Should SBD Be a Pegged Asset? If So, When Should We Peg It?

bobbysteem (54) · 7 years ago

SHOULD Bitcoin be a pegged asset? If so, what should we peg it to? Hmm... Discuss!

$3.62

xubrnt (1) · 6 years ago

i would like to bring witness t0 me ye i.d. 0 w/(h) e (a)d https://steemit.com/g0fig/@xubrnt/ned-steemit

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brianphobos (70) · 7 years ago

Great post Luke. This is a very interesting topic and from my personal experience the Steem Dollar getting way out of wack caused me to cancel my power down in the fall and then ultimately led me to powering up 0.5 BTC worth because I anticipated the price of STEEM getting pulled up because of the SBD being so high.

I personally do like the idea of the dollar peg and I'm blown away that the reward pool has increased 46X with these increases. To be honest it is kind of weird because a lot of us bloggers aren't really feeling it. I feel like I was making more money when STEEM was worth $2 and I had less followers than I am now.

It might be because there is tons of self voting and that is draining a lot of the pool. I'm not really sure. I would say some of my videos that I have uploaded on DTube have been some of the best work I have ever done on this platform especially my video on EOS which made maybe $15 or so.

Payouts are wacky and we have just accepted it but I'm also surprised no one mentioned NuBits anymore in the dollar peg conversation. It is unfortunately only on Bittrex but I have used it before and it seems to have a mechanism to keep it fairly stable.

It Tether blows up then I'm assuming my BitShares investment could payoff big if people feel they can't go to SBD because of the increased prices.

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lukestokes (75) · 7 years ago

Thanks Brian. Yes, payouts our funky and whenever we set expectations about them, we're bound to be disappointed. On the plus side, you do currently have a potential payout of $123 on a Picard meme on Dmania. :)

Interesting that you're confident a rise in SBD will directly lead to a STEEM rise. I see them usually happening together (especially when the combo gets added to a new exchange), but I'm not fully confident STEEM will always rise and fall with the price of SBD directly. Time will tell, I guess, but even then, it's still a correlation, not necessarily a causation. Most likely, they both go up and down based on the larger cryptocurrency market movements.

I'm not as familiar with NuBits. I'll have to look into it. I remember hearing about it as one of the pegs that broke, but it seems like it's doing well recently. I'll have to give it a second look. And yes, I think BitShares has a lot of room for growth for many reasons.

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intelliguy (68) · 7 years ago

You know... I can disappear for a long time (say weeks) on your posts. Not intentionally.. just "life happens".

...so then a few weeks pass... I come back to your blog, and I always ready myself "what if @lukestokes has sold out in the time I've been gone?"

Nope. Your morals are always intact. Money flows. It doesn't change who you are... You continually post, share your important thoughts... and never go silent.

I love steem. I like the price of steem.

Without being able to go to sleep at night knowing that @timcliff and @lukestokes are a key part of every block solved, I don't think I'd ever develop the confidence I do.

This is the long way of me saying @lukestokes -- you lead by example and thank you so very much... :)

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9 votes

lukestokes (75) · 7 years ago

Wow. Thank you so much. That's one of the nicest compliments I've ever received. I love steem also and how it rewards individuals like me very well for helping as best I can.

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princessjoyesto (40) · 7 years ago

hello sir @lukestokes, I am @princessjoyesto and I also chose you and vote you as my witness in the steemit community I hope it is okay with you. Have a good day ahead sir.

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nutela (61) · 7 years ago

@intelliguy is as his nickname implies, great! ( :

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benkalashnikov (60) · 7 years ago

Great topic and video Luke! I think we need something that's pegged to the dollar. Steem currency is already living it's own life and to not create confusion it's essential that we have a separate currency that's stable.

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lukestokes (75) · 7 years ago

I think many see this as well. The real question we have to answer is, what to do about the broken peg and when should we do it?

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benkalashnikov (60) · 7 years ago

True!

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ashe-oro (64) · 7 years ago (edited)

thanks for the detailed article, @lukestokes. A stable currency definitely has utility and value for a community and I would like to continue down the path of incentives and trying to find potential losers when SBD is much greater than $1.

The Minnow (as an author)
Steem(it) has a retention problem and much of it is b/c new users never make their first $5. With a high SBD price, this helps minnows the most and hopefully they will see rewards to incentivize them to stay around. Also, the majority of their rewards are paid out in a liquid asset. This can literally change lives. Check out my dude @bendollars and how excited he and his family are with his first payout. Think about what an extra $5/day could do for some people. SBDs offer this opportunity. https://steemit.com/introducemyself/@bendollars/my-first-steem-payout-experience-on-steemit-and-more-expectations-bendollars-24-10-2018 This is a winner b/c of the high SBD price.
The Minnow (as a curator)
Simliar to the argument above. Community growth centers around minnow engagement and retention. A $0.25 comment could now be worth $1 b/c of the high SBD price. This is a winner b/c of the high SBD price.
Whales/Dolphins (and their tribe)
That $0.05 upvote you give someone actually means a lot more. You can support more of your tribe/community without taxing your VP. This is a winner b/c of the high SBD price.
Investor/Speculator
Look, some people will buy anything in this crypto market. These are the losers of gambling on an asset that should be at $1. You want your community to have a strong currency. Don't fall in to the Keynesian fallacy. While I agree that having a pegged asset is great, it's mostly great because of protection to the downside. If someone is willing to buy something from you for more than it is worth, then I believe it's a gift. Let them buy overvalued assets and let those who have more knowledge benefit from the additional time and experience that they have. These are the losers b/c of the high SBD price (assuming it eventually normalizes).

Conclusion:
By artificially restricting the up-side of SBD, you are hurting the community and it's ability to self fund at the expenses of speculators. This most notably hurts Minnows opportunities to make their first few dollars or rewards (especially in a liquid asset).

Thanks again for the great post :)

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lukestokes (75) · 7 years ago

I agree Steemit has a retention problem, but I'm not sure STEEM does. It's an amazing cryptocurrency. I'm all about changed lives, but I also want to ensure people actually understand where the value comes from. It comes from investors increasing the value of STEEM which increases the rewards pool and the $ number people see on their posts which gets them excited about Steemit. You mention currators, but they are actually losing out with a high SBD price. People use bots for self-voting instead of curate because there's a better ROI there.

The Keynesian fallacy warnings are important. I'm certainly not wanting to artificially control anything. What I am trying to do is avoid boom and bust cycles which I think a broken peg allows for. If the SBD peg worked in both directions, that manipulation wouldn't be possible and the market cap of STEEM is large enough to not be easily manipulated compared to SBD (though it still needs to grow much larger).

Speculators would still be giving us a gift, we'd just be able to collect on it quickly as we convert STEEM to SBD to get more if it. Since the SBD could go right back to STEEM again, it wouldn't be creating new money out of nothing. That's the theory, anyway.

As to your conclusion, I do think it has validity. What I also see is people start to expect SBD to be worth something high. They hold it as it goes back to $1 instead of obtaining STEEM which (IMO) has a much, much higher upside. I want to get more people thinking long-term, not short-term. That's where the real value is. If they can't speculate on that future value, they they shouldn't speculate on a broken pegged coin either. It would serve them best to hold a stable coin.

Great comments, @ashe-oro. Thanks!

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aussieninja (62) · 7 years ago

I've voted you as witness for your insightful thoughts on this... your witness account is lukestokes.mhth yes? I'm sure it is, but still want to check...

I disagree with you in the timing, I'd personally prefer to bite the bullet and do the hard work now.... it might be harsh, it might be messy, but no time is ever going to feel like the right time, there's always going to be reasons to not... but the way I see it is if ecommerce and app developers are cautious to use this platform because they don't know what price they can set their products or services at... then that's a problem that slows the build of Planet Steem.

Regardless, you really seem to have thought it all through, and I couldn't ask for any more from a witness.

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smooth (70) · 7 years ago

Yes that is his witness account.

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aussieninja (62) · 7 years ago

Thanks heaps Smooth!

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lukestokes (75) · 7 years ago

Thank you so much for your support. I really appreciate it.

As for the timing, I tried to make it clear that on this issue, I will go forward with what the community seems to want most. If people started voting based on those who are willing to support the peg or not, I may change my position on the timing and, as you said, bite the bullet. Ideally, we'd do it in such a way as to ensure as few people as possible get burned by the change.

In the meantime, my advice remains the same: as long as SBD is above $1, I sell for STEEM. I hope others will follow that example. If everyone did that as soon as they received post rewards, the only people who would get burned by an SBD correction would be the speculators who caused the peg to break in the first place.

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eonwarped (68) · 7 years ago

I wouldn't be so quick to act. I don't think we fully understand the implications of a two way conversion, which is why these discussions are happening in the first place.

I'm more focused on economic stability first and foremost. Right now, I would consider things stable and well understood even if the peg is not working. Yes there do appear to be reasons to accelerate the peg, but the reverse conversion idea I'm very hesitant about.

Ultimately I am pro peg and it's like the post mentions, it's about timing and how we proceed.

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steemitadventure (66) · 7 years ago

Really enjoyed reading your thoughts on the topic and I hope to hear from more witnesses in this actual thread and hopefully it is upvoted for visability.

I think my concern mimics yours about the timing. Overall I think long term a pegged SBD may be the best course but I am not so certain on that because the use case and it vastly helping steem is speculative. That being said it was the original intent so I lean towards that solution. The thing is, I would like to give things plenty of time to see if the market corrects itself before action is taken. In an ideal world this sort of solution would be done before any of this happened or while the price is back to "normal".

A couple things I do notice is IMO from watching twitter and being active in chat is that it is driving traffic to the website, although that isnt some be all end all factor to me, just a consideration.

Another factor is the SBD price being high gives "normal" posters a chance to power up and get some of that steem easier than if SBD is one dollar. I see that as a chance to spread the Steem around more and I think that is actually beneficial for the system as a whole instead of Steem itself just increasing in price right away.

My thought is to watch it over the course of 4 or 5 months to see what happens to the price before seeing if anything needs to be done. I dont think that will cause Steem to miss out on some super special opportunity and gives SBD time to self correct as more is introduced to the exchanges etc.

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lukestokes (75) · 7 years ago

I also like the idea of a better STEEM distribution and if people take high valued SBD rewards to buy STEEM and power it up, that could certainly help.

At the same time, a high SBD value may only further encourage those who are taking a massive amount of the rewards for themselves already. Example:

grumpycat transfer 3,014.813 SBD to bittrex

So it goes both ways. The new users could benefit and the entrenched holders could benefit more.

Thanks for chiming in and taking a broad view of the topic. There are costs, benefits, risks, and rewards on all sides of this discussion and it's important for us to understand things as best we can to make decisions which benefit the most number of people.

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bobbysteem (54) · 7 years ago (edited)

"a high SBD value may only further encourage those who are taking a massive amount of the rewards"

Oh yeah? ONLY the whales, aye? Have you ever had to worry about money in your life? Let alone do work to survive? I'm sorry to sound harsh, but the incentives are ENORMOUS because of SBD. You really don't need much to survive in this world, which is why I'm asking you if you understand how much the rewards make people happy. Again, sorry. But I had to ask.

