May global supply and inflation review for Proposal #117: Last update before the proposal closes - 1.8M SBD reduction / little change to inflation
Overview
As proposal #117 nears its conclusion, I wasn't planning on doing any more updates, but I reconsidered and decided that I should do one more update as the proposal proceeds through its final month. At this point, we can start looking at what the proposal did and didn't accomplish.
Observations
- We thought it would reduce inflation, and I think maybe it did - slightly, but certainly not as much as I had anticipated. When the proposal started, inflation was generally running about 4% over the blockchain's configured rate. Over the time of the proposal, it's running at about 21/2% above the blockchain's rate.
- So, on net, the proposal probably drove a modest reduction, but inflation remains higher than the default rate.
- The reason why inflation was preserved appears to be that the proposal triggered an onset in SBD conversions, which has two main downstream effects: (i.) It lowers the haircut price; and (ii.) It increases inflation.
- The haircut price declined by ~20% from $0.136 to $0.109.
- CoinMarketCap and Coingecko are not getting valid SBD supply updates. During the course of the proposal the SBD supply dropped from ~8 million to 6.7 million. Those websites still show it at ~9.8 million.
Assumption
- I continue to believe that the SBD price is following a sliding peg that is set by the witness' mathematical median price of STEEM and the haircut price. For example, today's median price is $0.051, and the haircut price is $0.109. That would predict an SBD price of $0.465. The external SBD price is $0.455. (Note: It jumped to $0.495 while I was writing this. I predict that it returns to the peg. ;-))
Interpretation (my opinion)
- The reduced haircut price led to a ~24% increase in the value of SBDs, from 7.35 STEEM per SBD to 9.12 STEEM per SBD.
- Without the haircut price reduction, and assuming the sliding peg, today's SBD price would be in the neighborhood of $0.375 ($0.051 / $0.136 - the original haircut price).
- Due to haircut price effects on post payouts, this means that without the proposal, the rewards on posts (in terms of STEEM) would now be about 20% lower.
Takeaways (also my opinions)
- It seems that the only way to reduce inflation below the blockchain's default rate is to flip the median price of STEEM and the haircut price. Burning STEEM doesn't have enough of a "punch" with today's limited demand for SBDs and the sliding peg that seems to govern SBD prices.
- Mathematically, there are two ways to flip the haircut price: (i.) raise the price of STEEM; or (ii.) lower the haircut price by burning/converting SBDs.
- Future burn projects should probably be directed towards SBDs, not STEEM, when the STEEM price is below the haircut price.
- Considering the effect that the haircut price has on reward payouts, lowering the haircut price is probably a more important consideration for burn projects than reducing inflation.
- For this purpose, post promotion is still the best currently existing candidate that I'm aware of.
- Investors who want to protect the value of their holdings should seriously focus on initiatives that cultivate and support use of the blockchain's post promotion mechanism.
So, that's enough from me. This section was supposed to be short, but it didn't turn out that way. Let's get on to the numbers and visuals.
Summary Table
| Metric | Before Prop #117 | Current (May 2026) | Change |
|---|---|---|---|
| Haircut Price | ~$0.136 | ~$0.109 | -19.9% |
| STEEM per SBD (conversion rate) | 7.35 | 9.12 | +24.4% |
| SBD Supply | (Baseline) | -1.8M | Significant Drop |
| STEEM Supply | (Baseline) | +17.7M (~400k above expected inflation) | Close to expected |
| SPS SBDs | 4.2M | 2.7M | -36% |
| SPS Market Value | $2.0M | $1.4M | -30% |
Global Properties
No surprises here. Big drop in SBD supply. STEEM supply changes are mostly too small to see at this scale, although the increase in collateralized STEEM might be visible (barely), due to the rising number of STEEM per SBD in the conversion rate.
Observed inflation vs. expected inflation
From here and updated daily. The observed rates seem to be declining faster than the expected rates, but only by a hair.
SBD Conversions
By now, it seems clear that this proposal triggered a lot of new SBD conversion activity. I'm curious to see whether it continues after the proposal ends.
180 days
30 days
~150K SBDs converted in the last 30 days, vs. ~171K in last month's post.
Internal, external, and nominal value of the SPS Wallet
Again, no surprises.
Unfortunately, the falling haircut price has been accompanied by a falling price of STEEM, and the internal & external values haven't closed the gap much with the nominal price, as we might have hoped.
However, the gentler slope of the internal/external price curves - as compared to the nominal price curve - tells us that the gap is closing.
Haircut pricing / SBD Value
Again, from here and updated daily. Again, no surprises.
As seen above, over the course of the proposal, ~1.8 million SBDs were destroyed and collateralized STEEM increased by ~2.3 million, so it's a simple byproduct of arithmetic that the STEEM paid per SBD has increased. Below the haircut price, when SBDs are being burned/converted, I think this sort of value increase is a mathematical necessity.
These numbers are derived from the global properties, and they match the observed transaction rates that are seen above.
Conclusion
| The key lesson, to me, is that when STEEM is below the haircut price, reducing inflation probably matters less than reducing the haircut price. |
|---|
So, what are the key lessons from proposal #117 (to date)?
Maybe one lesson is that Steem has its own version of Don't fight the fed.. We tried to adjust the blockchain's inflation rate by burning STEEM, instead of SBDs, but it turned out that market dynamics soaked up most of the inflation progress we could have made that way.
The key lesson, to me, is that when STEEM is below the haircut price, reducing inflation probably matters less than reducing the haircut price. This is because the gap between the current STEEM price and the haircut price drives the amount of rewards that are paid per post. With the "peg ratio" set at 0.465, posts are getting almost 50% of the rewards that they'd get above the haircut price (in terms of STEEM). If that ratio had been allowed to fall to 0.375, authors and curators would be getting about 20% less rewards for their blockchain activities.
Considering the last point, maybe the thing the witnesses should think about next is a proposal that takes SBDs from the SPS and cycles them in a loop doing: convert to STEEM (lowers haircut price) -> buy SBDs -> convert to STEEM -> and so on, until the haircut price drops below the price of STEEM. Then when the peg ratio eventually climbs above 1 (assuming it does), return the SBDs to the SPS.
Once upon a time, the community tried something like this with voluntary contributions and the @sbdpotato account but in the years after SF22.2, that didn't work out very well. Back then, we didn't make use of the multisig capability that the witnesses are using now, though.
Or, maybe we should all just shift our focus over to cultivating and supporting post promotion.