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RE: How the Steem Dollar Peg Works
That talk was an embarrassment, particularly after Jeff left. It was clear no one there knew anything about Steem aside from FUD spread across the internet. The most hilarious part was when the host kept talking about a cap of 47,000 users from the "whitepaper". No idea what he was looking at, but it sure as hell wasn't the Whitepaper.
That said, a valid question is why the 1 Steem Dollar is US$ 0.85 at the exchanges.
Haha, yeah, though even when Jeff was there, there was a lot of uncertainty and confusion. Jeff is super pumped about Steem, and I'm glad that he's doing so much to promote it, but he has much to learn yet (which he's vocally aware of, so good on him).
Off the top of my head, I can think of two reasons why 1 SD would trade at substantially less than $1:
I feel it has something to do with discrepancies between Internal Market and exchanges. Currently, the Internal Market is trading at SBD 1.97 for 1 Steem. If SBD 1 = USD 1, the exchanges would be trading at US$ 1.97 too. But the exchanges are at US$1.70. By undervaluing the SBD at $0.90, it keeps the USD value of the Internal Market much closer to the exchanges. However, in this case, should the Steem price not rise to meet the Internal Market? And not a fall in the SBD?
But anyhow, that's how it has worked out so far. I hope this stabilizes in the future, and the Steem founders are taking measures to do so.
The internal market is almost entirely irrelevant at this point. Hardly anyone uses it and I question whether it is even needed. (We have it and it works, so I wouldn't suggest getting rid of it, but if we did, the essential functions of Steem would not be affected at all.)
I agree with @modprobe's answer.
The internal market is using a 7-day rolling average price for Steem.
The internal market is based on supply and demand, just as Poloniex or Bittrex. The price will generally track to the price found on external markets.
Also the fact that it's locked up for 7 days. I've posted arguing that it should be changed from a 7 day waiting period to a 3 day waiting period, due to the risk that is involved. Changes in the market can cause the user to lose money... If the price of STEEM is below the weekly average when the order is executed by a greater proportion than the market is undervaluing SBD, they will have lost value. It's hard to forecast what the market is going to do a week out.
I believe it's trading at a discount because of the 1-week delay in price feeds. If STEEM were increasing in value, SBD would be trading at a premium. I think... I haven't completely worked out all the details yet.
Anyway, the conversion price lags the real-world price by about half a week, which means I'm not confident that I'd make money by buying SBD at a discount and then converting it to STEEM.
@biophil Excellent insight and you are 100% spot on. People are pricing in the risk of a slide in the dollar value of steem. They want out and they want out now. Back when the price of steem was rising, you couldn't buy SBD for less than a 30% premium. I have a post from back when that was a fact, explaining to people that they should sell SBD on polo to drive the price back down to normal.
Right now, the very best thing you can do financially is either to hold SBD (which I've just found gains 10% interest), or convert it to steem thereby giving you about a 20% gain in dollar terms and also destroys the excess steem in the system.
Yeah, I'm running a SBD-to-STEEM conversion experiment right now where I'm converting a set amount of SBD per day and then re-purchasing SBD when the conversion goes through. My first attempt that I completed today netted me a little over 2% (I started with 200 SBD, ended up with just over 204). That is very very far from the 15% that all of the face values are suggesting, and I don't know where you came up with 20% - that's simply not available today. :)
I think it is a combination of two things:
If you think people are pricing it wrong, buy up Steem dollars and convert them to Steem. But the fact that this price discrepancy remains shows that nobody is willing to bet a ton of money that the price is wrong.
I'd do this, but the 1-week delayed feed puts a lot of uncertainty into that conversion because the conversion price lags the real-world price by about half a week.
Exactly. And it's possible that most of the "discount" is the rational pricing of that risk.
Yep