$0.36 under this comment, which today is $2.16. Write a few other good comments and you've got a day's worth of salary for many people. Is that not encouragement enough in your view?

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Living on a Boat for Two Years Shaped My Life.

lukestokes (75) · 7 years ago

Hello Bobby. In answer to your question, yes, I have. When I was in high school, my parents lost the house we lived in and we moved on to a boat. Food was donated to us and money was very tight. You can read the whole story here:

That said, I won't get into a victim scoresheet process where my victimhood grants me a voice in any given discussion. Short-term, "poor" thinking leads to poverty. Long-term, "rich" thinking in terms of investment, time-value of money, compounding interest, understanding probabilities, etc, etc leads to abundance and prosperity.

Have you considered you may be thinking short-term which may actually harm the very people you want to support? If STEEM has gone up 46x and SBD only 7x, why are you pushing for the loser in that race? Why not further incentivize more exponential growth in STEEM which increases the entire rewards pool (both for authors and curators)?

I'm not ignorant about how some people's lives are radically changed here because of simple upvotes. I've tried to delegate my witness earnings to help support important communities here.

I'm all about making people happy and fully recognize how the rewards do that. I'm not willing to automatically assume a high, non-pegged SBD is the best way to increase those rewards and I've spent many hours making my case in the original post.

vios (49) · 7 years ago

will vote for witness after this game, XD

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eonwarped (68) · 7 years ago (edited)

I'm with you there about timing. I also don't think we have seen the effects of the current rate of printing due to steem prices rising.

About the influx of traffic, I don't think it's the high SBD. I think it's the visibility of STEEM in general due to both steem and sbd prices pumping. Most people coming here don't even understand how the two work.

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buggedout (68) · 7 years ago

Great post. You've pulled together all the resources and angles into one post which is a great repository.

I personally would tackle this problem with a stakeholder analysis first up and then try to find some sort of compromise between them. If you can't get people on board and agreeing to some commonality there will never be a solution.

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lukestokes (75) · 7 years ago

I agree, looking at this in terms of stake holders is important, but I want to make sure we're using the correct definitions first so our premises can be accurately justified. The challenge with story telling in terms of stake holders is we can get caught into thinking correlation is causation. We might, for example, say "More users are joining now that the SBD value is high, so clearly we should keep it high to gain more users!" when the truth might more accurately be, "The rising value of the entire cryptocurrency market combined with STEEM / SBD being added to a Korean cryptocurrency exchange caused both to rise which increased the rewards pool and attracted more users because of their interest in cryptocurrency in general which increased due to the overall rise in the space."

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buggedout (68) · 7 years ago

Getting the definitions right is a good place to start as it makes sure the conversation is all happening on the same page and it's important to get the WHAT right.

I did a bit of a Stakeholder Analysis on this issue because I think it's important WHO is taking part in the conversation. I'd appreciate your feedback on it if you have the time.

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lukestokes (75) · 7 years ago

Great post! I'll add a link to it in my root post. I like how you outlined the various stakeholders involved.

buggedout (68) · 7 years ago

Thanks for taking the time to check it out, and for the link. Much appreciated!

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aggroed (78) · 7 years ago

SBD going back near $1 is one of my criteria to reevaluate my stance that we shouldn't convert now. I'm pro conversion eventually. Just not now.

Triggers:
SBD naturally falls back near $1
Coinbase wants to use us as a fiat exit
Ebay wants to price shit in SBD
Bittrex wants to replace tether with us
We hit a 10B marketcap

Doesn't have to be those, but those or something like it would make me reevaluate immediately. Those opportunities mark major events that would push the rise in steem over the current benefit of high SBD to posters.

Otherwise crashing the SBD market with this conversion now I think would cause harm to the network as a whole and I don't see how the millions, billions, or trillions suddenly materialize because we had a $1 SBD before and no one gave a shit.

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lavater (53) · 7 years ago (edited)

@aggroed For those triggers to happen you need to fix the SBD peg first! Doh!
I'm not gonna use SBD as a Teher alternative if it is not dependable with its peg.
Same goes for Commerce. It cannot seriously get off the ground without a proven stable SBD.
If you're an ebay seller and want to sell a product for 300$ on SteemBay, with the current SBD it is a nightmare: you need to rely on a real time conversion system (ala BitPay/Coinbase), which still means converting to BTC (fees) then converting to FIAT (more fees) and all in a fluctuating market. Good luck with that.
Instead with a stable SBD I can set the price at 300 SBD (and not 50 SBD as it is now), and when I sell the product I can keep the 300 SBD in my account knowing my earnings will be unaffected by crypto market swings. And then the 300 SBD can be used at any time to buy products on SteemBay, without needing to return to the FIAT market! (no need to sell the SBD for FIAT= Steem Moon). This will be a game changer especially in heavily taxed countries.
The SBD has never been stable since it's conception, it has some stable periods...but that's not sufficient for a online shop to move it's operation to Steem unless the SBD peg is proven dependable . It needs to be within the narrow range as envisioned in the whitepaper.
Imagine a shop selling 300$ products for 50 SBD today, and then seeing the SBD tank shortly after. That would be immediate bankrupcy.
Btw posts are already receiving high payouts, the problem is that payouts are not distributed widely and always end up in the pockets of the few circle-jerkers. Overly greedy and shortsighted people are making us miss these big opportunities.
If the pegging had been done 7 months ago by now Steem would be among the top 5 cryptos and SBD would have been used as Tether alternative and we'd have a thriving market-place.
If SBD was stable right now I'd be using it rather than Tether which is untrustworthy, who wouldn't? This opportunity is probably lost though as new ETH based stable coins are soon to be introduced on exchanges.
I hope you enjoyed the SBD earnings, but you've done tremendous damage to Steem with your front page posts defending the broken SBD and you held us back. It's time to realize it.

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5 votes

smooth (70) · 7 years ago

Upvoted as a well-written and powerful expression of the "Pro Peg" case. I'm personally quite open minded about this and willing to consider both sides of the issue, but your comment has indeed swayed my views a bit in making clear in stark terms how ignoring the peg and savoring the increased rewards has come at a real cost, perhaps a catastrophic one in terms of lost opportunities now that we've squandered our early lead and competitors are arriving.

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lavater (53) · 7 years ago

thanks. it was more of a disjointed frustrated rant, I'm glad I managed to somehow put some points across.
But I apologize to @aggroed for the tone of my post, I'm sure his posts defending the high SBD are NOT done with malice or nefarious intentions.

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smooth (70) · 7 years ago

It doesn't have to involve malice to still do tremendous damage (and I don't think you suggested any). Often that happens with the best of intentions.

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lavater (53) · 7 years ago

I kind of implied blind greed and author short term self interest as the reasons why he supported the high SBD, and I might be wrong on that.

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smooth (70) · 7 years ago (edited)

That's a good point. But I still think there is a strong case that defending the broken peg with whatever motive has done a lot of damage, and your comment was unusually clear and effective in making that case.

To be clear though, I don't view it as primarily a personalized issue, if at all. @aggroed is not at all the only one making that argument and certainly is not personally solely responsible for where things stand today.

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lukestokes (75) · 7 years ago

Let's try not to make unsupported claims about what would have happened in a could of, should of, would of way. We can't possibly know what would make STEEM a top 5 given decisions made 7 months ago. We also don't get very far as a community making direct, personal accusations unless we have direct evidence of malice involved.

Instead, let's try socratic questioning and let people make up their own minds. Is it possible @aggroed's passionate love for this ecosystem and community caused him to miss some important parts of this discussion? Maybe. Is he solely to blame for the price of STEEM (either up or down)? Clearly not.

Let's be nice. We can disagree, even passionately so, but when we throw out unsubstantiated claims as accusations, it just makes people defensive and angry.

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rocking-dave (57) · 7 years ago

I'd say it should go without saying the @aggroed has the ecosystem's best interest at heart and so do you, that should be obvious to everybody!

But in this particular case, I think he is the one making the more sober and realistic analysis.

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inertia (73) · 7 years ago

you need to rely on a real time conversion system

You should always rely on a real-time price feed. Depending on the peg is suicide. Even running a shop that hypothetically accepts Tether without actually checking a live price feed would be idiotic. It would be just as idiotic to do that with SBD, even if it had a hard peg.

Shop owners who accept any crypto should have live prices to guard against people who take advantage of shocks in the market.

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lavater (53) · 7 years ago

quote out of context.
I was not referring to live price feed conversion (this can easily be implemented into Steem or any wallet), but to services like Bitpay which convert (exchange) the paid crypto instantly into FIAT and which merchants rely on in the bitcoin world. This is clear in the part you omitted from my quote. ;) ("ala BitPay", "fees", etc)
Of course it is wise to always keep an eye on the real live SBD price, that's common sense. In any case merchants wouldn't start adopting SBD until it's peg was fully proven and battle tested. So even if the proposed changes were to be implemented tomorrow and worked in controlling the SBD price, it would be months before online shops would even consider using it.
Market swings of around 1% are probably unavoidable but they would not be that much of an issue, especially considering all the savings in fees and possibly taxes compared to the FIAT system.

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charitybot (63) · 7 years ago

If the SBD had taken tether's place then it would also take its place when authorities choose to take action against Tether for the creation of money and various other schemes they've been up to. You do not want to be in that position. None of us should want to be in that position.

And as far as pegs go, you must not be a very good student of economic history to not know that pegs go terribly, terribly wrong all the time, and are very exploitable and ripe targets for manipulation. If you know there is an infinite buyer or seller on the other side, and you outweigh them or even just whittle away at them over time, you can destroy them. It leaves us at great risk to attempt any sort of peg, and the consequences would be far worse than letting the speculators get burned.

For instance do you think China's peg worked at all? What good has that brought the world. Deflated wages for Chinese workers, their country's soil, water and air is in ruins, and they've burned up all their capital reserves. Add to that the amount of new debt creation they had to endure just to stay afloat and it's just a total mess right now, even if they can claim to have the largest economy.

Pegs always fail. Do not think otherwise.

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lavater (53) · 7 years ago

You make some valid points. But the current SBD already has a peg mechanism when it falls below 1$ (Steem needs to be printed to keep it afloat). So the current SBD has all the disadvantages of a pegged asset without any of the benefits. If we are to keep SBD lets peg it properly, if not lets get rid of it altogether.
Regarding the risk of authorities getting involved ....Steem is a decentralized blockchain what can they do about it? The Steemit website may face a shut down, but decentralized apps like Vessel would still operate and Steem based websites will still operate outside US jurisdiction. Frankly I wouldn't be surprised to see Steemit relocate HQ to some cryptohaven like Zug, Malta or Isle of Mann. The regulatory framework in the US has become way too oppressive for innovation

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lukestokes (75) · 7 years ago

Do you think the bitUSD peg is being manipulated or has failed or will fail terribly?

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charitybot (63) · 7 years ago

I am very, very uncertain about bitUSD's future, I mean I asked Stan right here on steemit about what Arise Bank's association with it is and he just vaguely said "on and off-ramps". That combined with what I've read about Arise Bank does not give me great confidence. And sadly for new users like me it's one of the few trading pairs we have access to off of the steemit website, so it's very troubling to me.

