Is It Time For SBD To Grow Up And Peg Itself To Bitcoin? - A.K.A Dump The Dollar
It seems for the past few weeks, Steem Dollars has wanted to sit at around the 68,000 Satoshi mark, regardless of what Bitcoin is worth.
There have been times when that has meant that SBD rose to almost 16 to 1, now it means that SBD is hovering around 9.5/10 to 1.
So there are two ways of looking at this, when Bitcoin has been pumping, SBD dollar amount pumps along with it.
When Bitcoin is falling the SBD dollar amount stays steady, whilst the Bitcoin value falls.
Hmmmmmmmm . . .
Associating With A Loser
Aligning yourself with a failing entity has never really been a great strategy for success. Unless you form some part of a save day cavalry, then it is usually best to stay well away from failure.
So why then do we peg SBD to the USD?
Well there are a number of reasons, some really good reasons, however in life when we make long-term decisions, it pays to come back and review them from time to time.
In my mind this is just so one of those occasions whereby we look back and check our previous assertions still ring true.
The Case For The USD
Familiarity: There aren't too many people in the world, who are over the age of about six, who haven't heard of the US Dollar. Hence when attempting to introduce an innovation such as Steemit to the masses, pegging a token to a familiar currency will help with ease of understanding.
Understanding: Cryptocurrency is a brand new concept to most people. The rise in Bitcoin has brought the term to the ears of more people, however understanding value is still hard for some people. Making a currency worth $1 as opposed to 0.0072689 sats will make it easier for most people to digest.
Geographical Vagaries: The founders of Steemit are American. Most of the early users were also from the United States, hence it is perhaps natural that the dollar should be the go to currency.
Market Function: Pegged cryptos are used by traders and investors alike, for a number of reasons. For instance, an individual may not like to cash out to fiat currency, and a pegged crypto gives them the cushion of always having a stable currency to default to.
The Case Against The Mighty Dollar
Distinction: Whilst there is some merit in trying to attract new users with familiar terms and signs that they are used to. It also pays to be distinct, the question; if it's worth a a dollar, then why don't I just stick to using dollars? is a valid one, and one that in the grand scheme of things, does not really have an answer.
Fractionally Reserved Instability: (Try saying that after 3 glasses of egg nog!) The fact remains, that a large part of the raison d'atre of cryptocurrency, is to break free from the shackles of the lombardy pirate banks who have financially enslaved us via oblique market economics. Therefore pegging a crypto to the absolute pinnacle of that manipulation is somewhat self-defeating.
Falling Value: Slowly people are realising that, a large part of Bitcoin so well, is that the dollar is doing so badly. $10,000 in 2010 is now worth $8,600. America is constantly at war, and war waged over time costs trillions of dollars, the only way to pay for those wars is to print more money.
The Solution
Let us create our own 'gold standard', instead of saying the SBD is worth one measly US dollar, let us say that the it is instead worth the 2017 value of 0.00072000, which is roughly $10.45.
This way we disassociate ourselves from fiat currency, however because we are using the word 'dollar', the familiarity and the understanding will perhaps be kept.
Also this solution pays homage to the elephant in the room, and that is that lots of people have agreed between themselves, without prior collusion, that SBD are worth somewhere between $10 and $13. This is one of the most, if not the most, important component of value, is the agreement between a bunch of buyers and sellers of exactly what the value of a given asset actually is.
So if a load of people, Koreans, Americans, Europeans or whomsoever are saying that SBD is worth roughly 10 USD, then who are we to argue with that?
Mic drop; walks off stage.
SO WHAT DO YOU THINK? SHOULD WE JUST LEAVE SBD AS IT IS, AND RE-PEG IT TO BITCOIN? OR SHOULD THE WITNESSES DO SOMETHING ABOUT IT AND FORCE THE VALUE BACK DOWN TO ONE USD? AS EVER, LET ME KNOW BELOW WHAT YOU THINK.
The value of 1 unit of currency is what the market agrees upon. I would argue that the best peg currency is the least volatile one. As much as I think the good blockchain based currencies are much more a store of value compared to fiat, fiat is certainly less volatile. So I think the reasonable choice for pegging is still the USD, with all the bad associations that come along with that.
Definitely a very valid point, however I feel fiat stability is an iluusion; whilst not as volatile as crypto, the dollar (and all fractionally reserved fiat), is inflating and devaluing every single day. We just don't notice it because a dollar is always worth one of itself.
However if the dollar was put in terms with how much it was worth 20 years ago, we would see the same kind of fluctuations as bitcoin, the only difference being is the general trend will be down and not up. This accounts for at least some of the rise in the price of bitcoin and crypto in general.
That is why I think you take a snapshot at a given moment of what Bitcoin is worth in terms of fiat, precious metals, and other cryptos. That then becomes the crypto gold standard, the value of as I suggest 72,000 satoshis as of 31st Dec 2017 for example.
Then we truly are saying, we don't need you in the new paradigm fiat currency, we don't need you for anything!
Cg
There is no fiat stability, you are absolutely right. If we could all agree the crypto gold standard of 1 SBD unit is 72K sats, I would be happy to welcome it as the one defining the core unit of value. However, my opinion usually counts for very little in the world. :)
How is the SBD price determined to begin with? Can't find much on the internet so far.
