Proposing another controlled burn from the Steem Proposal System [burnsteem100]

Background

Last month, the Steem community ran a 30 day controlled-burn of about 1.05 million SBDs. The proposal was described by @blaze.apps in SBD Burn Proposal – Let’s Get Rid of What We Don’t Need -- Burn of 1.05 Million SBD to Strengthen Steem’s Economic Foundation and the results were summarized in STEEM and SBD supplies after 30-ish days of SPS burning [burnsteem100] and Burn Proposal 116 Has Concluded. When that proposal began, we already knew that burning SBDs would not be able to reduce inflation for as long as STEEM's price stayed below the haircut threshold, but here are the things that we did accomplish:

• SBD Supply: Decreased from 9.1 million to 8.1 million
• SPS Wallet: Declined from 5.2 million to 4.2 million
• Haircut Price: Dropped from approximately $0.152 to $0.136391

The proposal

In follow-up, the folks in the witness chat have been testing a method to use the SPS to fund a controlled burn of STEEM. The main advantage of burning STEEM, instead of SBDs, is that burning STEEM affects the inflation rate. It will reduce the current STEEM supply, and therefore, the virtual STEEM supply. In turn, this should also reduce the inflation rate.

The main challenge for burning STEEM, however, is that it requires an element of trust that was not needed for the SBD burn proposal. How does the community provide the flexibility to exchange SBDs for STEEM and remain confident that the funds will not go to some other purpose?

To solve this challenge with a multi-signature account, a script was created by @moecki and tested by him and three other top-20 witnesses. We now propose to use this script for a 6-month proposal, beginning on December 26, to burn both STEEM and SBDs, as follows:

1. 10,000 SBDs will be withdrawn from the SPS each day (416.667 per hour) and directed to the @burndao.burn account.
2. Based on settings in the script, this account will do one of three things with the funds:
   2.1 Transfer it to @burndao.market, which will buy STEEM and burn it
   2.2 Burn SBDs
   2.3 Return anything leftover to the SPS
3. At the beginning of the proposal
   3.1 The burn proposal will attempt to buy and burn up to 100 SBDs worth of STEEM per hour (2,400 per day). If there is not enough liquidity, however, it will cap the purchase at ³/₄ of all open orders.
   3.2 All remaining SBDs (316.667 or more) will be burned.
4. As the proposal continues, the community will monitor results and adjust parameters to take full advantage of available market liquidity.
5. At the proposal's conclusion, a maximum of 1.8 Million SBDs and/or their STEEM equivalent will have been burned by this activity. This represents about 22% of the current SBD supply.

Summary Table

Proposal Detail	Description
Duration	6 months, starting December 26
Daily SBD Allocation	10,000 SBDs withdrawn from SPS
Recipient Account	@burndao.burn
Hourly Purchase Target	100 SBDs worth of STEEM (up to 416.667 SBDs/hour)
Purchase Cap	Capped at 3/4 of open orders if liquidity is low
Burned Asset	100% of purchased STEEM is burned
Unused SBDs	Each hour, unspent SBDs are burned or returned to the SPS
Maximum burn	STEEM and/or SBDs with an internal market value up to ~1.8 million SBDs

Transparency

In order to ensure that the funds are used as intended by the community, the transactions will require approval from all 4 participating top-20 witnesses. The code that will be used can be viewed, in the repo for SteemWitnesses MultiSig, and these charts are scheduled for daily updates in order to monitor progress.

Justification

By reducing the SBD supply and haircut price, last month's proposal improved the general health of the Steem ecosystem, but when STEEM is priced below the haircut threshold, it's not possible to reduce inflation by burning SBDs. In contrast, burning STEEM should have an immediate impact on the virtual supply. Since inflation is calculated as a percentage of virtual supply, that means that burning STEEM also reduces inflation.

The drawback, however, is that burning STEEM increases the haircut threshold, which would drive the price of SBDs further from their $1 peg target. Also, there may be liquidity challenges that constrain the amount of STEEM that can be burned.

In order to reduce inflation without negative side-effects on SBD stability, it may be necessary to burn a combination of both. With the approach that has been adopted, the proposal can adapt to changing market conditions by increasing or decreasing the burn amounts for either STEEM or SBDs.

Community Protection

The following points are important so that the community can have some confidence that the SPS funds will be used as expected:

1. The wallet requires 4 of 4 multisig approval for any transactions, and the participating accounts are all top-20 witnesses.
2. The script is only capable of doing three things with the funds: buying and burning STEEM, burning SBDs, or returning SBDs to the SPS.
3. In the event of problems, the proposal can be unvoted and withdrawn.
4. All activities are carried out on-chain, with full transparency.
5. No participants will receive any share of the SPS funding for these activities.

If you support this proposal to improve the overall health of the Steem economic system, you can vote for it here.

Update: It's proposal #117