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smooth (70) · 7 years ago (edited)

Literally every one of those items on your list except the first and last is guaranteed not to happen unless SBD becomes stable at $1 first. Since you saw fit to list them, you clearly recognize the importance of those opportunities and others like them to the Steem ecosystem. In order to have any chance to pursue them, we need to fix the peg first.

I don't see how the millions, billions, or trillions suddenly materialize because we had a $1 SBD before and no one gave a shit.

Read the post. The market conditions have changed dramatically. There was a time when Tether was a tiny little thing stuck at under $1 million market cap for years and no one gave a shit! Yes that's right, Tether went from $500000 to $1.6 billion. Likewise for BitUSD, NuBits and the others (though they are of course smaller; Tether is the current leader).

The answer to your (implied) question as to why this matters now when it didn't matter before is simply that it is 2018 now and not 2016 (however, I will say that even in 2016-2017, the Steem community was spawning its own SBD-based initiatives that could accomplish some of the same goals as items on your list, initiatives that were smothered in the cradle because we failed to act to fix SBD when it started to de-peg back then). The environment and market is completely different and the scale of the opportunity is vastly larger now. Given the other powerful attributes of Steem (large user base, ease of use, ability to on board users, speed and scalability of the blockchain, no/low fees, etc.) we are well positioned to pursue that opportunity but we have to fix SBD first, or we are just not even in the game.

$1.16

lavater (53) · 7 years ago

I think you're right, because of the social media aspect we're still well positioned. Once the changes are brought in we can:

rebrand the SBD (Steem Backed Dolla)r to SBFD (Steem Backed Pegged Dollar). Or some new catchy name. This to show discontinuity with the old coin.
commision the influencers we have on the site (all the top crypto influencers are now here) to announce to their audiences the upgrade to this new pegged Dollar on Steem.

Normally it would take 6 to 12 months before anyone would trust a pegged asset with big money, especially after a somehow failed experiment like the SBD was. But if we are able to put across through the influencers the message that the SBD was only meant to be a coin with a 1$ floor (therefore pretending that it worked perfectly), and that SBPD is instead a new pegged stable dollar coin....then we can see adoption much sooner.
I don't know when the ERC 20 pegged coins will be production ready, but I believe because of the Ethereum brand they will be adopted immediately by the community. Ethereum has had more fuckups than any blockchain out there but somehow they can't seem to do wrong in the eyes of the investors for some reason which frankly I can't comprehend. Also their peg may be backed by real dollars in the bank (I don't know yet).
So it is possible that they might beat us in capturing the Fiat market on exchanges. Currently we only have Poloniex as potential market anyway. But for the retail and online shopping we're still in with a shot. Also lets not forget we have an internal market here on Steem which could skyrocket in volume.
To capture the retail market it would be wise to start already working on a SteemBay portal in preparation for the SBD changes. So it can launch as soon as the fork occurs.
Though it is very possible to imagine a future where retailers start accepting all battle tested pegged assets: OpenUSD, SBPD, ETHUSD, TETHER etc
Because of the integration with Steem social media and the 0 fees the SBPD could end up being the most convenient. Ultimately though no pegged asset can compete with a proven Dollar backed coin (meaning with dollars in the bank) like Tether was supposed to be.
So I might overstated the importance of having a properly pegged Steem backed Dollar, but we should at least give it a proper go. Even a small fraction of the finance and retail markets would bring enormous value to Steem.

Btw before announcing the replacement of the SBD with the new pegged Dollar coin it would be best to wait till it goes back towards 1$ so not to cause a major backclash in the market.

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lukestokes (75) · 7 years ago

This is such an important point. We have to have a long, trusted history as a pegged asset before we'll be taken seriously as a pegged asset. It may take many months or even years and the longer we wait, the longer it will take to build that trust.

Tether went from $500000 to $1.6 billion

Daaaaamn. Either BitFinex is just friggen amazing at on-boarding new fiat into cryptocurrency or that sure seems like a nice money-printer they have there. Heheh... I won't get into that discussion here though. :)

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smooth (70) · 7 years ago (edited)

USDT doesn't necessarily work the way people think it does in terms of so-called "on boarding" (i.e. people from outside crypto deposting new USD and getting USDT in return). It can also attract capital directly from crypto wealth and do so completely legitimately (i.e. without the rumors of fiat printing being accurate). Here's how.

Let's say people are selling their ETH, BTC, XRP, etc. (even STEEM) wealth into USDT, and this drives up the price of USDT (say to 1.01 or 1.02). Assume Tether/Bitfinex has $100 million of its own corporate working capital from VC, private backers, etc. They can use that $100 million to legitimately print 100 million USDT for their own account. At this point the printing is not fraudulent, fractional reserve, etc. because $100 million gets transferred from corporate working capital into the USDT escrow account. They then dump that USDT onto the market in exchange for BTC, ETH, etc., driving the price of USDT back down to 1.00.

Now the final step is interesting. Tether can take the BTC, ETH etc. they just bought and send it to a high-limit corporate account on a major fiat exchange, and sell it back for USD, replenishing the original $100 million corporate funds, to repeat the process again when needed.

I have a feeling this is actually where most of the USDT market cap growth has come from (assuming it isn't mostly fraud), but I have no proof it of, just inference.

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lukestokes (75) · 7 years ago

Interesting. I question how they can keep printing new Tether and aren't burning it, but maybe that's just a sign of more people coming onboard. To my understanding, they can't print Tether unless it's backed by money in the escrow. If they keep printing, that implies real new money going towards the escrow, right? Maybe it's not "new" money, but money Tether/Bitfinex already has on hand, but it still seems to me when things fluctuate the other way, we should be seeing Tether burned and funds returned back from the escrow to BitFinex to cover real USD withdrawals. Maybe if the bull run turns bearish we'll see that.

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smooth (70) · 7 years ago (edited)

I question how they can keep printing new Tether and aren't burning it, but maybe that's just a sign of more people coming onboard.

Again it isn't a question of onboarding necessarily, just capital flows, and quite possibly it is because with $400 billion or so in newly-added crypto wealth the overwhelming majority of capital flows are from other highly-appreciated cryptos (BTC, ETH, XRP, many others) toward USDT not away from it. Also keep in mind USDT's role in trading pairs, which itself creates added demand for it (especially as USD price of the other coin increases; more USDT needed for buy orders). Also, to me it sure looks like many of the paths by which new outside, so-called "onboarding" capital is entering crypto have little to nothing to do with USDT (Coinbase, Korea, Japan, etc.). Or perhaps it is all or part fraudulent as many suspect. I don't know (and in some sense it doesn't matter; part of the problem with the non-trustless peg model is that it simply can't be trusted).

Maybe if the bull run turns bearish we'll see that.

It isn't so much a matter of bull run vs. bear run as it is demand for stable crypto. It is quite plausible to me that demand for stable crypto has mostly just increased over the past year or so (and indeed this is mirrored by the other, smaller stable cryptos). But at some point when the demand for stable cryptos tops out and heads downward, there should indeed be burning of USDT.

BitFinex to cover real USD withdrawals

By all accounts BitFinex's ability to handle real USD withdrawals has, at best, been greatly hampered by banking issues. So this path by which capital could conceivably exit USDT may be quite small. But in any case given the natural friction of exchanging between crypto and fiat (and relative lack thereof in exchanging crypto-to-crypto) it may always (or at least for a long time) be that the dominant flows into and out of USDT are between USDT and other cryptos, not between USDT and USD directly.

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bobbysteem (54) · 7 years ago (edited)

Or! ... The witnesses wanting this shit could come together and create a THIRD, off-chain, dollar-pegged currency and hop the fuck off SBD. :) Just a thought ;)

It just makes me so mad that a FREE, DE-centralized (not centralized) community is SO quick to hop on a controlled, socialist-like mentality to try and regulate shit - exactly which was supposed to be PREVENTED on this DE-centralized platform. It makes me sick.

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lavater (53) · 7 years ago (edited)

@boobysteem if you want "free market" for SBD then lets remove the bail-out rule for SBD. let's see how long it lasts next time it drops below 1 $..
In case you haven't noticed Steem has to be printed every time the SBD drops below 1$.to keep it afloat. The SBD is already a regulated coin, just a poorly regulated one.
Dan, which I have immense respect for, got 2 things wrong with SBD : 1- the SBD peg isn't working as the WhitePaper envisioned . 2- the reverse converse is not exploitable anymore in the way the Whitepaper describes

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lukestokes (75) · 7 years ago

Have you read the white paper? Do you know it was written mostly by an anarcho-capitalist (Dan Larimer) who is not, at all, a fan of the "socialist-like mentality" you're describing? What's the point of creating another currency that is pegged with two unpegged, speculative currencies? Do you realize how confusing that would be and how much coding effort would be involved?

If you understood the conversion mechanisms built into this system, you'd have to come to the conclusions they aren't "controlled" by anyone. They are all done voluntarily by individual market actors without any centralized control at all.

I want to believe you're working to bring constructive discussion here, but this comment looks like trolling. Please, read all the sources I referenced in my post and then we can have a more informed discussion about what's really going on here.

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bobbysteem (54) · 7 years ago

I'll answer your questions using points below here:

"It's confusing"

There is nothing confusing about 700% more profits.

"If you understood the conversion mechanisms built into this system, you'd have to come to the conclusions they aren't "controlled" by anyone. They are all done voluntarily by individual market actors without any centralized control at all."

Yes, I do understand that, and it so has it that the vast majority of users have voluntarily chosen not to use the conversion mechanisms as shown by statistics which you can find over at https://steemit.com/@penguinpablo

"they aren't "controlled" by anyone"

If a couple of dozen people are capable of causing a 700% percent price crash on a platform consisting of 50 000 thousand active users who are here mostly because of economic incentives, how is that "not controlled by anyone"?

"written mostly by an anarcho-capitalist (Dan Larimer)"

Yes, it was written by him. And the words "SBD is now being traded as a regular alt-coin", which he didn't seem to have any problems with were, in fact, also said by him in a YouTube interview which you can watch here:

Thanks!

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lukestokes (75) · 7 years ago

I said two separate currencies would be confusing. People are already confused with STEEM and Steem Dollars. How would STEEM, Steem Dollars, and Steem Dollars For Real This Time not be more confusing?
Of course they aren't using it now. Who would? They'd lose out big time because it currently only goes one direction. That's why it was removed from the steemit interface. The point being, anyone can use it. It's not some lever that only some people can pull. As long as enough people use it, the peg will be maintained (at least when it drops below $1).
Can you explain to me how that would happen? Do you really think witnesses would risk their position by doing something 500k people who voted them into that position wouldn't want? The whole point of this discussion is to figure out all perspectives for what's best for the network. There's a sound argument that we've lost quite a bit a money for everyone involved because we didn't fix this sooner and instead Tether went from $500k to $1.6B.
So Dan's opinion, considering he's no longer involved in STEEM, is more valid that the existing 20 witnesses and all the supporters and users we have here today? How is that decentralized? If the network sees the value in a pegged asset and wants one, then the Steem Dollar should be it, as designed. If we can do that after it naturally corrects back down to $1, why shouldn't we? That's what this discussion is all about.

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lukestokes (75) · 7 years ago

I gave a shit. I gave many shits, aggroed. Heheh.

