RE: I submitted my first hardfork pull request to the Steem blockchain! (Updates to the SBD print rate.)

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RE: I submitted my first hardfork pull request to the Steem blockchain! (Updates to the SBD print rate.)

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biophil in #steem • 7 years ago

A concern: isn't 10% the threshold at which the USD peg is abandoned?

It's been a very long time since I looked at the mechanics of this stuff, but I recall that when the debt ratio hits 10%, the peg switches from targeting 1 SBD = 1 USD to targeting MarketCap(SBD)=0.1*MarketCap(STEEM) or something similar.

If I have the details right, this means that your proposed change will continue printing SBD right up until the peg is designed to break. Your changes increase the aggressiveness of the pegging mechanism, and seem like they could add significant amounts of risk to the STEEM ecosystem in the event of a prolonged market downturn.

7 years ago in #steem by biophil

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timcliff 7 years ago

You are correct as far as the 10% limit. It is not necessarily catastrophic to pass that point though. It just means that SBD holders would get less than $1 USD for conversions if it passed that point. It is a linear reduction down, so at 11% debt limit, SBD converters would only get slightly less than $1 USD of STEEM for their conversions.

I did add some additional thoughts on the same subject in reply to @bacchist's comment above.

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ipoelkip 7 years ago

ping...

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timcliff 7 years ago

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ipoelkip 7 years ago

ping...

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smooth 7 years ago

Personally I would continue printing SBD forever. I don't think there is a need to limit supply when the market is overvaluing it. Let's say someone will buy $1 bills from you for $2. So you sell them as many as you can get your hands on, or do you sell some limited number and then stop?

The purpose of the 10% limit is to cap the backing of all of the outstanding SBD at 10% of STEEM's market cap (considered a 'safe' amount) regardless of the amount of SBD in circulation. So if the market wants lots and lots of SBD with less and less backing, why not give it to them?

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knircky 7 years ago

Yep!

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leprechaun 7 years ago (edited)

LOL. Good questions!

However, imagine how whales of Nubits feel now that the per unit value is 0.44 Usd. Some of the owners of the Steem Dollar are not responsible for this problem. If I can just convince high schoolers here to start blogging, I bet I can buy Steem Dollars for one peso each.

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smooth 7 years ago

NuBits promises a value of $1 and it hasn't delivered. SBD doesn't really promise that any more (since I think it was HF14), it promises a peg price that is conditional on the value of STEEM. If STEEM's market cap isn't enough to support the amount of SBD that exists, SBD holders are explicitly taking price risk. If they don't like that they should exit SBD. I find SBD's promises to be a lot more honest and reasonable than most of the other pegged coins which don't make explicit when they will no longer sustain a fixed price.

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charitybot 7 years ago

NuBits didn't have another coin to shit on. I agree with you that SBDs can be printed indefinitely. It just results in downwards pressure on STEEM. I have no issue with anyone at Upbit or elsewhere buying SBDs over a dollar if they're just using it as a fast trade. The peg is really only maintained to the downside as long as STEEM's ability to trade over $0 remains.

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smooth 7 years ago (edited)

NuBits didn't have another coin to shit on.

That's not correct. NuBits has NuShares which is the staking token and much of the backing for NuBits, much like STEEM/SP (though there are also important differences).

[printing SBD] just results in downwards pressure on STEEM

If the alternative were printing nothing, then I would agree. But it is not, so I don't. The alternative is printing STEEM to pay rewards. Instead of some of the SBD being used to buy STEEM and power up (which channels the overvaluation of SBD into the STEEM price through added buying power), some of the printed STEEM is sold, resulting in downward pressure on the STEEM price.

Not printing SBD (and instead printing STEEM) when SBD is overvalued is pretty clearly a negative for STEEM. More selling of STEEM, less buying of STEEM, less/no 'bonus' buying power for STEEM due to the SBD overvaluation. There is no advantage to it, except to SBD speculators. Steem itself pays the price to enrich them. That's a foolish course of action for Steem stakeholders.

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charitybot 7 years ago

I see, I didn't look into nubits too much, just thought their dumb bot attempted to buy things, and I assumed it was with more nubits, which just seemed idiotic. That sounds about as dumb as I first assumed though.

I mean, people are going to prefer whatever benefits them, and I don't have a large stake in steem so...

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biophil 7 years ago

if the market wants lots and lots of SBD with less and less backing, why not give it to them?

Simply put, because I don't trust the market's risk management skills. In the medium-to-long term, undercollateralization almost certainly leads to peg discounts when the price of STEEM falls.

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smooth 7 years ago (edited)

Peg discounts are otherwise handled by the system and indeed if you look at the price history there have not been significant sustained discounts ever (apart from a short time 2016 when few people understood how it worked). Premiums are not otherwise handled by the system. The only way to resolve a premium (which do put a very high degree of risk onto SBD holders; someone buying/receiving SBD at $5 is at risk of easily losing 80% of their money, and indeed this has happened) is by issuing/selling more of it.

Furthermore there is no real 'risk' here, in the sense of risk to the overall system. SBD regardless of the amount issued is capped at 10% of STEEM's value period, which is so small it is actually less than many one-day price moves. Any additional issuance of SBD just means that SBD buyers are voluntarily accepting some of STEEM's price risk. I see no harm in that. It actually addresses one of the frequent criticisms of pegged assets, which is that they are making an unkeepable promise to always maintain a price. SBD doesn't do that. It promises to maintain a price as long as STEEM's price/marketcap is high enough.

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biophil 7 years ago

Furthermore there is no real 'risk' here, in the sense of risk to the overall system. SBD regardless of the amount issued is capped at 10% of STEEM's value period

That's exactly right, and the missing piece I was forgetting about. It's not like SBD is at risk of a total collapse if too much is printed.

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