The benefits of inaction: a defense of a high SBD.
So, on the Steem Panel Discussion today we talked some about the state of the economy, and one of the points of discussion was the sudden spike in the price of SBD. There are many voices calling for Steemit and the witnesses to alter the economics and attempt to drive the price back to 1USD / 1SBD. There are good reasons to do that, but I'm of the opinion that we should enjoy the SBD being high, it's good and egalitarian for the platform, and the plan should be to do absolutely nothing about it. Not a damn thing!
Options I've heard
"Get rid of the SBD" - Literally stop having them be an option... hard to implement given that 3.6M are already outstanding, but it would make Steem and Steem power the only things on the platform.
"Print more SBDs" - Do things like allow 75% payout in SBD or witness production rewards in sbd. This should lower the price by increasing the supply. Neat ideas, but this also adds more SBD, which is a debt instrument to the platform and could have negative consequences down the road.
"Change the Bias" - This is a witness setting that works as a platform ratio, tweaking it higher can produce more SBD, but also weakens conversion of SBD into steem (and it's already a 90% loss if you convert). This feels like a band aid that isn't worth it.
"Let SBD be converted back into Steem" - this is probably the most popular option and it would allow a direct conversion of steem into SBD, which would allow Steem the ability to capture the rise in SBD price. I'm against this because I want the value going to the posters as opposed to the historic owners of steem power.
Overall goal
People want their account value to rise. As much as this platform has great values (moral) we also are trying to extract value (financial) from it. Naturally folks want the value of wallets to rise and that means Steem and potentially SBD rising in value.
I want the value of steem to rise, but here's my challenge. The distribution of steem is extremely warped. 93% of the steem is in less than 1% of the accounts. That's not a good distribution. Even feudalism didn't have that, and while I love nearly everything this platform I truly hate that piece of it. That's the distribution of Steem, but not the distribution of SBDs. SBDs are tied to author rewards more than historic Steem ownership and so the distribution of those can be approximated to this graph.
That graph doesn't quite show the whole story as it doesn't really show how many of those post rewards are created by the bid bots and that money then flows back to the primary steem holders, but it's one of the best representations that I have available. And it'll have to do. Bid bots are only about 5% of the SP so that graph doesn't quite show that @freedom and @blocktrades and maybe a few others are getting fat paychecks from this, but at least we know that it's not 25 accounts that earn it all on post rewards.
My option
Do nothing and HODL! The price of SBD will rise and rise a ton. that's because we're trying to fuel an internet worth of commerce with 3.6M tokens that barely change amount in a given year. So... those fuckers are gonna keep skyrocketing if we don't change it. Personally I like that idea. It's going to help this place grow. At some point you're going to buy a house with 10k SBD, and it'll be a nice house. This is a good thing for the posters on the platform and if we keep attracting posters to the platform that's ultimately good for the steem investors too.
Why do we have Steem and SBDs?
When this platform first started bitcoin wasn't at $15kUSD/coin. Most people didn't know shit about the space, and no one had any idea why we should be looking at these things. The creators of the platform decided at the very least we were going to need something pretty familiar to money used every day to have it make any sense. So, they created the SBD. This was also at the time when they were using vests, which most of you may not have even heard of and vests eventually turned into Steem Power on the front end (though vests are still used in the backend).
From the start SBD was intended to always be worth a dollar worth of steem, but free markets being free markets, have made SBD something closer to the following definition: a unit of exchange worth a minimum of $1 USD worth of Steem. Witnesses can mostly guarantee a minimum of $1 USD worth of Steem by using the fact that SBD is a debt instrument. The block can literally award people interest in steem as the currency for those holding SBD. So when the price of SBD dips below $1 USD the witnesses can raise interest rates to make it more attractive and award the SBD holders a larger and larger portion of the inflationary awards on the system until we get back to a 1USD/1SBD valuation.
A Peg
It was supposed to be a peg to make transactions easier on the web. Not only can you do fast transactions without any fees using SBDs, but you can rest easy that they are worth $1USD today of Steem and will be a week from now. From a merchant stand point what you really want is a stable currency. You want to be able to buy and sell goods at prices that don't fluctuate much. You want it so when you order cotton to make your shirt that there isn't a 10x swing in the price of cotton or the shirts as it's really freaking hard to run a business on that.