I hear what you're saying though. We can't assume a conversion would automatically increase the value of STEEM (even though it's a compelling story, in my mind). At the same time, we can't assume the high SBD value is what is getting people excited about Steemit right now when it could just as well be (and as smooth argues and I mentioned in my post) more of a result of STEEM itself growing in value which increases the reward pool for everyone.

Those triggers sound mighty nice to me.

Do you have concerns about SBD going higher and making it even harder to bring the peg back in play? If not, why should we even bother with SBD at all? Why have two speculative tokens on the STEEM blockchain if we're going to abandon the peg? I'm also curious what you think about the argument that some in developing nations really do need and highly value a stable currency. For them to hold their money in a speculative cryptocurrency doesn't make sense if they have bills to pay.

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bobbysteem (54) · 7 years ago

"concerns about SBD going higher and making it even harder to bring the peg back"

Literally what is written here is this: "Do you have concerns about making too much money which makes it harder to become POOR again?"

These whales and witnesses literally don't live in real life and can therefore afford to DESTROY millions of dollars. Why? Because "muh fiat currencey!"

Nice.

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lukestokes (75) · 7 years ago

The more comments of yours I read, the more it looks like trolling. Did you even read my post? Did you even consider the possibility that the single greatest way to help the poor would be by giving them a stable asset to trust in while also increasing the value of STEEM which increases the entire rewards pool they enjoy?

What bothers me most about your comments is they seem to imply malicious intent where there is none.

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gold84 (63) · 7 years ago

@aggroed you may want to read what I mentioned to @lukestokes about yourself helding a panel with the top 20 or 25 witnesses specifically only to debate about the SBD.

This is something important I thin, very important to be discussed and people hearing the witnesses opinions will see the side of each, and then people can take their voting opportunities to see whats best to do.

Looking forward to your thoughts!

Regards, @gold84

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lukestokes (75) · 7 years ago

Not all the witnesses are native english speakers so I'm not sure a panel discussion is the best way to flesh out this issue. Reading just my post on video took me over 21 minutes. This isn't a simple topic to be figured out on a short-from panel discussion. This should be done carefully and methodically with data-driven, well thought out proposals.

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gold84 (63) · 7 years ago

You are totally right @lukestokes ! Perhaps a panel can be done at the end, once everything has been analyzed properly as you mention. Or perhaps no panel is needed. Just thinking in a loud voice, and trying to find ways to help.

Regards, @gold84

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teenovision (52) · 7 years ago

I don't thing it should be pegged right now we should wait and watch little more

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bobbysteem (54) · 7 years ago

Never peg!

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lukestokes (75) · 7 years ago

Why? Please explain yourself. Explain how those who are literally dying in Venezuela would not benefit from a pegged, free-to-use cryptocurrency they could put their life savings in? Explain to them why a speculative investment makes more sense? When SBD goes from $12 to $6, explain to them why they just lost half their life savings.

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blakemiles84 (67) · 7 years ago

I've just been half hoping in the corner that some SBD whales were gonna buy giant chunks of STEEM in the internal market and drive the price of Steem way up in order to get the SBD value closer to a dollar... wishful thinking.

That said, a floating peg seems very hard to maintain theoretically, but would be well worth it in my opinion. Gives a better sense to newer users to understand the value of a post and see intrinsically what they earn. Should also add more liquidity (nominally, if not actually) to our internal markets.

I shudder to think how much liquid STEEM and SBD sits in Poloniex and Bittrex.

Great discussion, as always @lukestokes.

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smooth (70) · 7 years ago (edited)

SBD whales were gonna buy giant chunks of STEEM in the internal market

There are no SBD whales, at least not within the community. Everyone here has just seen the SBD pump as an opportunity to grab some extra money by selling it off to speculators. When the speculators are done, they won't be using it to buy STEEM on the internal market, they will just dump it for BTC or fiat on an exchange and move on to the next game.

I shudder to think how much liquid STEEM and SBD sits in Poloniex and Bittrex

Essentially all of it (at least 80% if not more), because it has lost its utility for anything other than price speculation. There used to be people on this platform who held it for its price stability on this chain rather than cashing out, and services on this platform which used it as a stable value token for buying services. Nearly all of that is gone, with nearly all SBD drained off to exchanges for speculation. At least for now, hopefully we can soon get that utility back and more in the future.

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lukestokes (75) · 7 years ago

I used to use @tipu often because it was fun. Now, the price is just too high and the value of my tip is too unknown. It's quite sad, really.

bobbysteem (54) · 7 years ago (edited)

Oh yeah? You've been hoping thatSteemians become poorer? =) Interesting mentality

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lukestokes (75) · 7 years ago

Seriously, I'm about to start flagging your comments. This isn't 4chan. If you want to troll, go somewhere else.

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blakemiles84 (67) · 7 years ago

Please mathematically explain how I said that.. you've activated my almonds.

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lukestokes (75) · 7 years ago

Thanks Blake.

As for the amount of STEEM/SBD out there, I run a weekly exchange transfer report so I see it first hand every weekend. It's a lot (which, of course, we can verify just by looking at their wallets on the blockchain).

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bobbysteem (54) · 7 years ago

I have a question: Why the fck does ANYTHING "need" to be "done"? What the hell is "wrong" with a STEEM price of $6 and an SBD price of $6-$7? Is this somehow bad? If yes, then why (the fck)? I'm sorry guys, but it makes me extremely mad how people on here want to regulate sh*t like some politician - EXACTLY the reason why people fled to Steemit in the first place! Most people here are libertarian anarchists who don't want economic regulations and price-controls, so I now ask you why in the world people are even CONSIDERING this. Please respond, because my anger is bubbling over.

Again, a price of $6 and $7 in TWO SEPERATE currencies is such a tragedy, right? I mean, seriously, guys? Are these people mad? Are they masochists? At least help me understand. Maybe I'm missing something, but I'm literally unable to find a fraction of a reason to try to STOP something literally amazing in terms of economic development. My brain has imploded...

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littlejoeward (54) · 7 years ago

I think you misunderstand a few things. First thing, there is nothing socialist/communist about creating a pegged asset. Those systems are based on people sharing resources, usually executed through a coercive government that forces compliance.

I'm assuming that when you use those terms you are referring to force and coercion? But that is still not the case because no one is forcing anyone to use steemit, steem, or sbd. The entire system is completely voluntary and we can all do what we wish as long as we follow the rules. If we don't like the rules, we can leave. One of the rules is that we can vote for witnesses and the witnesses can decide on rule changes.

Second, sbd are designed to be pegged at $1. That is the whole point of them. They are are debt instrument. Steem was designed to have the "steem" token that would rise or fall in value based on the value of the community and the "Steem Backed Dollars" (SBD) that would be a stable store of value. There is no point in having two currencies that do the same thing.

The only reason SBD are so high right now is because people who are buying them and holding them don't know or understand that the value will be driven back down to $1 over time. Once they realize that, the value will crash back down. How will everyone feel when suddenly their savings in SBD are wiped out when the price crashes back down? Keeping a good peg will prevent that confusion from happening. The average person shouldn't have to worry about how high or low SBD are from day to day, they should just be able to trust that it will stay at a stable value.

Right now, SBDs are in a bubble (true value at $1, market value $6) that will eventually pop. Creating a peg will stop a bubble from forming in the first place.

I am enjoying selling my SBD for these high prices as much as anyone else but I feel bad for whoever I am selling them to, they are going to lose a lot of money.

(I posted this on your blog post too but I thought I would reply here as well so more people can see it.)

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lukestokes (75) · 7 years ago

Your brain is doing something alright. I've responded to you numerous times already, so I won't repeat myself here. It's clear to me from the comments you're making you don't fully understand what's going on here and your pre-conceived notions of control is causing you misplaced anger. Maybe go for a walk, get a glass of water, take a few deep breaths and then sit down and read the white paper a few times. My post outlined the potential issues and lost opportunities for the entire ecosystem when we continue on with a broken peg instead of pushing that value into STEEM and out of SBD. If my post wasn't helpful for you, then I'm not sure I'm the one to help you further. I've done all I can do to start with definitions and first principles and then move forward from there.

You mention libertarian anarchists which is a label many would apply to me as well. I'm no fan of the myth of authority nor do I want tribalism. What is frustrating to me is that you're attacking something here which is fundamentally voluntary. There is no "centralized control" as you keep describing. The proposal of a two-way conversion is something individuals, not some central authority) control.

If you have thoughts on this, please, post your first full blog post and explain yourself. You've been here since July of 2016 without posting a single root post. From that perspective, you're not even contributing to the community. Please, get involved and contribute and then your voice and opinion will carry much more weight based on the value of your contributions. That's how voluntaryism works.

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theessential (53) · 7 years ago (edited)

There are certainly a ton of really good ideas thrown out there in this post. I think that pegging SBD at 1 usd while either dumping the extra weath of the 6-7 dollar price into steam or continuing to pay out accordingly with multiple SBD per one Steem would work- if what I’m saying is clear.

Both would make sure those who have been getting paid, continue to make a steady income..and also help the things aforementioned.

This was a nice look at SBDs - this is the first thing I’ve read/ listened to that was this in depth.
Thanks - super awesome.

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bobbysteem (54) · 7 years ago (edited)

I agree, it could work. Only the word "work" in this context means making everyone seven times poorer. So yeah, if that's your goal, it could probably work. =) Hey, maybe we should meet up and throw all our money in the river while we're at it? Or put it on fire over the open grill? I mean, it probably works, since money easily catches on fire and gets destroyed when soaked with water and all. It's worth a shot, right?

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lukestokes (75) · 7 years ago

Thank you for saying so. I hope it was helpful. It was surprising how long it took to organize my thoughts on this and then record them in a video (I ended up recording it twice because I didn't like the first one). Then it took hours to upload and process.

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theessential (53) · 7 years ago

This is truly the type of content that is worth curating and following here on steemit.. we all know that’s there is plenty of spam and reward pool “raping” that it makes it hard- or takes a long time for quality content to be recognized. Anyways- your hard work doesn’t go unnoticed.

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lukestokes (75) · 7 years ago

Thanks. :)

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azfix (65) · 7 years ago

I made a pathetic attempt to post about this earlier, so you can imagine my delight discovering your well written and thought out post on the subject. Now I can just resteem your post to express more on the subject of SBD as a pegged asset. Thank you for letting us know where you stand on this subject as a witness.

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lukestokes (75) · 7 years ago

The funny thing to me is reading through the comments, some seem to think I’m in support of some drastic change which would “steal” from SBD holders. I would never want to make some drastic change which could hurt the entire ecosystem and yet some are convinced that’s what I and the witnesses want (even though I specifically said in my post it’s what I do not want and would not support unless the majority of the community forces the issue by unvoting witnesses unwilling to support the peg with a drastic change).

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karaelizabeth (52) · 7 years ago

Wow, this is such a thorough explanation and has really helped me understand this whole situation so much better. Thank you for taking the time to really explain this in a clear, readable way. I'm learning so much from you!

