Why Payments In SBD Stopped
The economics of the STEEM blockchain are quite complex. The fact that there are two currencies on it (well, one is just a smart contract, if you want, and I'm talking about SBD) doesn't make things easier, on the contrary.
As you probably saw already, payments in SBD declined in the last few weeks, and now they stopped entirely. Rewards are paid exclusively in STEEM / Steem Power.
But why is that?
Well, it's all written in the code, my friend.
Let me try to explain this thing.
The Magic Concept Is "Debt To Ownership Ratio"
As you know, the STEEM blockchain produces STEEM tokens, the basic currency of the ecosystem. But it also "prints" SBD, which are tokens intended to be pegged to $1. They are pegged to "$1 worth of STEEM", though, not directly to USD (meaning there is no cold storage of USD backing this supply).
Because of this, SBD is basically a debt instrument.
So, the ratio between the circulating SBD and the circulating STEEM is called "debt to ownership ratio".
This is may be also written as: SBD amount / STEEM market cap.
And there are some constraints to it in the code.
It goes like this:
- if the debt is under 2%, printing rate is 100% SBD
- if the debt is over 5%, printing rate is 0% SBD
- if it's between 2% and 5%, the printing rate is: 100% * ( 5 - debt)/3
So if the debt to ownership ratio is over 5%, the blockchain stops printing SBD entirely. This is the case now.
If the debt to ownership ratio is under 2%, printing rate is 100% - that was happening when rewards were paid entirely in SBD / Steem Power.
For the last weeks the debt to ownership ratio has been increasing (hence the printing rate has been constantly decreasing, getting to a halt). This constant increase was a means to control the SBD price: by increasing the supply, the price naturally went down. If you wonder, this increase is controlled by witnesses, via their price feed biases.
As the STEEM supply increases, the debt to ownership will go down, hence we will see SBD printed again, at some point.
Hope this make things clearer.
Steem on!
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.
Wanna know when you're getting paid?
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I know the feeling. That's why I created steem.supply, an easy to use and accurate tool for calculating your Steemit rewards |
will this effect the price of steem in anyway
Great job explaining it in such a simple way.
Thank you and take care @dragosroua !
I just read this post at four days old. I have been trying to figure out why SBD stopped, and this cleared up the mystery.....
Thank You!
Oh, I so wish it did..
lol
Resteemed
I love what you write really.
Steemit without you is as student without teacher.
Thank you
Samer
Hey, @dragosroua.
Thank you for taking the time to explain the complex in a more simpler way.
Now, with one of the changes coming now in HF 20 being a raising of that 5% ratio to 9%, the printing of SBD will basically print until it reaches 10%, where it currently cannot pass, right?
In your opinion, how much of a chance is there that the 10% debt to ownership ratio will continue to stand? I'm understanding these changes are coming about because of market forces, along with a discovery that the way the code is currently written, if the debt ratio falls between 5-10%, SBD does nothing. It's neither created or destroyed.
This is good. Helps a lot. HF20 includes some changes to that though, right?
Are we getting some sort of protection against a mooning SBD?
God, I hope not.
You are mistaken, SBD stability is much more precious to the ecosystem than a mooning SBD
THANKS @dragosroua resteemed hopefully others will share also
You're welcome.
thanks for the update, is the same amount of rewards always produced whether in SBD or STEEM?
yes
Let me see if I get this straight.
Upvotes generate "claims" against the reward pool.
What's in the reward pool (and will thus be transferred to the upvoted posts and comments) is a mix of steem and SBD.
How is the composition of this mix calculated ?
I imagine the "smart contract" you mention looks first at the price feeds provided by the witnesses and averages them (all the active witnesses ? simple average of the ~140 price feeds of active witnesses ? or weighted average ?)
Now imagine the average price feed is 0.94 SBD to 1 STEEM
The total supply of SBD is 15 685 205. Circulating supply of STEEM is 274 725 189 and total supply is 291 699 283 (according to CoinmarketCap).
The smart contract calculates (15685205 * 0.94) / the supply of steem. If it uses "circulating supply", the ratio is 5.3%. If it uses total supply, the ratio is 5.05% (both cases it's above 5%, but which one is used?)
Therefore, it creates no SBD and only STEEM goes into the reward pool.
Is that correct ?
I'm not sure how the "bias" is used - given the fact that most witnesses have no "bias" set and those that have a bias set range from -0.2% for @pharesim to +0.81% for @raggaemuffin (I ignored @chainsquad and the dead witnesses), I guess my witness, @lux-witness, is not the only one to be unsure about how the "bias" is used in the code ... could you maybe offer a hint ?
1 - The SBD printing rate algorithm:
we need for that:
The debt to ownership ratio in the Steem ecosystem: [SBD Amount] / [Steem Market Cap]
And this is how it's coded:
we can consider 2% being 100% SBD and 5% being 0% SBD, and everything in between a ratio, e.g. 3.5% debt means 50% SBD / 50% STEEM
Right now, the result of this operation is provided as a blockchain property, so you just get it with a single RPC call.
Also worth noting, this will change in HF 20, so the sliding from 100% printing to 0% printing will occur between 9% and 10% debt-to-ownership ratio (which means there will be a higher debt-to-ownership ratio across the STEEM ecosystem and the printing rate will decrease much faster, almost like a "kill switch").
2 - The price feed bias is a weighted average, so the fist 21 witnesses count more than the rest. You can still make use of this as a public signal, I did this a lot although I'm not even in the first 50.
None of the first 21 have set a "Bias (%)". The first ones are @pharesim (28), @raggaemuffin (32) and @abit (34)
if it's not set it is implied to be zero.
Later edit: this is how it's looking on steemd.com: