Thought experiment: Using SBD Interest to counterbalance the inflation tsunami that hit after Upbit's Q1 SBD delisting [burnsteem100]

More later... maybe. This is a very preliminary and incomplete review, and I'm out of the time, but here's what I'm thinking about today.

Bottom line: In principle, I'm thinking that the community might be able to use SBD interest and SPS burn proposals to sustainably reverse some/all of the Q1 inflation that flooded the blockchain. It might also be possible to use a similar mechanism for SBD stabilization. Importantly (unlike the current burn proposal), this scenario does not shrink the holdings in the SPS wallet, so it could be continued indefinitely.

Here's a rough sketch of the available supply flow mechanisms in the context of an hypothetical SBD stabilizer.

Here's an explanation by Google Gemini.

Here is the updated blog post section, incorporating the analysis of the "Final Amount" column and your two critical points about the debt ratio and peg mechanics.

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Deep Dive: Analyzing the Steem Stabilizer & SPS Economics

We recently ran a simulation to understand how the Steem Proposal System (SPS) interacts with the Stabilizer Account. By mapping a logic flowchart to a financial spreadsheet, we can visualize exactly how interest rates and burn mechanisms affect the total supply of STEEM and SBD over a one-year period.

1. The Green Loop: Funding the Machine

In the flowchart, the Green Arrows on the left represent the decision to pay interest on SBDs held in the SPS. The simulation asks "SBD Interest Yes/No," and answers Yes.

• The Input: The spreadsheet applies a 23% Interest Rate.
• The Flow: This generates roughly 920,000 SBD in new revenue for the SPS over the year.

2. The Stabilizer Valve: Balancing the Books

This is where the "Final Amount after Interest, Withdrawal, and Burning" column becomes vital.

If you look at the SPS Wallet row, the Start Value is 4,000,000 and the Final Amount is also 4,000,000.

• The Logic: The diagram shows an arrow from SPS to Stabilizer ("Fund Stabilizer").
• The Insight: The system is configured to withdraw exactly the amount of interest earned.
• Interest Earned: ~920,000 SBD
• Withdrawals: 2,519 daily * 365 days ≈ 920,000 SBD

• The Result: The SPS acts as a perpetual funding machine. It retains its principal (0% Net Change) while stripping out all the yield to fund the Stabilizer.

3. The Red Loop: The Cost of Burning STEEM

The right side of the diagram (the Red Arrows) represents the Stabilizer using those withdrawn funds to buy and burn STEEM.

• The Action: The Stabilizer takes the daily SBD withdrawal and sells it on the internal market to buy STEEM, which is then sent to the "Burn" box.
• The Deflation: The STEEM Supply row in the "Final Amount" column confirms this works. The supply drops from 550M to 544.48M.
• The Trade-off: We achieved a 1% deflation in STEEM supply.

4. The "Hidden" Consequence: Liquid SBD Expansion

The most dramatic number in the "Final Amount" column is the SBD Outside Wallet.

While the SPS wallet stayed flat, the amount of SBD circulating in the public market ("Outside Wallet") jumped from 4,000,000 to 5,840,000—a massive 46% increase. While this looks drastic, two critical economic safeguards (not shown in the spreadsheet) mitigate the risk:

• The "Haircut" Protection: It is important to note that an increase in SBD supply is not inherently inflationary to the system's debt load if the STEEM price is low enough to trigger the "haircut" rule (typically when SBD debt exceeds 10% of the STEEM market cap). In that scenario, SBD print rates are capped, preventing a death spiral and ensuring the new SBDs do not disproportionately dilute the ecosystem.
• The Arbitrage Peg: Even if the massive influx of SBD pushes the price below the target (sliding peg), market incentives take over. If SBD drops below the peg, arbitragers will buy cheap SBD and convert it to STEEM for a profit. This creates a natural "floor," soaking up the excess liquidity and restoring the peg, effectively counterbalancing the supply increase shown in the simulation.

Summary

This simulation demonstrates a "Wash and Burn" cycle: The SPS uses interest earnings to aggressively burn STEEM (-1% supply) at the cost of significantly increasing the liquid SBD supply (+46%). However, the health of this strategy relies heavily on the arbitrage mechanism and haircut rules to manage that excess SBD liquidity without breaking the peg.