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lukestokes (75) · 7 years ago

Thanks, sister. As you can see, it's a very passionate discussion. :)

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partywalrus (50) · 7 years ago (edited)

I hope I don't come off as whiny, I just try to wrap my head around this by voicing my concerns:

A healthy economy is an economy where wealth is distributed from the bottom. In order for wealth to be distributed from the bottom, the majority of the wealth has to remain at/with the "bottom" (in circulation). Apostophes because I refer to bottom as the majority of the community/population, as opposed to the current world economy where most of the wealth resides with the top 10% (fictive number, but you catch my drift).

To achieve this with STEEM/Steemit we need to have a catch up mechanism in place that over time closes the gap between the big fish and the small ones. We got this in a non pegged SBD.

And now you advocate to take it away.

This whole situation is very interesting from a political viewpoint because it is in effect a conflict of interests between the whales and the rest of the community. By pegging SBD to the dollar you harm the rate of growth for a large part of the community, effectively enhancing the divide between big fish and the small (assuming the whales are not vote trading most of their voting power, in which case this divide will persist regardless).

And divides like this are not healthy in the long run.

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tanishqyeverma (53) · 7 years ago

I am still trying to learn about how the things works. It was an interesting article and I enjoyed reading the post. I am still in learning phase so maybe it'll take some time to understand how things works beneath this blockchain. But there,s one thing which keep popping in my head is that " If Steem is trying to peg the SBD at US $1, why they can't just remove SBD's from all the exchanges ( I maybe naive ), it will stay away from speculators and price won't fluctuate and steem could control it with internal conversion. But if we are trying to peg it after it's getting listed on various exchanges it will be very difficult".

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bobbysteem (54) · 7 years ago

"Earning 7 times more is such a tragedy" - is basically what I'm hearing from the whales in favor of this seemingly mad idea.

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businesswri (62) · 7 years ago

They want to make people poor to satisfy their goals. People like me will have no choice but to power down and find other ways to make income aside from Steemit

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bobbysteem (54) · 7 years ago

Yeah, I know. It's a crazy and destructive idea and I hope it NEVER comes to fruition.

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7 votes

businesswri (62) · 7 years ago (edited)

I'm powering down and leaving Steemit. If the witnesses get what they want and I'm sure they will get their 1$ SBD , then there will be huge consequences and it'll look like another Bitconnect. This isn't decentralized. Witnesses are like the Feds, having control over a market, the power to destroy it. If the reverse conversion happens, what makes you think they won't do the same for Steem to hyper inflate it? Lost of trust. I'm sorry, I loved Steem, Steemit in the beginning and had great times here, met great people like @steemitqa though to me Steemit is going downhill. It won't be just be me leaving, many others will

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lukestokes (75) · 7 years ago

The witnesses want what's best for the platform long term. Why is this in question? To compare STEEM to Bitconnect is absurd. Witnesses can't "control the market." How would we? Why would we implement a policy the community doesn't want which then lose us our position as a Witness?

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lukestokes (75) · 7 years ago

"They want to make people poor" is such a gross misrepresentation of reality. It's truly discouraging to see. Please, read my post again and understand I'm trying to make everyone here rich. A broken peg may not be the best way to do that, nor the best thing for those whose local currency is completely broken and they need something stable in order to build a functioning economy. Increasing the rewards pool by increasing the value of STEEM might be the best forward, especially if that speculative token has a stable place for them to store their value.

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businesswri (62) · 7 years ago

artificially controlling a market is never the answer

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lukestokes (75) · 7 years ago

Which market is artificially controlled? Are you saying the pegged floor of SBD is a mistake and SBDs shouldn't exist at all?

Do you think bitUSD is an artificially controlled market or a well-functioning pegged asset backed by real collateral value?

I really don't understand where you're coming from. If you have some reasonable evidence to support your claims, I'd enjoy seeing it. All cryptocurrency markets get pushed around by whales, but you seem to be directly accusing witnesses of something nefarious. I want to know what that is.

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lukestokes (75) · 7 years ago

We can't control what exchanges list, nor would we want to. This isn't about centralized control, but about providing individuals with tools to profit from speculators who, as the white paper describes, are "manipulating" the SBD peg. If we allow for a STEEM -> SBD conversion, more SBD will be created which will eventually drive down the price to something stable. Other assets like Tether and bitUSD (and all the others listed in the paper I included in my post) have done it. We can too.

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tanishqyeverma (53) · 7 years ago

Oh thank you, I got to know more about Dan's vision about steem, in the post you have shared ... I could minutely understand why peg is important ... and steem could be in future if everything worked the same way as it was planned ... but I just wanna add something ... if people need to work on the pegging they should delay that a little bit... cause high sbd is attracting people to this platform maybe after we have acquired 20 million and more, they could start working on the vision. cause by then we'll have several marketplaces here on top on steemit like steemgigs and more, and people we'll be willing to have a pegged currency at place.

Disclaimer : I maybe Naive and I haven't read the whitepaper

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lukestokes (75) · 7 years ago

What if those marketplaces won't form without a pegged asset to support them first?

Why is it high SBD attracting people and not high STEEM which has more impact on the total rewards pool and post payouts?

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inquiringtimes (64) · 7 years ago (edited)

By far the best post discussing the sbd peg, yet. Thank You, Luke! One factor I would love to see some statistics on is how much value is being added to steem itself because of the failed peg. Surely users are powering up more now than, ever. This is a boon, in the short run of things.

It's really hard for me to imagine any kind of stable peg in the type of market we currently face. In the next few years I expect the market for the largest tokens to stablize quite a bit. But we may be chasing the dragon on this atm.

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clumsysilverdad (64) · 7 years ago

This is a hell of an article/post. Honestly, I understand the issues at stake very poorly and really haven't any strong opinion on the matter.

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inquiringtimes (64) · 7 years ago (edited)

I've been studying on it for quite some time, enough to understand how it's currently working...

Ultimately to maintain a peg, I believe, we would need a dynamic volume of sbd. Inflating supply as more demand is put on it, and deflating supply as the demand weakens. Allowing conversion both ways is a mechanism that would allow for such a thing..

the problem is that those conversions are up to the will of the user base. Even allowing for reverse conversion, it would (I believe) require a number of users with high liquidity who were determined to maintain that peg. We would also need to be able to trust that users wouldn't use that reverse conversion to take advantage of the blockchain. In order for it to work properly I almost imagine a governance being necessary for the maintenance of the peg via conversions rather than leaving it to the users at large to implement.

In the very short term, the converters could do so at a profit, but they would quickly begin to "lose money" by converting Steem to sbd, while increasing the value of steem (by reducing supply)....

The more I think about it, this might be a perfect opportunity for the 1% of steemit to reduce stake a bit while boosting the value of Steem as a whole, by enabling a peg, while reducing how "top heavy" Steem currently is.

Lots of thinking left to be done on this.

Will be grateful for corrections or furthering the thought process.

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lukestokes (75) · 7 years ago

wouldn't use that reverse conversion to take advantage of the blockchain.

What are some of the ways you think this might be possible?

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inquiringtimes (64) · 7 years ago (edited)

The whitepaper outlined that pretty well. The way I see this working best is via some governance method as I suggested above. Trusted individuals who's role would be to maintain the peg via conversions... Then again, one would thing any large stakeholder willing to convert large quantities of Steem to sbd would be inherently trustworthy. Would we need to pool Steem together from said stakeholders? Does it all just work because individuals volunteer to "sacrifice" large portions of their Steem for sbd? Would this voluntary system then empower "bad actors" who don't choose to do conversions to have a much larger sway over the rewards pool? Or perhaps Steem itself might volunteer to convert a large portion of stake, thus allaying investor concerns of a disproportionate control over Steem?

Current market cap: $49,144,061 USD
Minus Current supply of SBD: 7,099,445
-------------------
41,840,540 % $6.4 (price of steem)
Steem required to convert to peg : 6,537,584.375

likely much less as market reacts.

help me out if I did that wrong

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smooth (70) · 7 years ago

The whitepaper outlined that pretty well.

I don't agree that it did.

It assumes that a trader who 'sees a big spike' not only knows that the price is going to go back down but that it will go back down in precisely the right rate and timescale to line up with the 3.5 day price averaging window that is built into the conversion process. What happens if the spike was actually the first leg up of a big bull run and is followed not by the price going down, but by another big leg up? The trader loses his or her shirt.

If this were a real issue (it isn't because no one can predict prices that accurately), it would already exist with the SBD to STEEM conversions. A trader who sees a big spike down could convert SBD to STEEM at the low prices and profit as the price recovers. That doesn't work either.

The mechanism of not setting the price for some time in the future is quite effective in combating these schemes.

Does it all just work because individuals volunteer to "sacrifice" large portions of their Steem for sbd?

No, it is assumed (reasonably) that people would buy up STEEM to convert into SBD. It is a good bet when SBD is worth more than $1 that converting $1 worth of STEEM will be profitable. Is it guaranteed? No, because SBD may not be worth $1 by the time the conversion finishes, or because the STEEM that was converted might then be worth more. But it is a good bet and people able to take the risk will do it.

Steem required to convert to peg : 6,537,584.375

Not necessarily. Prices fluctuate and it doesn't necessarily translate that way. Today when SBD fluctuates from $7 to $6 or from $7 to $8 that does not mean that millions of dollars were poured into it or drained out of it. That could be a much smaller amount being exchanged among traders to set the new price.

Shifts in supply and demand are what moves prices, not necessary a set market cap difference being spent. The actual amount needed is impossible to predict. The best we can do is have the right mechanisms in place and give them an opportunity to work.

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clumsysilverdad (64) · 7 years ago

Yes, may be a way for some to reduce stake and therein diversify themselves, but overall the process sounds more intricate and requires more diligent consistency than a lot of seemingly haphazard things that occur here, not sure if there can be enough consensus to implement competently, imho. Ty

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clumsysilverdad (64) · 7 years ago

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steemitadventure (66) · 7 years ago

Agree with these thoughts as well. It may be that steem and SBD are such a small ecosystem at this point that it really cant support a peg. I also was thinking of the term "chasing the dragon", I would hate to see such an important decision rushed.

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lukestokes (75) · 7 years ago

It may not be big enough yet, but the flip side of that is if SBD grows too much more and continues to increase in value, will we completely lose the opportunity and have to make a tougher decision in the future if we do want a stable peg? Also, if the peg is fully broken for a long period of time, why would this blockchain even bother having two speculative coins? It's just confusing.

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lukestokes (75) · 7 years ago

"There are three kinds of lies: lies, damned lies, and statistics."

The challenge with statistics to create stores is, well, we're still stuck with stories. Those stories may or may not directly be proven by the data. I think it's quite difficult (impossible maybe?) to know exactly how much the high SBD value is impacting things verses the whole STEEM ecosystem driving things up on it's own both in terms of user adoption and rewards pool value via an increased STEEM value.

We may be chasing the dragon, but I also think if we start now and show a long history of something that actually works and secure, that's really valuable. This is world domination stuff after all, right? :)

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inquiringtimes (64) · 7 years ago

Yes, and because of this post I'm finally starting to grow the whole idea a bit better. Way to post this as I was about to go to sleep :)

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lukestokes (75) · 7 years ago

Hahah. Get some sleep man. The blockchain will be here when you come back. :)

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jlcrypto (57) · 7 years ago

Hi @lukestokes

I think that plegging SBD to the US dollars is a great idea.
First because SBD brings also confusion to new users that are coming on Steemit.
It is supposed to be valued around 1$ and then it is worth around 7$. I heard of people struggling to understand why they should buy Steem and not SBD and oppositea and not understand how this is supposed to work.
Second, Tether will collaps and we need to enter the market. As you said, people need a pegged assets because it's a safe heaven during crash. And the Steem blockchain will be more than able to handle the new upcomings transactions when crash occurs. The free fee will be also a positive point for new users.