SBD is essentially not a real crypto in the true sense of the word. It is a container which has a smart contract within it, to always have $1 worth of Steem inside it.
So if you imagine you have a bunch of apples and each of them is worth a different amount day to day, and I say to you, no matter the price of the apples, I will always give you a carrier bag with at least $1 worth of apples inside it.
That means if the apples are worth $0.25, then the bag I give you will have 4 apples in it. However if the apple price rises to $0.50, then I'll only be giving you two apples. Of course if the apple price rises above a dollar, say to $2, then you will only have half an apple in that bag, so if you pay more than $1 for it, you're crazy! :-)
So SBD are a container and at the moment, with a Steem price at circa $3.19, they have less than 30% of a Steem in each one.
However the mechanism that determines all of this, is apparently not that great (I personally do not know about it enough to verify whether that's true or not), so it doesn't work so well at capping the price, although apparently the witnesses did some jiggery pokery with the interest rate last time this happened, and it seemed to work, or of course could have been complete coincidence . . .
At the end of the day, nobody will notice that there's less than a third of a steem inside each SBD as long as Steem stays above $0.05 because at that level the contract breaks down. The promises is to fill the bag with $1 worth of apples, and to produce 20 times more apples than bags (Steem than SBD).
So in other words, 20 Steem is the maximum any one SBD can contain, if the price goes below that, SBD collapses. The last time Steem approached that price ($0.10-$0.07), Steemit stopped producing SBD for awhile in order to protect it from collapse, and it worked.
So, rather lengthy reply, but I hope that's cleared it up for you! :-)
Cg
Hello Cryptogee,
Thank you very much for the thorough reply. I did learn something new after all.
I already understand that the way SBD works is that it was supposed to be a fixed/pegged to the dollar currency worth $1USD or more. Whatever the price of Steem is, if you want to sell your SBDs you'll get an amount of Steem that makes up $1 USD or whatever the price of SBD is. Thus if $1 SBD = $1 USD and I want to sell it, if the Steem price is $0.50 then I'll get 2x Steem. If the Steam price is $2, I'll get 0.5 Steem.
I was not aware that there can't be more than 20-to-1 ration between SBD and Steem. If I understand correctly if the Steem price is $1, I can't have a SBD price of $20.01 or more.
Do you recall the article where you read this ratio limitation? URL? If it's not too technical I'd be happy to take a look.
And as you say "However the mechanism that determines all of this..." is what I'm interested in. What is the mechanism that determines the price/value of SBD? Is there some formula? Right now it's hoovering around $10 USD +/- $2. I'm just curious how did this number appear. Why didn't it stay at $1 USD.
Or maybe it's not that easy to peg your currency to the USD without having a significant reserve yourself. Say you're a central bank and you peg your currency to the USD/EUR. If your population sells too much of your local currency it floods the economy, so the central bank will buy all the excess currency to keep the 1-to-1 peg alive. Could it be that the small Steem economy won't be able to buy up all the excess steem if most of the users decide to sell it off?
It's easier if there is too much demand for your local currency/Steem in this case. Then you just print more to keep the 1-to-1 peg alive. Is the SBD inflation lower than the SBD demand and thus we have this $10USD = $1SBD situation? Maybe. Haven't seen a document yet describing exactly how SBD works, so these are my guesses.
-Ivan
the world is actually turning to Mr Robot's reality after the bitcoin took over! ;D , i think we should leave SBD as it is "maybe it's just me idk" , what do u think ?
There is an argument for just leaving it; however I think this is a great time to discuss it. Technically SBD is a container inside of which, there is 1 USD worth of Steem. However that is clearly not working at the mo, so why not stick 72,000 sats in there?
Cg
Good nice post
Free the SBD !!
Indeed; free it from it's fractionally reserved shackles!
Cg
Let the market decide I am confident that it would shoot up beyond 20 - 30 even...the sbd is backed by people using it everyday...that's the real value
Once the dollar is off it will rocket
I agree, I'd love to see a $20 SBD price, I quite literally dream about that every night :-D
Cg
now that I think of it sbd should straight BE steem...
SBD is getting serious mate!!!!!! :)
Oh yes indeedy, long may it continue! :-)
Cg
Hello again @cryptogee
Today I'm not going to tell you one of my tales of Internet flirting, but going instead to answer your question seriously instead (shocking, I know).
You say that:
"in life when we make long-term decisions, it pays to come back and review them from time to time."
I can't agree more, this is true, however I still don't think we should peg it to Bitcoin... I don't trust Bitcoin to be steady enough to serve as a peg.
In my opinion, when it is time to change (as I agree FIAT is dying) we should look upon assets with way less volatility and with a safety net that prevents the price from going up or down like a rocket or freefalling boulder.
I would point out maybe gold... then we would just have to check back on the decision when Space Flight is mastered and we start sinking gold price due to space mining (there will be Space Mining Investment Scams I guarantee it xD)
So, change the tactic - yes absolutely. But Im not sure pegging it to Bitcoin is the right way, and Im not sure if we need to change it ASAP.
If we do change it, gold prices are something to look at, or other stable assets. I dare even say food commodities.
Cheers man, Upvoted.
Max
Sbd will grow up
really interesting thoughts here @cryptogee....I don't know enough to have an opinion about the best way to proceed but I did appreciate the discussion (including all comments), thanks for raising it.