[IMAGE: https://steemitimages.com/DQmb6BR8U4mYrshpbCJpJfffq76JuBRXNs5cxgSknFtwb4H/question-2736480_1280.jpg]
I've been thinking about SBD lately and how we should deal with it. Clearly the intention in the white paper of a stable currency that reflects the USD price is not working.
As a recap directly from the white paper:
"....Steem Dollars were designed as an attempt to bring stability to the world of cryptocurrency and to the individuals who use the Steem network....."
Assumption
So I am going forward with the assumption that SBD is to be a
- Stable currency, pegged to some other currency (in this case the USD)
- The purpose of such is to protect users from price fluctuations (i.e. money earned should not have to be sold to protect its value)
- there is a bigger vision for steem than just blogging and SBD are to be useful as cryptocurrency to entire industry and not just steem content creators
A design flaw that makes everyone money
There has been quite some debate about SBD on Steem in the past and it will likely be hard to change anything at this moment.
The reason is that any price of SBD above the $1 brings value into the ecosystem, without any direct cost (other than the loss of SBD utility). Everyone that gets any sort of rewards in SBD has been overpaid dramatically. Specifically content creators have had their rewards multiply.
This money basically is coming from the market. As people on the market overpay for SBD people who earn and sell SBD benefit. So in a way this is free money flowing into the Steem ecosystem paid for by traders/investors. That makes steem grow at no cost. No wonder everyone loves this idea.
High SBD is good short term and bad long term
Because the value that is flowing into steem from the high price of SBD is really good for content creators this is really good for growth of new users and keeping existing users active. it also helps with wealth distribution. So this is simply fantastic.
In the longterm however the objective of SBDs is stability and without it they have no utility. Even worse the advantages that they are supposed to bring are not available to users. So while the there seems to be no cost for not having working SBDs there clearly is one. It is just not as noticeable in the short term, while the advantages of high sbd price is clearly felt by everyone. Immediately.
But imagine how great it would be if you could trust that SBD's are stable and one could use it to park value. Essentially the entire value of TUSD could be captured by SBD and flow into steem. If that were the case the steem blockchain would be more than twice as valuable.
Fix it in the long term and in a way that increases the price of steem
So I would suggest to let SBD go on as it has right now until its value comes down to its peg or at least close. Then however I would suggest to fix the design flaw that it has and make sure a volatile SBD price cannot happen again.
Allow people to create SBD
One of the great things of Steem and SBD is that the debt ratio can never be more than 10%. As such there is no problem creating unlimited amount of SBD. Therefore we can come up with a solution like @timcliff suggested
- Allow users to buy SBD by converting STEEM into SBD
- The conversion from STEEM to SBD should have a fee that is set by the witnesses (it would be their job to make this so high that the system cannot be exploited)
- This fee can either be burned or used for marketing or development purposes
- Steem used to buy SBD should also be burned
How this would increase the value of steem
If the utility of SBD would create lots of demand for it, the price of steem would increase. At first price of SBD would go up, this would then trigger arbitrage opportunities, which would increase demand for steem, which then would increase the price of steem.
Imagine the entire crypto market using steem as stable currency instead of USD, this would catapult the price of steem. I think the value of a stable currency is still vastly understated by most people in the space. In the end no cryptocurrency is money or currency as the most important attribute of such (that most often is omitted) is stable value. As such steem could be the only real currency in the space, if only we would get it right.
I think it is better to fix a faulty design than to forget a good vision. SBD are essential for making steem more than just a simple blogging site but a whole financial system that can change the world. In order for that we need working SBD.
Bounty
I am sure many of you will have interesting ideas about this so I look forward to your thoughts. In order to encourage you to share them I have put a 20 Steem bounty on this post, which will be shared among the top level comments, depending on how much upvotes you will get from me (80%) and from the community (20%).
This is from the bounty project we are working on with out witness steem-bounty, which we will announce in the short future.
Please vote for us
For now, thank you very much for your attention and we hope you will vote for us!
We announced our witness here: https://steemit.com/witness-category/@steem-bounty/announcing-our-new-steem-bounty-witness
If you like this content please consider voting for our witness. In order to vote for us you can go to:
https://steemit.com/~witnesses
And enter the "steem-bounty" account into the text field and click vote.