I definitely support your thoughts.
Joris

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lukestokes (75) · 7 years ago

I think many agree a pegged SBD makes sense. The trick is getting there without screwed anyone over or angering people who really do enjoy high SBD values right now.

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fitzgibbon (61) · 7 years ago

Hey @lukestokes, I read your article this morning, thought about making a whole post about why a well pegged SBD is beneficial, but your comment here sums it all up. There is already consensus in the witness ranks leaning towards a well-maintained 1 SBD = 1 USD peg. The discussion is only about when and how to enforce + how to smoothly get there without screwing anyone over.

This tells me:

the problems and consequences of an out of control SBD value is signaled and recognized
the arguments made (on different sides of the debate) nearly all reflect answers to the most basic question: "What is most beneficial to the Steem community in general?"

I think this is just another very fine testament on how open, transparent, efficient and well-thought out governance can be executed in a DPOS eco-system. This is what happens when the incentives of users, stake-holders and developers are in alignment!

I'd advise Bitcoin to take notice, also some governments could learn a thing or two here. It's beautiful.

lukestokes (75) · 7 years ago

I'm a huge fan of DPOS.

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grizgal (55) · 7 years ago

Thanks for laying that out in terms most can understand. The issue is most users don’t want the price to fall and will consider a peg at $1 or even $2 to be heavily undervalued given recent prices!

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lukestokes (75) · 7 years ago

I understand that, but for some who rely on a pegged asset because their own national currency is out of whack, what can we offer them? They have to leave the ecosystem and go to bitUSD or Tether because they can't handle the fluctuations from $8 to $6. Also, to me, the value lost in terms of SBD could be recovered with an increase in STEEM which increases the reward pool for everyone.

Instead of one SBD worth $7 on the open market (but still $1 worth of STEEM as far as the blockchain is concerned), I'd certainly prefer people get 7 SBDs worth $1 worth of STEEM and $1 on the open market.

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grizgal (55) · 7 years ago

I agree it has utility but see is as very problematic to implement. It is supposed to be pegged now yet clearly isn’t. Added to the fact that people would reject the idea as anyone holding SBD would lose, I don’t see it going anywhere. Unless you propose a peg at a higher level than current prices. That is likely to be popular. Or perhaps an agreement that SDB will be pegged at $2 on date X but can be redeemed at current value as SP up until that date?

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lukestokes (75) · 7 years ago

It works on the downside. But nothing for the upset. Ideally, I'd like to implement something in the future that doesn't hurt people now. To do that, we may need more SBD printed. A reverse conversion might help with that.

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mstafford (67) · 7 years ago

I think this is a more important question than most people on here realize -- and also a little more complicated than most people (myself included) realize. Firstly, I'll admit that I'm (in my own eyes at least) still super new here -- but I've been actively trying to wrap my head around everyone for about 2 months now. That being said, I have thoughts on this that could go for either side of the argument -- and I wont pretend to have any sweeping conclusions.

There is aboloutely no question in my mind that stability would be a good thing. I'm a civil engineer when I'm not pretending to be a rock-climbing on Steemit, so I interact with a fair amount of people on a daily basis that have lots and lots of resources. The number one thing I hear from every single owner of infrastructure, or land developer, or whathaveyou, is that they want to try to minimize risk as much as possible.

Currently, the volatility of crypto is general isn't doing itself any favors for mass adoption. In the case of STEEM, when I first approached it, I was confused for quite a long time by the concept of SBD's. I've been trying to convince a lot of buddies & co-workers that they should get into STEEM while it's still early adopter, but they're all very put off by the crazy volatility, and the generally confusing roles that SBD & STEEM play in the ecosystem (remember, I'm working with engineering professionals).

My generally thoughts on the matter, I think, can be summed up in two or three points:

Stability itself is a good thing;
The question needs to be asked eventually -- "Stable to what?", since a large part of the point is trying to get away from centralized currencies.
- In the short-term though -- stability could be seen as a bridge for people to come over comfortably.
If a stable SBD peg is to be actively pursued, it makes sense to me that it should be done ASAP (maybe a hard-fork where a quantity of SBD's are issued proportionally to all holders such that it drives the price to 1USD = 1SBD?), and then abandoned once the user-base grows large enough to be self sustaining.
- At which point, maybe STEEM / SBD's can become their own reference point?

I'd like to finish my comment by reiterating that I'm very new to all of this, and this is just the opinion of an average Joe, while he sips beer and gets ready to write his daily climbing post (shameless plug to yesterdays post).

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lukestokes (75) · 7 years ago

Doing an airdrop of SBD on everyone is quite a radical solution and probably not something I'd consider stable. I can imagine people (especially speculators on exchanges) would freak out about that and it would probably seriously damage the reputation of the STEEM blockchain. It's certainly an interesting idea to radically fix the peg though. I often use the word "interesting" for things that I would never actually do in real life though. :)

I agree, we should always be focused on minimizing risk, especially systemic risk. I also think stability is really important and the broken peg right now with prices on posts that don't make sense really add to a lot of unnecessary confusion. Hopefully we can fix that going forward.

Thanks for commenting.

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mstafford (67) · 7 years ago (edited)

Hey if you say thanks for commenting -- I should say thanks for listening.

I agree that doing an 'airdrop' (awesome name, btw) of SBD is a radical solution. I'll admit to personally having some left leanings in my line of thinking (I also have the fortunate situation of not living paycheque to paycheque), but I am curious to hear why you think it would be an unstable solution -- the overall value of everyones 'total number of tokens' would stay the same, and SBDs are pretty divisible already, aren't they? There's little doubt in my mind that you know what you're talking about and have thought about it extensively -- just curious.

Also -- in my line of work (I deal with a lot of municpal infrastructure that people interact with extensively) people are often freaking about changes. And I'm compelled to ask:

Just because someone (speculators) is freaking out about something changing, does that automatically disqualify it as a bad course of action?
Should the reputation of the STEEM blockchain be a content curation site that is technologically efficient, streamlined, and effective? Or should it be a sound investment strategy?
I should include that there's obviously a huge gray area between the two points above, and it ideally would be both of the above.

At some point, ideally, Steem should become something more than an investment platform, shouldn't it? Is it not supposed to be, first and foremost, a 'decentralized content curation platform'?

EDIT: I should clarify my last question as: "Is it not supposed to be, first and foremost, a 'decentralized content curation platform' -- so then would it not be best served by becoming as immediately accessible by as many creators as possible via stability?"

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fitzgibbon (61) · 7 years ago

The 'unstability' of airdropping SBD is that it sets a precedent, making the future outlook for the system completely unstable. If loads of SBD just fell out of the sky today, who says that won't happen tomorrow?

Also, the value of any crypto-currency at the moment comes from supply and demand on the crypto markets. Therefore being an attractive investment opportunity benefits its users immensely (it simply makes the rewards for content curation and creation higher).

Revolutionary and principal about Steem is the fact that rewards in crypto-tokens are built into content creation and curation. You can imagine that the value of those rewards (i.e. the value of the tokens) is vital and a driving factor for adoption as well.

lukestokes (75) · 7 years ago

On the STEEM vs. Steemit question, this post may help: STEEM Is NOT Steemit. STEEM Is More Valuable Than Steemit.

As for leaning left, you might enjoy these posts:

When it comes to cryptocurrency, the commitments made to investors about the supply is one of the single most important promises made. When a token violates that trust, it can hurt the community for many years. It's certainly not something anyone who understands the economics involved should seriously consider without very, VERY careful thought. Even then, I have trouble thinking of a situation where it would be justified unless it avoids some type of systemic risk which could destroy everyone's value.

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mstafford (67) · 7 years ago

Thanks for taking the time to ask these questions and follow up in discussion on them -- I appreciate it, have found it very informative, and have given you a vote for witness because of it.

I've seen a couple UBI posts floating around -- thanks for sharing these other ones. I'll definitely give them a read.

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lukestokes (75) · 7 years ago

Thank you for your support. :)

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blessedman939 (64) · 7 years ago

Now I am beginning to grasp the SBD /STEEM stuff after going through the post and comments. It is beginning to sink in. You are one of the witness I voted for and you know what I'm glad I did because you care. Thank you for being you.

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lukestokes (75) · 7 years ago

Thanks for saying so. :)

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albertvhons (64) · 7 years ago

IMO, steem price high because of sbd being manipulated or being adapt massively.

1 is to 1 doesn't really happend to sbd, well, If we think 1 usd is = to 0.80 sbd is not really 1:1 ratio, or 1 usd is = to 1.20 sbd.. i've seen that many times.

Once the token was in the market, the traders makes what is the value that asset. if we want a fixed 1:1 sbd, then it will not be a decentralised anymore. We will make a centralised exchanger that it will not rise or down the value of sbd which is pretty hard to do.

you are correct about lots of steemians do care so much of rewards, that only covers the greedy whales, maybe a 35% to 25% from dolphine to orca to whales who have lots of steem power. But in the eyes of minnow and redfish, it does not affect especially those beginners and earns $0.50, $0.30 of their post unless rely on bidbots.

in the other hand, the effect of drastic rise up of value of sbdm brings back the inactive steemians and gain more attention to the world that steemit is worthy enough to invest with.

If sbd doesnt spike that $7 currently and strong to not go back to $1,, Do you think STEEMIT will be hot now as of back October or november were lots of steemians start to power down and leave steemit?

It may pose a risk knowing sbd is pegged to $1 yet surpasses that, but it gains so much attention and bring steemit to high level as of now.

A two way conversion,? I dont know how that gonna work or does it really pose risk instead to the current event in steem/sbd price.

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lukestokes (75) · 7 years ago

I'm curious why, in your evaluation, it's all about the rise of SBD and not the rise of STEEM? As I mentioned in my post, STEEM has gone up 46x and SBD only 7x and a rise in STEEM increases the entire rewards pool payout amount, not just the SBD portion.

As for bid bots, be an owner, not a renter is my perspective. I've never used them. Building value here is about reputation and relationships with rewards coming later.

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samirich (60) · 7 years ago

I totally agree with you. From your point of view, I totally understand the original post. Thank you! It's best when the market forces are left untouched.

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albertvhons (64) · 7 years ago

in what I have observe, the massive upwards of steem was drive of sbd.

In june 2017, steem rise up to $6 in a second but fail because sbd was $1.
why is that, Lots of people are holding already steem in hand. either liquid or lock up.

when Sbd spike at December, maybe because of manipulation or massive adaption, we can't deny that steem follow the spike not because it was manipulated, but because of what sbd's surging price.

I doubt steem value will remain $5 strong in weeks or months if sbd is just $1. thats my observation.

it's the scarcity of sbd makes it value skyrockets.