A major challenge to the price stability is the supply. There's only 3.6 Million of these coins in existence. That's like 1/7th the number of bitcoins. There really aren't that many of these suckers. So, it doesn't take a lot of buying activity to push the price up and up and up! Recently we saw a Korean exchange start trading Steem and SBD and since that happened they've purchased over $8M USD worth of coins, and we're seeing the effect in the price of SBD and steem.
So, free markets being free markets and with there only 3.6M of these babies in existence we're getting a spike. I'm not ready to call this a pump. I think it may actually be a new normal, and just the beginning of this depending on how the platform and the witnesses move forward. The supply increases about 23k/day right now, but they can also be destroyed through converting to steem (don't do this now or you'll lose 90% of the value of your sbd), promoting a post, or lost on the interwebs. So, if we do nothing I think the answer is that the price will continue to rise and rise!
Benefit of rising price
Post rewards are going through the roof. High post rewards (especially if we switch the condenser frontend to show the value in USD instead of SBD) will bring an assload of people to Steem, which will fuel more growth, which should push the price higher!
Fiat inflation wars
If you pay attention to politics in the world there's a lot of emphasis on currency manipulation. A government takes out a loan, and then they want massive amounts of inflation so it's easier to pay it off. Banks are happy with inflation because it's easier to get higher loan amounts and ultimately leads to huge amounts of debt payments. Big companies want low dollar values typically so they can export things more cheaply and capture return basically by devaluing labor in the country. The people that don't want inflation are the normal pleabs. Especially with flat wages it just means you're gonna have to take on a second or third job to pay your bills.
Deflation
The banks will tell you that deflation is horrible and the sky will fall, but if you're brand new here let me be the first to tell you that those bankers are assholes.
I want to hold a currency and wait a year and be able to purchase more groceries with them, which is the exact opposite of what we have now. This type of deflation is good for the people. It's great for the platform. It's gonna make posters on here millionaires.
The challenge of a floating SBD
This makes it a challenge to sell things with SBD. A strong currency hurts exports, but at the moment we don't really have any other than entertainment, so I'm not worried about killing a Steem car industry. So, for us, there isn't a down side to high SBDs. And we lost the peg... so what, there isnt' a ton of commerce on the platform anyway so who cares? Peerhubs exists, but they can just as easily list prices in USD which is relatively stable because of the volume of it, but still accept steem and SBD as payment.
We dont' have 8 million steem backed merchants, and the ones we do have already have tools to convert between USD, Euros, SBD, steem, btc, and all the other coins that they may have to deal in. My point is that the people hurt the most by a fluctuating currency are the merchants, but the good news is that we don't have that many, but we do have 30k active users looking to earn money by blogging. So, let's help them!
The skinny
The short answer is that we're not really hurting anyone with a high sbd, it's going to attract new people here, and it's nice to get paid in a way that supports the active community rather than the original steem holders, which don't have a nice distribution in my eyes.
What's my conclusion?
Don't do shit. Don't print more sbd, don't convert back and forth, don't change the bias. Do write and post more and enjoy the rewards, do change the website to display in other currencies, do enjoy having a strong dollar, and enjoy being able to purchase other coins more cheaply from highly rewarded posts.
What if SBD crashes?
That's different. I would support raising interest on sbd to support a $1 point again so that we meet the promise of a minimum of $1, but I'm pretty sure we shouldn't do anything to change how SBD functions and just enjoy the ride and high price.
I am not really opposed to “do nothing” at the current point in time, but I am not taking some of the other options off the table either. High SBD is good for all the reasons you state - and I totally agree, but the problem is when it goes the other way. When SBD is not being pumped, the main value proposition is that it is a stable currency. If that is no longer the view of SBD in investor’s eyes, it could unfortunately cause things to go the other way. We do need to make sure that we hold on to that, although a stable currency that occasionally has spikes up to 10x does not seem that bad of a value proposition either :)
SBD was meant for being a stable currency and it should be a stable currency. It would also question the legitmacy of SBD's purpose cause it was always meant to be a stable pegged coin.
By the way, authors are loving the SBD to the moon. ;)
SBD is great for the usage of Steem but no pegging will definitely reduce stability. However, this is crypto so I guess the default is to let it destabilize and deflate.
