Proposal #117: Global supply and inflation snapshot after about 11 weeks: 1.1 million SBD reduction, little change in STEEM supply growth

I thought this weekend would be a good time for another update on the progress from Proposal #117: Proposing another controlled burn from the Steem Proposal System, so here it is.

Overview

The main thing we were expecting to see by burning STEEM, instead of SBDs, is an inflation reduction. It hasn't worked out that way, however. It seems that selling SBDs to buy STEEM has triggered an uptick in SBD conversion activity, and that uptick has created enough STEEM to completely offset the STEEM that is being burned by the proposal. When I last posted, it wasn't clear whether the proposal had spurred an increase in SBD conversions. As-of today, it seems clear that it has.

This means that inflation-reduction by burning tokens is basically off the table for as long as the STEEM price remains below the haircut price. In order to reduce inflation, we need SBD burning to effect the virtual supply. That can only happen if the price of STEEM rises above the haircut price or if the haircut price drops below the price of STEEM. (Setting aside the possibility of a large increase in post-promotion activity that could create SBD buying pressure and reduce SBD conversion activity.)

So what's going on with the haircut price? The combination of token burning and SBD conversions has lowered the haircut price from about $0.14 last December to $0.123 cents today. (Reduced by ~12%).

Since the blockchain's conversion rate is determined by the haircut price, this also means that the blockchain's conversion rate for SBDs has increased from about 7 STEEM per SBD (¹/_0.14) to 8.1 STEEM per SBD (¹/_0.123). i.e. The STEEM value of each SBD has increased by about 15%.

In all, the expected SBD production (without burning) since I began collecting data (Dec. 6) would have been an increase of about 127 thousand. Instead, the SBD supply has been reduced by about 1.1 million. In contrast, the overall STEEM production was expected to be about 10.1 million, and the actual production was almost 10.3 million.

Now, on to the visuals.

Global Properties

This shows data from October forward, so it includes proposal #116 and #117. The scale of the chart isn't really big enough to see changes in STEEM supplies, but we can clearly see the sharp reduction in SBD supply from proposal #116 (35K per day) in November and the gentler reduction from proposal #117 (10K per day) from late December through today. In combination, the two proposals have trimmed the SBD supply by almost 19%.

Observed inflation vs. expected inflation

This information is updated daily, so you can check it at any time. The expected inflation from December 6 until today was 5.67% and the actual inflation was 5.77% (annualized).

SBD Conversion Activity

SBD Conversion is shown over 180 days for context and over 21 days so the labels are readable. The bottom line is that SBD conversion activity clearly ramped up shortly after the beginning of proposal #117. The proposal is burning about 4,992 SBDs worth of STEEM each day, so only days with total SBD conversions below that value would serve to reduce the daily inflation rate.

180 Days

21 Days

Internal, external, and nominal value of the SPS Wallet

This shows the last year's worth of data. The internal and external values have continued to move together, supporting my theory that after the upbit delisting, the SBD price is following a sliding peg that's set by the blockchain's median STEEM price over 3 1/2 days / the haircut price. In recent weeks, the gap between that "sliding peg" and the nominal price may have begun converging.

Haircut pricing / SBD Value

These values come from the global properties chart, and they align nicely with the observed SBD Conversion Activity that appears above. As noted last month, it's always good to see matching numbers when two different methods are used. The graph shows the haircut price (left axis) and the blockchain's conversion rate in ^STEEM / _SBD (right axis).

Just for fun: Price comparison

There's no way to know if the proposal is effecting the STEEM price, and that's not the goal, anyway, but just out of curiosity, I used Yahoo! Finance and compared the price of STEEM, BTC, ETH, and HIVE during the time of the proposal. Of course, if the results had been unfavorable, I would not have included this chart - so don't draw any conclusions from it. To me, it's just interesting to see.

From the end of December to now, STEEM has dropped by about 10%, BTC by 19%, and HIVE and ETH have both fallen by about 30%. Nobody likes to see the price dropping, but relatively speaking, STEEM has held its own against these comparison tokens.

One last thing

Although it is not immediately deflationary to burn SBDs with the STEEM price below the haircut price. It can still have long-term deflationary effects. There are two factors to bear in mind.

1. When the price of STEEM is above the haircut price, increases to STEEM's price are deflationary. The lower the haircut price is, the easier it is to start that process, and the faster the deflation happens.
2. There may be a sort-of an 80/20 rule where 80% of possible price-related deflation can be realized when STEEM's price is 6x the haircut price.
   • If so, when the haircut price was $0.25, we could reach an 80% deflation level with a STEEM price of $1.50. When the haircut price dropped to $0.14, that level dropped to $0.84, and with today's value of $0.123, the 80% deflation level is just $0.74.