I see already that steem fails to hold $6 each when sbd is $1, but as what happened now, Steem stronger than ever as sbd value are more than what steem has now..

if your are not convinced about this, let's see what will happened to steem value without sbd or sbd at $1 only.

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fitzgibbon (61) · 7 years ago

Wow, thank you so much for this comment @albertvhons! I've been sending SBD a couple of times to Bittrex and selling em there at $8, $10 and once even $13 per SBD, constantly wondering:

"Who are these people, paying more than 1 USD for an asset which is described in its own whitepaper to be worth 1 USD worth of Steem???"

But reading your comment, now I finally understand some would just correlate the success of the Steem platform to a high SBD price.

I do have a question for you: do you also consider the USDT (Tether) at $1 to be 'cheap', or 'a buying opportunity'?

PS Personally I think Steem value will go to $100 with SBD at $1 only.

But I am fascinated by your position on this matter.

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lukestokes (75) · 7 years ago

some would just correlate the success of the Steem platform to a high SBD price.

Which would probably be a mistake and a misunderstanding of the actual economics at work here. Please see my reply to the comment you also replied to.

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albertvhons (64) · 7 years ago (edited)

it could be true or not

I also understand your point view, But let's accept that steemit.inc love the high price of the steem/sbd.

It is not true that 1:1 ration to sbd/usd coz it is not the steemic inc gives the price-but the market.

What you gonna do as the current moment of high sbd price to make it 1:1?

1:1 of sbd/usd fail even the first it was implemented. Why, We know crypto was heavily paired to btc, if btc fall so as the value of sbd.

Now, about your view of sbd correlation to steemit success, we may say that it does hold any solid evidence that it was, but Is it not?

With all due respect sir, This is the beauty of decentralization, Let's becareful of changing what is current price of sbd now,

I do believe that sbd was created for the success of steem. COz if not, why create sbd.

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lukestokes (75) · 7 years ago

Because a pegged asset is valuable. See the "world domination" post I linked to in my original post.

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albertvhons (64) · 7 years ago

I know that sir, But what I see even the First implementation of sbd as pegged asset already fail, even the first it was implemented.

I don't even trust tether as pegged asset to Usd, it also fail,

I know also sbd was created for stability of the platform or for the success of the platform.

You must considered also the the views of the traders who gave price of the coin,

Still, moving into a two way conversion pose a threat of the plat form.

Still I believe, SBD cater the success of the platform and it did.

and still, Even the first place, sbd was not really pegged asset, unless you have funds already back up in the market,

Still sbd fails to be $1 each since it is bitcoin who gave the sbd price not usd.

At least sbd became $1 usd in algo runs in the platform, but you must consider first the current value of sbd given by the market, or if not you want to manipulate it also to going down,

Pegged asset should be back up by funds as it was a debt instruments, did it exist? where? if it is, it already fail since it was implemented.

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albertvhons (64) · 7 years ago

PS Personally I think Steem value will go to $100 with SBD at $1 only.

I doubt that! We must weigh the total supply of steem compared to sbd. You can't leave sbd $1 and wanting steem to go $100 with so much steem supply. the reason why sbd surges up because nobody stacking sbd. You can look up it's total supply less compared to steem.

USDT (Tether) at $1 to be 'cheap', or 'a buying opportunity'?

IMO. tether will always be pegged to $1, They can simply issue tether and reissue again without informing us. Compared to sbd, With limited supply and can be created "only" via post rewards.

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smooth (70) · 7 years ago

The time scale on your charts does not line up.

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albertvhons (64) · 7 years ago

sir @smooth, the chart doesn't tell everything, Please look at the date between june to august of steem and sbd. And you will find out That steem fail to hold $6 to $4 in a day while SBD is at $1. and that's the chart all about.

We may say that as Korean people adapt steemit, it also the start of steemit success to the moon in terms of price, let this be a blessings in disguise,

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lukestokes (75) · 7 years ago

I think you're falling for the correlation is causation trap. Please, please, please, be very careful about the information you share and the conclusions you come to without solid premises. Many people see pretty graphs and think, "Oh, I get it now! It all makes sense!" even though they are just being told a story. Unfortunately that can lead to actions which end up hurting people, even when the intentions are to help.

Comparing the initial spike in STEEM price to what is happening now is completely unjustified as the inflation model was entirely different as was the marketcap and the entire cryptocurrency environment, not to mention the initial pump that follows many new project launches.

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realestatecoach (54) · 7 years ago

Thanks for this. To be honest, it is above my head but glad its being discussed with transparency. I'm just glad my initial investment appears to have been a worthwhile investment and I have an interesting blogging platform to use for my personal benefit.

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builderofcastles (64) · 7 years ago

I have said this elsewhere.

SBD should be pegged, else, why have it. Just give everyone STEEM for their SBD.

Should we do this peg now? I wouldn't. I would wait until this market cycle is over. There is too much up pressure on SBD right now.

And that up pressure will have to be taken into account in any future convertibility factors.

I would suggest a way of converting both directions, but it should be lossy. As in, if you convert one way, then back, you lose 1%.

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lukestokes (75) · 7 years ago

There's been some discussions about the conversion being lossy, but if we add too much resistance to it, I think people will decide not to use it and choose something else like bitUSD.

I wonder if this market cycle will end or if people will just keep pumping SBD up. From a certain perspective, it's a better token than BTC (lower supply, free to transfer, 3 second confirmation times, hard floor of always being worth at least $1 USD in STEEM, etc).

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smooth (70) · 7 years ago

IMO we can start with a lossy (spread) conversion and if it turns out that everything is working great but the only problem we still have is that he peg has only a bit too much slack (which would still be such as huge improvement from the status quo obviously) then we can tweak it again to tighten/remove the spread. That is a a relatively small change.

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lukestokes (75) · 7 years ago

Yeah, I do like taking steps to make it safer if and when we do implement something. Paying a small price to do the conversion may be a good way to introduce it. It's still possible some systemic risk exists we haven't yet seen and would only find once we see it in production (unless we develop ways to model this ideas effectively beforehand).

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svamiva (60) · 7 years ago

I think considering indeterminacy due to Steem price fluctuations during 3.5 days of convertion no average user would ever pay attention for 1% extra spread.

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smooth (70) · 7 years ago

Average users aren't really the price setters though. That's more a function of what bigger traders do and bigger traders will pay attention to it. I still think a small spread is okay, and can be reduced/removed later if it isn't.

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svamiva (60) · 7 years ago

Yes, I fully agree that this option is going to attract big traders, probably even traders from the outside of the current Steem ecosystem.
It's sort of introducing 'futures market' or 'prediction market' for Steem. I wouldn't be surprised to see really big volumes converted back and forth.
So I feel like we could demand some contribution )

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realestatecoach (54) · 7 years ago (edited)

Thanks for the transparency @lukestokes. I did what I felt would be the most helpful thing for you aside from upvoting (already did). I voted you for Steem Witness. I hope you represent us well and thank you for putting time making this an improved community.

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lukestokes (75) · 7 years ago

Thank you so much for that. I really do appreciate your support.

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rocking-dave (57) · 7 years ago

What's the better authority on value - the market or the whitepaper? Isn't it the market? If it's the market, than the whitepaper is a very weak argument, isn't it?

A stable pegged SBD asset might be an asset someday if we keep growing. But the growth is currently fueled by the high SBD. And let's be real, commerce on the blockchain is pretty much non-existent if you don't count the meta businesses and steem isn't really being adopted by exchanges the world over as is. Why would we implement something to stifle our growth, decrease our market cap and in the worst case scenario (which I think is very likely), create and artificial crash and destroy investor trust?

I think people should worry less about the intent of the creators of the blockchain and more about what the market has found value in.

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lukestokes (75) · 7 years ago

But the growth is currently fueled by the high SBD.

Do you have evidence to back this up? As I mentioned in my post, STEEM went up 46x compared to SBD only going up 7x. The value displayed on a post payout is what matters to most people psychologically. That number goes up (i.e. the rewards pool goes up) when the value of STEEM goes up. I'd argue most new users don't even understand what a SBD is or how it's valued on an external market.

You did see in my post about how Tether grew to $1.5B in market value. Aren't we ignoring that market signal by not fixing our own peg and marketing it as a much more attractive option for exchanges and investors? Tether can't be trusted or audited. Ours can.

Seems to me, if people could make money converting STEEM to SBD, that would increase demand for STEEM and increase the market cap (STEEM) which actually impacts the rewards pool payout amounts according to how the blockchain functions.

Investors are investing in STEEM.

Speculators are speculating on SBD even as the supply is increasing and no one is converting SBD back to STEEM to decrease supply.

It's not about "the white paper" as much as it's about a broken functionality on the blockchain. Either it should be fixed or removed. If we remove it, then we lose a potentially huge opportunity in the pegged token market. I don't think ignoring that opportunity is good stewardship of this ecosystem.

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rocking-dave (57) · 7 years ago

Do you have evidence to back this up? As I mentioned in my post, STEEM went up 46x compared to SBD only going up 7x.

Yep, Steem broke into never breached before price territories only after SBD exploded. The 46x vs 7x is correct only if you look at a time frame that doesn't make sense to look at in this context. Look at only the period for which SBD was pumping and see if that correlates to growth in Steem. You will not find Steem outgrowing SBD there by any means and there is nothing like a 46x growth for Steem there. To me this is either an irrelevant or a misleading figure to put into this discussion.

The value displayed on a post payout is what matters to most people psychologically. That number goes up (i.e. the rewards pool goes up) when the value of STEEM goes up. I'd argue most new users don't even understand what a SBD is or how it's valued on an external market.

It takes only 7 days to understand that you are currently making significantly more than what the post displays. That is the psychological effect that makes people tell their friends to join. We are seeing unprecedented growth in new signups and activity. Do you dispute that? Isn't the data clear on that? Do you think we'll retain that if we create huge changes that destroy a lot of that value people are seeing? What would the psychological effect of not getting what you used to get up until recently because "the government of the blockchain" decided you don't deserve it anymore? You can bet all your Steem on a lot of churn if that happens.

Seems to me, if people could make money converting STEEM to SBD, that would increase demand for STEEM and increase the market cap (STEEM) which actually impacts the rewards pool payout amounts according to how the blockchain functions.

That can be true only if they continue to trust the blockchain. I have no doubt that a portion of the investors will view the blockchain as untrustworthy after implementing such a huge change with the flip of a switch and would not care to get involved in neither Steem, nor SBD. And with money flowing out of the system because of that, would the conversions be enough to take care of the problem?

It's not about "the white paper" as much as it's about a broken functionality on the blockchain. Either it should be fixed or removed. If we remove it, then we lose a potentially huge opportunity in the pegged token market. I don't think ignoring that opportunity is good stewardship of this ecosystem.

Broken is correct only if you care first and foremost about the vision in the whitepaper. The current setup is working to our advantage as of now and swooping in to destroy that makes no sense. Even if we assume that there is something broken, one should select a time to fix it that would not create other problems or mistrust in the blockchain itself. Things should be fixed in a way that doesn't

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torquewrench1969 (54) · 7 years ago

When pegging the SBD becomes necessary (and it will), we need to be careful as to not only WHAT we peg it to, but also WHEN we peg it to.