😕😎
I do, but it makes quite a quandary for the fledgling author. I want to convert everything so that I can get more power for forum use, however the constant rise means I also want to hang onto it because of trading out too early.
a stable currency should be a long term goal but when the amount of coins is limited is that even realistic? Since steemit and steem are in the early stages, how do you peg that when we have millions of users and investors AND it's limited in amount? Forgive me if my economics are lackinghere..
I think the long term goal of two currencies should be to keep one stable so an economy can grow within the platform.
BUT that isn't much of a priority right now as that inner economy hasn't yet developed much and the current situation is GREAT for minnows like me, and for the platform as it's creating a healthy middle class.
So I vote "do nothing" for now and set up a kind of "gradual stabilization plan" if this is possible. Is it possible to "print more steem" or is that something we can't or really don't want to do?
Thanks @timcliff and @aggroed for trying to represent so many users concerns.
That would require a hardfork. No sane guy is going to do that to just peg SBD. Of course insane ideas like mine could promote something like it when I called for a hardfork when zeartul scammed people. Lol I was just making a point but we are not going to do anything likethat. Are we @timcliff ;)
So, we can't print more steem out of thin air. Daily about 20k SBD is printed. That's a very low amount to peg it now. It has gone so high that it will take at least a week to go back to its original price.
In fact, SBD might stay high for a much longer time if the pump kings keep on increasing the demand.
I think our views are pretty much in alignment. The proposal to allow users to create new SBD tokens by running the 'conversion' process in reverse is basically the way to address the supply-side problem.
I will start by pointing out that I am new here. But the conversion being only one direction has really confused me. It is not explained anywhere and with the rise of SBD in past week well it just muddied up the waters even further than they were for NEW people like me.
In the article, the author states that he does not want the conversion you are propossing because he feels the SBD gains should go to authors and not STEEM holders. I think this is quite a flawed argument because it is possible for someone to convert steem to btc then btc to SBD. So by making the transfers seamless by implementing bi-directional trading through steemit this would allow for the gains seen in SBD be be more evenly distributed across the two currencies.
The way I see it, Steem should somehow be attached to the SBD price. Not sure how we would implement this kind of mechanism but when Steem rises 10% so too should SBD (Vice Versa).
This environment is still new to me, so I could be completely wrong and not understanding the economics properly.
The point about it benefiting new users is that for most people, earning SBD through author rewards is easier than buying STEEM (or SBD) for real money. As long as the price of SBD is higher, users who get SBD rewards will be able to afford more STEEM for the same amount of SBD. Example - right now, SBD is trading for about $12. If you wanted STEEM, you can get $12 worth of STEEM for every 1 SBD that you earn.
No, your economics isn't lacking.I'm a PhD economist, and in light of Venezuela's announcement, I've been trying to figure out exactly how you could peg a crypto.
The only way that I can see is to would be to disallow trading on external markets. In other words, Steem is traded on exchanges, while SBD can be sold only on steemit for exactly $1. (And the conversion between steem and SBD also only occurs only on steemit).
You can check my wallet it you like, but you might discover that there are outlets for the SBD (and STEEM) tokens elsewhere. Try Poloniex if you dare, but I happen to have just tried out Bittrex. It's a bit hard to get setup, but I am already getting fiat US Dollars into my bank account from a few SBD coins at around $11 USD per SBD. Learn how the exchanges work and you can make real money and profits this way.
Exactly. And as long as it is true that you can convert SBD in an actual market, there is no way to control SBD prices to make sure it adheres to a peg. (And I 100% agree with your Poloniex evaluation, it's down there with Kraken. I don't understand why they have so much market share given all their glitches. But that's a topic for another day).
Woot. You'll have to excuse me while I rub someone's smug little face in this comment.
thanks for this :)
Wow, I never expected an economist to think in line with me on economics. Today was a good day. X-D
SBD can be traded for BTC on Polo 🤔 ....?
If you read the first sentence of the paragraph and last sentence of the paragraph as well:
The fact that SBD is trading on other exchanges, like Poloniex, is why its price cannot be fixed at $1.
It's like you are also making a point here. I would like to hear more
In January I'm hoping to start doing bi-weekly posts explaining the academic literature that's been published around cryptocurrencies and cryptoassets. Since I'm interested in the international market aspects, I suspect that a discussion of pegs will make its way into one of my posts sooner rather than later.
