The peg is long gone, and SBD will possibly never be in a position to be pegged (or controlled) by the Witnesses.
With 75% of all SBD in the Bittrex wallet, and being traded in a free market with other cryptos, even introducing conversions won't do much to change things. I do think having bidirectional conversions using the 3 day period would just be another speculative measure based on the price feeds, which could be exploited through trading and converting in either direction.
It's the low supply and high demand driving the price. The only way to devalue SBD is to pull a FED move and print a while lot more, flooding the market to minimized the power of the SBD being traded on Bittrex. That would be the biggest mistake ever!
The peg doesn't work, and won't work again even if is is set at $10 = 1SBD. It was an attempt at having a stable currency which just hasn't worked.
You may not realize that the existing, preprogrammed mechanism is already flooding the market with SBD, so I wouldn't call that a FED move. Currently about 700000 USD worth of SBD is being created per day and nearly all of it rapidly finds its way to the market to be sold. None of it is being destroyed so the supply of SBD just increases and increases until if finally gets back to $1.
In all likelyhood the pegging mechanism does indeed work, as it was shown to do last spring when the price of SBD went up to $20, only to be eventually pushed back down to $1 (it took about four months) by the same automatic, preprogrammed printing that I described above.
The problem is more that the peg works extremely slowly, which disrupts the utility of SBD and prevents us from benefiting from its usefulness as we otherwise could. We do get some extra rewards for a while, but is that a good tradeoff? Well, that's what this post was all about, I guess you will have to decide for yourself.
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Yeah I understand a bit more clearly now. The peg appears to be broken because it can't generate SBD quick enough to create an over-supply which will bring the price down.
The only way to increase the supply of SBD much quicker is for the Steem price to go up a hell of a lot in a short time. That will result in higher rewards and way more SBD being produced, which should drive the SBD price down.
What if we could choose our entire post reward payout to be in SBD? We would get twice as much SBD generated in the same timeframe than there is now with Steem staying at the same price. A lot of us would still use it to buy a lot more Steem, but the extra SBD supply will theoretically make the peg work much more effectively. Like you said, they way it works now is very slow. With the Steem and SBD supply ever increasing, it will just get slower. Reducing the production rate of steem by allowing rewards to be 100% SBD should drive Steem higher, and in turn increase the rate of supply of SBD, putting more downward pressure on the price of SBD.
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That's one option that has been considered, and I agree with your analysis. It does give more supply flexibility but only creates SBD 2x faster, which is probably not a dramatic change and may not help with the functioning of the peg much (if it is broken for two months instead of four months, that's still, basically, broken). Also some people oppose the 100% SBD because they like the idea of giving half in SP which vests people with a stake in the platform, and also because SBD being immediately liquid is a bit more attractive to spammers, bot farmers and other abusers.
Thanks for the exchange of ideas.
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To be clear, the witnesses don't control anything in this regard. This is all based on rules built into the blockchain itself which (in the case of conversions) each individual has the ability to take advantage of. Witnesses create blocks and provide consensus, but our "jobs" are controlled by those who vote us into (or out of) the position we hold. I'd say more, but smooth's response covers many of my thoughts as well.
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I get that most of the control is built into the blockchain, and witnesses create blocks and provide consensus, but I have seen in the past where adjusting price biases or interest rates has been done in an attempt to maintain the peg. What I'm saying is that the peg cannot be maintained with what little control the witnesses do have. A peg that allows the price to go up over 500%, and takes 4 months to rectify itself is hardly a peg at all. If anything it's a weak elastic band.
With the peg unable to be enforced, two-way conversion cannot be considered at all as it could be too easily exploited.
That's how I understand it.
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It's not a peg because we don't have a two way conversion. If we did, it's a good chance it would be. The peg preventing it from going too far below $1 seems to work fairly well.
Can you explain how it would be "too easily exploited"? The 3.5 day conversion makes that nearly impossible, as far as I understand.
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Having a two way conversion and a peg would only work if conversion was the only way to move between SBD and Steem. If you want two way conversion to work you would have to have a 3 day price average for both SBD and Steem, or one could simply use outside markets to buy Steem with their SBD, and then come back and convert their Steem into SBD at the peg rate, and then go back to market and repeat the process. You just can't have two way conversion with a peg on one currency in place when their are external markets.
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That’s exactly the type of activity which would enforce and secure the peg. That’s the entire point. People will be constantly incentivized to do this in either direction (up or down) whenever SBD gets too far away from $1 USD. A version of this works with bitUSD already (though it is slightly different).
The 3.5 day conversion time means this would be difficult to manipulate. Speculators would lose money trying to push SBD around becuase STEEM holders (and those who buy STEEM) would profit from that volatility. This sounds like a good thing for our community.
The external markets would have to correct according to supply and demand. As more and more SBD is dropped there, eventually it will correct.
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I see you point there, it would eventually settle towards the peg in the longer term.
One concern I would have is that the steem price would also settle towards parity with SBD as the only thing Steem does that SBD can't do is power up an gain curation rewards. Is that enough to make Steem worth $100 when SBD is pegged to $1. It makes Steem very expensive for what it does, and if 1Steem = 15 or 20 or 30 SBD, it would be way less enticing for people to buy it and power it up.
It seems right now that Steem is following SBD wherever is goes, and settles where SBD settles or within a small amount of dollars and cents. I did that at the last SBD spike in June 2017, and looks to be doing the same now.
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This is so confusing to me. The value of a cryptocurrency is determined by many different things including market cap and network effect. It's irrational to say "I'd buy X at $10 but wouldn't buy at $100" if it has a future value of $1,000 (as a random example). If people value the stability of SBD, then they will buy it or create more of it (through buying STEEM and converting) which increases the market cap of SBD. The captured value is still there in STEEM and SBD, regardless of the price.
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But we don't know the future value of STEEM. All the price movements of STEEM seem to have been triggered by a movement in SBD price. As SBD rises so STEEM follows. As it falls, so does STEEM fall. The two seem to be joined by some sort of elastic band, with SBD being the leader.
With a $1 SBD peg, and a high STEEM price, people may be inclined to spend their SBD rewards on other things (or hold it) until STEEM comes back down to meet SBD like it always has.
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I'm beginning to believe in a two-way conversion the more I think about it.. It may work, but the implementation and timing is tricky. I'd love to know what you think about my idea on how to phase the peg in back to 1USD over a finite period of time...
If you have a spare 5 mins.
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