[IMAGE: https://steemitimages.com/DQmdK3NyKuJzFaPNFUJWvWmpkFWJof774oxKBygvSaNZBZ6/Screen%20Shot%202018-02-27%20at%203.05.35%20PM.png]
Or use steem-connect to vote directly for us as Steem witness!
Thank you for your attention
@eroche | March 12, 2018, 4:04 p.m. | Votes: 19 | [
VOTE ]
I am in favour of a pegged SBD asset and exploring alternative proposals for achieving this peg. I welcome your proposal for further discussion and it may be a solution but there are some risks and additional dependency on Witnesses which I think adds an extra burden on the system.
Existing Mechanism
My understanding of the current mechanism is
* Witnesses only need to intervene when the value of the SBD is below the 1 dollar peg. They intervene by increasing the interest rate payable for holding SBD.
* If SBD goes above the peg the market will (in theory) drive down the price of SBD as it makes rational sense that more SBD will be printed so that people active posting on Steem/it will choose the SBD option and increase the level of SBD in existence.
By market law of supply and demand will drive down the price.
This second part of the stability mechanism is what is not working at the moment. In my view the reason this is not working is because the supply of SBD is so small at the moment. i.e. Liquidity is the issue.
The current design should work if there is better communication over the design as well as more liquidity in the market. The latter will come in time if nothing is done now. The former we can be proactive on.
> the objective of SBDs is stability and without it they have no utility
I completely agree with this statement and if the decision is to not in any way maintain a peg, or seek to maintain a peg, or change the peg then SBD has no utility. If that is the case what is the point of it all and should it be removed from the protocol?
The proposal you have outlined carries with it some risks and puts more control in the hands of witnesses, in particular over what to do with the SBD. Burn it etc. Is this an extra burden that is being put on witnesses shoulders?
At the root of the issue here seems to me to be a lack of understanding of what SBD is in the community at large and what the long term goal for it is. I would like to see consensus achieved on what SBD is and what its purpose is before tackling the question of how to fix it.
* Is it a speculative asset?
* Is it a counterparty free pegged asset?
* Is it a mechanism for varying the amount of liquid rewards paid out via the reward pool?
* Is it a mechanism for inflating the Reward Pool (Dollar Value) on an ad hoc basis?
* Is it a tool for bringing in dollar investment from unknowing people on 3rd party exchanges?
Before we get answers to some of these questions and achieve consens on what it is intended for the path forward is not clear.
Just one last point I would like to add to the conversation
> The reason is that any price of SBD above the $1 brings value into the ecosystem, without any direct cost
This is the view of the majority of people who I have seen discussing this on Steemit but I would make the case that there is a direct cost. The current lack of a peg allows people to extract a larger proportion of the dollar value of the post payouts in liquid assets immediately. i.e. the payout effectively is no longer 50:50. I see this lock in of value for a period as a huge asset to Steem and a major design strength. Of course if people power up their rewards it doesn't matter.
I welcome the debate as well; I am not trying to offend anyone, I am simply referring to the fact there is not a good understanding on this forum that SBD is a financial derivative of Steem, its not a primary currency like Steem. And to peg anything to a fixed value, it needs something to underwrite the value.
The simple fact is that one can't simply create an asset that has a price of 1USD out of thin air unless you can print USD themselves (ie the US Fed). If you want to attempt to tie the price of one good (eg 1 SBD ) to another good (1USD) you need to have a mechanism to do that, which requires something to underwrite the price (ie you can always exchange good A for a variable amount of good B equal to a fixed amount of good C - this links A to C though the market value of B) . There is simply no other way to do that. You cant just create "infinite demand " of an asset as you suggest. If that was the case one could just ICO a new new currency to themselves and fix its price as one ounce of gold . The obvioius issue here is without any demand at the fixed price no one will buy my new currency from me no matter how much I insist its worth an ounce of gold per token. The only inherent value SBD has comes from its algorithmic underwriting by Steem, in that it converts to 1SBD worth of Steem at any market price of Steem. If you have infinite supply of SBD (which is in your control unlike demand) then it will collapse the value of Steem to zero and essentially break the algorithmic link. This is why they cap it at 10% of the total value of Steem.
Lets look at a comparison between SBD's and treasury bonds. Both are a potentially interest bearing derivatives of a primary currency. If the government issued an infinite number of bonds and then there was a run on the bonds they could always just print money and pay all the bonds back. This would lower the currency value relative to other currencies but not necessarily collapse it as their liability is held in the currency that they have control over and can print.
