or equal to, but it does accept 0000). To remove that prohibition (an assert, I think) in the code and I think the rest of the formula will automatically adjust to charge (from the SBD denomination), which in reverse would take steem out of supply instead of adding it when the Steem price goes up (which shows up as a slow decay of the value of the SBD).

SBD tokens would eventually become worthless, also, btw, according to the rate we set. The result would be that there would always be something settling that debt, essentially selling SBD for Steem to pay the interest fee, putting that fee into the allocation pool for rewards/witnesses/SP interest.

unlocked >>> update_witness "l0k1" "https://steemit.com/witness-category/@l0k1/witness-update-jan-31-2017" "STM7Cw11iPPnXewfPbA3Jso7RSar67pMcVGpPi7v1uvo29jm1YPLV" {"account_creation_fee":"10.000 STEEM","maximum_block_size":65536,"sbd_interest_rate":-0001} true

gives

10 assert_exception: Assert Exception
sbd_interest_rate <= STEEMIT_100_PERCENT: 
    {}
    th_a  steem_operations.hpp:388 validate

Woah. I just realised something:

The amount of SBD versus Steem has been accumulating in a compound manner.

The more Steem backed dollars, the more get made. It's compounding over time meaning its effect is increasing as its effect increases... If witnesses can shrink the supply then we have the ability to correct this error of supply rate, raise the cost of holding SBD until all buyers have what they want, which then would cut the pressure on Steem to fund this (and shift the burden to the holder). It should be negative, I don't know how much, 8, 5, 2% maybe, maybe it even only needs to be -1% or -0.5%...

Oh yeah, one last point. Holding SBD compounds the problem, because gradually the rate at which it consumes a share of the Steem market share will continue to increase. It is accelerating. Panic about Steem dropping in price also compounds the problem as people bid up the value, forcing the witnesses to charge on the conversion that nobody does and is why it has no effect (only the interest rate going negative will stop this slow-motion Steem Train Crash!)

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Well I guess if more people set it to 0, that's a good start, end then work towards changing the code to accept negatives would be more accepted as people are setting it to 0? Or how will this get adopted and changed to allow negatives for interest rates? Probably not much support for that lol :P

Ive been meaning to post about this for quite a while. You are correct. (though i don't think its the only thing thats having an effect on price).

At one time, i incorrectly attributed falls in price to an arbitrage between SBD and Steem... what i was really seeing wasn't caused by the arbitrage though, the arbitrage was merely an additional effect of the SBD peg driving the price of steem lower.

Ironically, this effect was most visible during the december rally, when it operated int he opposite direction (that is to say, SBD was higher than $1, and attempts to bring it back to a dollar increased the price of steem).

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Which exactly follows the prediction my model suggests, based on my understanding of the pegging mechanism. The demand for SBD rose, which kept pushing the price up on the market, and thus downwards also on Steem. Nobody would demand to hold SBD if it had an interest charge instead of a dividend.

Also, the accounting is only done when transfers are made, which makes it more unpredictable (the latent interest requires transfers to manifest).

There needs to be a way to continuously burn it, having it revert back to Steem and diminishing the denomination of the Steem Backed Dollar tokens, where currently they go the other way. Otherwise it compounds its effects, because the growing amount grows by the same percentage each time period. I think if we can just set an interest fee on it instead of an interest dividend the witnesses can really have a positive effect on steering the Steem economy, slowing or speeding up the rate at which SBD decays in value to keep balance between Steem's needed $1+ price point and sufficiently low fees on holding SBD.

I think after this, almost overnight SBD will become considered a payment asset and Steem a saving asset (with power boost by locking into time delay withdrawal for SP). It would be such a neat fit with retail markets who would be able to lock their Steem assets during payments and escrow and fulfillment periods then they pass it on, like a hot potato (because it is eroding before your eyes, a fraction of a percentage per day. This will encourage spending and it will end the compounding effect that is threatening the viability of operating the network.

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There needs to be a way to continuously burn it, having it revert back to Steem and diminishing the denomination of the Steem Backed Dollar tokens, where currently they go the other way. Otherwise it compounds its effects, because the growing amount grows by the same percentage each time period. I think if we can just set an interest fee on it instead of an interest dividend the witnesses can really have a positive effect on steering the Steem economy, slowing or speeding up the rate at which SBD decays in value to keep balance between Steem's needed $1+ price point and sufficiently low fees on holding SBD.

Im skeptical that this solution is feasible, or acceptable to most people. But even if it was, its far more complicated than the best solution, which is simply to allow SBD to function in the manner that it was likely originally intended.

Make it redeemable, on demand, for a dollar worth of steem. ANd purchasable for the same amount. No wait period required. This would mean that it would not trade against steem because, since its redeemable/purchasable instantly for a dollar, it wouldn't trade on markets at all.

The reason outlined in the whitepaper for the wait period is patently absurd. The "vulnerability" they describe, the idea that someone could buy SBD when the price of steem was high, then redeem it for more steem when the price was low is a vulnerability of every fungible assett. I could do precisely the same thing with USD.

I have a whole post about this shit half written maybe youve inspired me to finish it.

Nice! Point well received. Definitely a reason to spend more time here. Thank you.

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I am all for phasing the SBD out. Reissuing them relative to STEEM value as STEEM. Yeah I'm cool with that too. Why not a SWAG shop for reply tokens? (SWAG is x10/STEEM)

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I think if we can just set a negative interest rate on it, as witnesses, that we can rein in the compounding effect of SBD on Steem prices.

GREAT work! . After taking a look at your page, I see a lot of great content. Following and upvoted.PLEASE DO SAME ,SO WE BUILD A GOOD RELATIONSHIP THANKS @abbeymelchizedek