I get why it’s worth a lot (it’s similiar to ebtc) but I think increasing supply is the answer. The 75 pct reward option. Seems perfect.
yes. I also think that the increasing price of SBD is really good for all stemian. because as increase in price of SBD then obvious acount value of steemit member increase. Steem and SBD are both cryptocurrency is important for all stemian. So like SBD, Hopefully price of steem will be increases.
It's temporarily good but in the long term it is not. SBD is not meant for being that high. It's called Steem Dollars for a reason. It is supposed to be pegged to 1$.
I chose to post my comment here so everybody will see. The world is a greedy place already. People tend to love what mostly benefits them. For the minnows, the rise in sbd is the most happiest thing to them.
For some of the whales,oooops they've already got lots of steem, so sbd rise is not something they'll be happy about. That'll want steem to grow instead of sbd.
Monitor the comments on this post and you'll notice what I'm talking about.
Those with more steem will want steem to rise and sbd to go low.
Those with sbd will clamour for the price of sbd to remain as it is or go up.
It's just what humans do.
Nice article.
Happy Steeming
And what prevents the SBD to be fixed currency, but with the price of $10? :) Yes it may sound illogical, but on the other hand, fiat money works on the same principle constantly changing in price relative to each other, and even their equivalent in commodities is constantly changing. Even gold may vary in price, although it is considered a standard. Pump cost, for example every six months is normal. I think more harmful is to force the lowering of prices, which again can jump. Such a scenario definitely rules out the concept of fixed currency.
That makes no sense. Do you want a stable currency? Or one that spikes by 10X? Those are mutually exclusive.
If SBD could be a stable currency over the long term, but occasionally have a spike - I think that would be OK.
I dont think so. If u cant trust the peg its useless.
Think about people that want to use sbd to be able to plan and manage their cost ?
Not exactly true. A minimum-peg guarantees the lowest price, but lets the currency go up as high as it wishes (a minimum peg from one perspective is a maximum peg from another. For the purposes of this response I'm using the minimum peg terminology to mean that the lowest SBD price is $1).
From that perspective, if the ecosystem can guarantee you that the lowest price you'll ever receive is US$1---but you may get more---is arguably is as good as a system that guarentees that you'll only get US$1.
Very true
SBD is not stable currency because its price increased suddenly.
It has been stable for a long time,
Just because people buy in for insane prices. Means that they probably didn't read the whitepaper.
Something has value when enough people want to buy it. Maybe the overall market is larger than the original ideas about creating a Utopian currency detailed in the white paper.
Basically if you look at it from a Perspective completely outside of a Steemit user the White Paper is essentially a plan for artificially suppressing two currencies (Steem and SteemDollars) in order to maintain a Pyramidical system of control.
Steem is artificially devalued by nearly 10% every year and SteemDollars are "pegged" to the US Dollar. Both of those concepts are essentially nuts. So you have an innovative BlockChain Social Media network where it's internal trading currency (SBD) is pegged to Fiat currency. Go figure. Pegging a Crypto currency to a Fiat currency is an Oxymoron right?
By volume Steem is one of the largest established Crypto currencies and is the only one that is being artificially suppressed and devalued. If it wasn't artificially suppressed then just on the value of Steemit having so many active users and being part of the Steem BlockChain the true value of Steem should be way closer to Bitcoin.
Maybe letting Steem and SBD rise naturally would actually be a lot better for Steemit users as a whole.
SteemPower is already locked in. Why do Steem and SteemDollars therefore need the artificial constraints? Why can't they just be traded naturally on the marketplace.
I think that the reason why both SBD and Steem have been devalued and suppressed all this time was to give an incentive to the whales to sell the coins. If you look at https://steemwhales.com, you will notice that very few users control the vast majority of the coins, and that is not a good thing for Steem as a platform.
By keeping the price of SBD high and Steem relatively lower for the medium term, the small minnows will at least get a chance to acquire more Steem Power by selling their author rewards in SBD and get Steem to powerup, which would improve the overall distribution of wealth on the platform.
Agreed. Also most of this will be solved with SMTs, since each SMT will have it's own distribution.
I totally agree. There are many, many Steemians, who provide high quality content. Additionally, the time stamp is default equivalent of a copyright, patent, registration, or trademark. This fact alone should be promoted more, and also makes content on STEEMIT very, very valuable.