Now lets compare that to the situation with SBD. The SBD mechanism would be equivalent to if the US government issued interest bearing bonds that were redeemable not in a fixed amount of US dollars but in a variable amount of US dollars linked to a fixed amount of a currency they have no control over such as Euros. So to make that clear the bonds would be redeemable not in a fixed amount of USD but by a variable amount of USD that was equal to the amount of Euro at the time you purchased the bond ( just like 1SBD is an interest bearing derivative of Steem that is redeemable for a variable amount of Steem equal to the 1USD at the time of redemption). In our analogy this would let European investors by US bonds with a direct hedge to the euro and take no currency risk. Similar to what SBD tries to achieve in eliminating fluctuations in the underlying asset though a peg to an external asset.
The issue if the US prints a large number of these bonds relative to the size of the total money supply it creates a stability risk for the underwriting asset which in this case is USD. When the price fluctuates down and some people start to want to redeem their bonds the US Fed will have to pay the bond holders back in an increasing amount of USD. This is due to the conversion of the bond to an amount of the underwriting asset (in this case USD), to get the fixed amount of Euro that the peg was against. So they can simply print more USD as that is in their control, then they sell it on the open market to buy Euro (in the same way the Steem block-chain can produce more 1USD worth of Steem on converting a SBD which can then be sold on the open market to obtain the physical 1USD). The issue here is that this lowers the price of USD relative to Euro (or Steem relative to USD) as more supply comes on, so the next bond holder that wants to convert they would have to print more USD to redeem the same amount of Euro (or issue more Steem to create 1USD).
This is not an huge issue if you only have a small amount of these financial derivatives outstanding relative to the money supply from which they are derived (which is why SBD are capped at 10% of the total market value of Steem). However if there is a large amount this quickly becomes a self reinforcing downward spiral where the price quickly asymptotes to zero.
If you have a look at my other post in these comments list it might be a little more clear.
My solution is quite simple:
Pegg the SBD to US$1. Get stability for investors.
Change the rewards system. Make easier to advance and get money. This attracts new users.
I think the rewards system should work as a meritory system where the main variables are reputation and number of upvotes/visualizations.
Based on those variables, each post has seven days to "unlock" rewards. Those rewards being a fixed extra or a percentage of the SBD you are gaining up to that moment.
So, reputation of 25, your post gets 100 upvotes and 10 SBD. Unlock reward of 1% extra. You have now 101 SBD. Go on from there, reach more upvote milestones, make more extras.
Reputation of 50, your post gets 100 upvotes and 10 SBD. Unlock reward of 5% extra. You have now 105 SBD. Go on from there, reach more upvote milestones, make more extras.
That way you would actually try to get a high reputation and you would feel your upvotes are actually valuable beyond your SP. Ergo, you try to post good content and are incentivized to vote for others, because the rewards are higher according to the number of upvotes reached.
Get rid of bots, get rid of the 30 minutes mark, get rid of freaking everything else.
Make it simple, fair and worth your time.
I was in correspondence with a successful businessman I happen to know. We were discussing crypto and he was definitely wary of it, preferring instead, the more familiar space of his business.
He said, "Volatility is bad for business."
The OP is right. We need a stable currency so that when there is a dip on the way, we can sell the volatility and hang on to the stability. Many people who complain of fiat currency and the woes of inflation, don't seem to mind inflation that much when cryptocurrency is on the rise.
To frame the discussion in a somewhat different context, the volatility we see in crypto is in relation to fiat currency. Doesn't that seem more than a bit ironic? Crypto was invented for many reasons, and one of them seems to be to provide a hedge against inflation, a hedge that isn't a physical resource like gold, oil or coffee. It's a virtual commodity, and all commodities have values denominated in fiat currency.
I don't know what the answer is to restoring the pegged value of the SBD to the dollar. But I think we might benefit from looking at it from another perspective. We don't really have control over how the market values SBD relative to the USD. But we have programmatic control over how SBD is related to Steem.
We're talking about a decentralized autonomous company when we talk about Steemit, Inc., right? It runs on code. It has stakeholders that decide what the code will do, right?
So why not peg the value of SBD to Steem instead of trying to chase the USD down? There is where we have some measure of control. And therein, we can fix the fee for selling SBD for Steem. Whether or not there are fees for such an exchange can be set in code. Whether or not those fees are burned or not, can be set in code.
Just my $0.020 SBD.
.png){kind=link}