Therefore, undervaluing STEEM and SBD is likewise undervaluing the content providers. This condition must be changed, whatever it takes.
yes. you are right. thanks for comment.
I really like this post as it includes historic analysis, financial facts and is written in language, I think is understandable even to a person who is not financial pro. dealing with higher SBD price, that's nothing special, as "Korean exchange start trading Steem and SBD". So Steem and SBD became "Hotter than two hamsters farting in a wool sock" :)
(southern US saying). When something is massively bought up, it becomes more rare on the market, right? Everything gets high in price with its rarity. If gold would be bought up, it's price would sky-rocket. And same thing happens with anything else on the market. This way of trading is old as it can be.
true.
the idea of a stablecoin isn't supposed to do stuff like this !
in this case we luckily experience the benefit side.
mmmmmmm
not sure what u ment
Great argument. Completely agree with it.
Hello @aggroed, thank you for this well written post explaining the current situation with SBD. I agree on all points regarding the benefits of not changing anything with SBD at this point in time.
This spike in price should indeed bring many new users to the platform, and will spur adoption on the platform.
Once the platform develops and matures, I think the free market will balance the price of SBD anyway. And if SBD (deflationary) becomes the holding currency and Steem (inflationary) the spending one, I am fine with that as well. I do not think many are hoarding Steem. Most convert their Steem to SP anyways to earn and give even more SBD for each upvote!
Keeping a peg on a currency is no easy task in a free market with supply/demand forces at play. Even Tether prints a ton of new Tether just to be able to keep the price relatively close to $1 USD. But that is a topic for another post all together.
Steemit Inc. should focus on building a great blogging and social media platform. The economy that will grow upon the platform has to remain free, so I think the free market should set the price of SBD and Steem, and a the only peg that is needed is to guarantee the minimum conversion of 1 SBD = $1 worth of Steem.
For merchants on Steemit, there should be a way for them to set a price in USD, and the users have an option to pay in Steem or SBD. Hence a volume weighted average price of Steem and SBD across all major exchanges should be tracked and part of the conversion calculation. In this scenario, a peg would no longer be required.
Please let me know what you think.
Thanks for the good insight.
Btw, everybody is mentioning that changing the bias can increase SBD supply, but I couldn't find the source of the rule. Could you give the grounds for it?
I must say, it's certainly nice to see the rise in SBD. I'd like to see Steem follow suit.
Um, I disagree. It's just a pump, we had that before and SBD went back to $1. On top of that poloniex doesn't account deposits and withdrawals. They just hold 600,000 steemians SBD and probably do inside trading with them. Once they can't earn more, they will allow SBD transfers and huge amount SBD supply will hit the market. Also on Bittrex the price jumps +50% within seconds. It's just a market manipulation, that's all.
If SBD can be trade in open market and we don't have a lot of it, high demand will pump the price.
It is objective to wish SBD price stays around one dollar.
If there is a way to control it, I am for to lower it down.
Cause we do not want chaos when the price returns to normal.
Keep on learning and steemit.
I rarely check 'trending' these days, but in this case it was worth it: you delivered some interesting food for thought. Actually, I always sell my SBD in the market to get as many STEEM as possible, but your strategy just to keep your SBD may work as well. Anyways, I also would not try to influence the SBD markets as long as one SBD is at least worth one US dollar.
I too sell the SBD's just as fast as I get them for steem and always thought this was a good plan during these times for the high rate of return? After reading this though it makes me wonder? I may hold on to some SBD at this point and see what happens even thought to me the exchange rate for steem is ridiculously good I suppose if one is in it for the long haul sell SBD for steem and power up or am I wrong at this point and time?
In case you think that one day STEEM has the same or even higher value than SBD again in future, of course it is reasonable to buy STEEM from SBD now.
If you believe that the value of SBD will even increase compared to the value of STEEM, then you should keep your SBD ...
And if you're not sure a balanced portfolio of both is totally acceptable.
I agree with your conclusion however, have you ever given this a thought - get rid of delegation - I do think this is whats causing the price of Steem to be so low
why on earth would one buy in the market if they could just rent it here without them knowing they're being charged rent fee sometimes so high up to 24% higher than the 10% the banks that they hate charge them per year .
comment upped for visibility
I think they should try and take a good look at that one too
I certainly do not mind the continuous rise.