If pegging to the USD, I would peg it to the purchasing power of the USD of 1912.

That would make the SBD have the purchasing power of about 185 USD today.

Pegging the value of a currency to the PRICE of a currency which a governent/corporation can devalue is utter madness.

Pegging it to the purchasing value of a given currency at a specific time in the past is the only reasonable solution in my mind.

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lukestokes (75) · 7 years ago

That's what HERO has done, and it's certainly interesting but not useful for most of the people who rely on USD for daily purchases (both in the United States and in other countries which peg to the dollar). We're trying to come up with something reasonable and if most merchants have goods and services they have to pay for directly, saying "this token is worth 1 USD" is the easiest approach, not a token which requires some math to figure out today's value.

In the future, as USD becomes less relevant, I'd be all about pegging to something else. Maybe a basket of currencies or SDRs or gold or silver or something. The point would be to pet to whatever most people are most comfortable using.

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jh3n (54) · 7 years ago

You take away the current price of SBD and put it back to 1usd...there goes the majority of steemians. Don't expect minnows that make cents and a few dollars to stay on this platform if the SBD is pegged.

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chryptomark (45) · 7 years ago

@lukestokes: I have a very simple idea, but I am not an expert and thus not sure if it is working together with the existing rules:

Allow the individual user to freely set the ratio between SBD and Steem for rewards. Up to 100% SBD is allowed.

Fix the inflation of steem and keep the inflation of SBD variable.

If the SBD price is above 1 USD, people will ask for payouts 100% in SBD

Inflation of SBD would increase, hardly any new Steem would be issued.

This would result in significantly increasing vote values - and the amount of SBD issued would increase even more.

I am pretty sure that this would reduce the value of SBD to 1 USD pretty quickly and automatically.
What do you think?

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smooth (70) · 7 years ago

Good suggestion and you can see that I suggested that in the github issue that was linked from the post. However, it has downsides in that liquid rewards don't encourage people to have a stake in the platform, as intended with 50/50 or 100% SP.

Note that we already do have a version of this. People choose 50/50 when SBD is more valuable and often choose 100% when it is not. So the supply adjusts, just not very much and not quickly enough.

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lukestokes (75) · 7 years ago

I've heard this discussed as well, but here's my main concern: The blockchain itself is secured by SP holders voting in competent witnesses. If we disincentivized holding SP, we could in theory decrease the distribution of SP which could be seen as a decrease in decentralization and thus a weakening of the security of the blockchain. For that reason (and the no-commitment / spam concerns), I’d be strongly against a full SBD payout option. I think it could potentially create systemic risk by creating too much SBD too quickly. Maybe if we designed it in such a way that the payout option, on a blockchain level, is only available when the price of SBD is too far outside the peg... but that adds other complexities, like witnesses providing a price feed on SBD as well as STEEM.

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chryptomark (45) · 7 years ago

I think that this would not create a problem. People would want to be paid in SBD not because they like the SBD but because it is the more profitable option. They would get SBD - and quickly transfer it to steem. Steam price would increase relative to the SBD, SBD would fall. People wanting to be paid in SBD is in my view not equal to people wanting to own SBD.

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lukestokes (75) · 7 years ago

What about those who need stability? Either because they have to pay for real world services or because they are poor and should not be risking their value on speculations?

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chryptomark (45) · 7 years ago

I think there would very soon be stability - because people would realize that the mechanism which brings down the SBD price is too strong to speculate against. At least I would think it would work like this.

I think we have to accept that all we can do is creating a mechanism which results in a peg if people react rational. For a real peg, you would have to make sure that the value at any tie is really worth exactly 1 SBD. For this to reach, there needs to be an arbitrage possibility. For example if could would have the opportunity to create new SBD at any time by paying 1 USD and to get your 1 USD back it would certainly be closely pegged to the USD. However, this is not possible and wanted I think. The only other way is to create a mechanism which is sensitive to the USD.

I think, if you would pay out the SBD part also based on its USD value as you do with steam, the price would sky rocket even more because inflation would go down massively.

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twodollars (52) · 7 years ago

I think pegging SBD (i.e. allowing SBD/Steem conversions in both directions) would be abused. For example, manipulators could pump Steem and then instead of dumping Steem they could convert Steem to SBD without worrying about market forces dropping the price of Steem during their conversion (i.e. dump) to SBD which would leave the Steem community holding the bag. I think the author of the Steem whitepaper probably realized this when they wrote, "If people could freely convert in both directions then traders could take advantage of the blockchains conversion rates by trading large volumes without changing the price."

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eonwarped (68) · 7 years ago

I've been citing that quite often as well, but @smooth made a great point in response to my pointing this out. The short end of it is: it actually would be hard to abuse, especially with the 3.5 day delay. And the proposal includes a spread/fee that goes back to the STEEM blockchain, so perhaps it might be made to work.

I've commented independently here as well, but I'm more concerned about the ratios of SBD vs the STEEM market cap.

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twodollars (52) · 7 years ago (edited)

The kind of abuse of the two way conversion that I was thinking about couldn't be prevented with a 3.5 delay or a spread/fee. For example, as a crude example to illustrate my point, if someone had $100 million to execute a pump and dump/convert, then on day 1 they could buy $20 million worth of STEEM and start the 3.5 day conversion process on that $20 million worth of STEEM, and do the same thing on days 2, 3, and 4, and it is reasonable to assume that buying $80 million worth of STEEM in 4 days should result in the price of STEEM rising quite a lot, and then they could use their remaining $20 million to buy enough STEEM to keep the STEEM price propped up as much as possible at the elevated prices until almost all of their 3.5 day conversions of STEEM into SBD completed at the elevated STEEM prices. At this point they could sell whatever STEEM they bought with their last $20 million before the end of day 7 which is when the first wave of power downs would hit the markets (i.e. the surge in the price of STEEM might encourage some people to start power downs to try and get some profits but they have to wait 7 days for their first power down). I'm not sure how much the price of STEEM would go up if someone were to buy $80 million worth of STEEM in 4 days, but even if the price only went up by 50%, then this crude plan could still probably turn $100 million into at least 125 million SBD. However, the scary part would be if someone could execute this type of plan and manage increase the price of STEEM by 5x or 10x and complete STEEM to SBD conversions at those 5x to 10x price ranges because that would turn $100 million into 500 million to 1 billion SBD. This is like a "pump and dump" except it is a "pump and convert", but unlike a pump and dump, the pump and convert wouldn't need to con people into buying offloaded STEEM at pumped up prices because the STEEM would be dumped through the STEEM to SBD conversion process which would leave the Steem community left "holding the bag". In the crude example above, $80 million worth of STEEM could be dumped into SBD without directly affecting the market price of STEEM. This is one of the things I think the author of the white paper may have been warning about when they said, "If people could freely convert in both directions then traders could take advantage of the blockchains conversion rates by trading large volumes without changing the price."

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eonwarped (68) · 7 years ago

This is an interesting exercise. I did suggest pump and dump type but I did not really think through the whole scenario. To summarize into steps:

Buy/Have lots of STEEM. Wait for things to settle.
Start 3.5 day conversion.
Buy more STEEM. Manipulate the price upwards.
Sell SBD?

This carries a significant amount of risk as stated, because SBD is not guaranteed to hold its value during this time. To complete the cycle you need to try to exploit the reverse conversion. Let me try...

Let's say P(t) is the STEEM price feed over time.

Buy/Have X amount of STEEM.
Start 3.5 day [reverse] conversion at 1 STEEM --> P USD
Buy more STEEM to pump price.
Now have P(t_4) * X SBDs.
Start 3.5 day conversion back. 1 SBD --> 1/P STEEM
Dump the STEEM to tank the price.
Now have P(t_4) / P(t_7) * X STEEM.

The amount of STEEM you just gained is now whatever difference you were able to manipulate the price of STEEM by. The scary part here is the SBD price does not factor into this scheme at all! Even if you add a spread, as you say it may not help here.

Hmm.. I can't seem to find a flaw... it's possible that it's not that easy to pump and dump STEEM with STEEM being more mature. The motion of steps 3 and 6 may also end up in a local loss for that amount too? I'm not familiar with how pump and dumps work in general, but my impression is that you need tokens with sufficiently low circulation / trade volumes to carry out the scheme.

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twodollars (52) · 7 years ago

The scenarios we are discussing really do illustrate how easy it would be for someone with a lot of money and a little bit of thought to exploit the reverse peg idea that is currently being considered by witnesses.

Regarding your comment about it not being easy to pump and dump a mature cryptocurrency such as STEEM. I agree, and I think it would be nearly impossible to make a profit pumping and dumping STEEM by buying STEEM on the markets and then selling STEEM on the markets. However, the reason I think a pump and dump like that won't work isn't because the pump is difficult because anybody with a huge amount of money could easily pump STEEM. The pumping isn't the difficult part, and the problem with the pump and dump is that once you've pumped the price of STEEM up, then you wouldn't be able to find enough people willing to buy STEEM from you at the pumped up price. You couldn't exit your STEEM position without crashing the price. However, the reverse peg idea currently being proposed makes the dump a very solvable problem because you wouldn't have to convince a single person to buy your STEEM at the pumped up price because you could just dump your STEEM at the pumped up price on the Steem blockchain by converting it into SBD, and the only challenge you would face would be to keep the price of STEEM pumped up for a 3.5 day conversion process which shouldn't be overly difficult since most STEEM is powered up and it would take at least 7 days for 1/13th of it to hit the markets. Also, you wouldn't need to sell a penny worth of the STEEM you bought on the markets. In my crude example I didn't get into how you could cash out of SBD, but if you were able pump STEEM up to 5x or 10x and turn $100 million into 500 million SBD, then I don't think it would be too difficult to get roughly $500 million back out over time especially if the SBD is designed to be pegged at a dollar.

eonwarped (68) · 7 years ago

Oh of course... SBD being pegged would certainly make this easy to cash out over time. So that really would be enough then. I am now realizing that the reverse direction conversion really is not symmetric at all to the forward conversion because the price feed is on the steem side. Wow.

About my scenario, it's a fun cycle scenario where you can keep multiplying the steem holdings, and tanking the price is part of the scheme. So if tanking the steem takes even less time/volume, you end up with much more steem.

I feel these scenarios need to be addressed before anyone agrees to this.

I have been collecting our discussion into another post which I hope to augment soon.

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twodollars (52) · 7 years ago (edited)

Your cycle scenario provides a nice window to see the major problem with the proposed two-way SBD peg which is that conversions (even very large conversions) can be done without directly impacting the market price, and this is the feature of the two-way SBD conversions that can be exploited.

I find it interesting that your step 2 conversion is essentially selling STEEM without the sale directly impacting the markets and your step 3 is buying STEEM with impacting the markets.

I've also written a separate post related to what we've been discussing, and I think it can be helpful for people to see both your example of how to exploit the two-way SBD as well as my example.

I agree this issue needs to be addressed. We're doing our part with trying to get the word out there. It would be nice if someone could make a cartoon video explaining the problem in simple terms that is easy to see visually.

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fuckmylife (59) · 7 years ago

as long as we have things like tether in place, crypto will never take over the fiat world in its entirety. Its sad that people think a safe place to put their money during the dip is tether. Doing so just impedes the ecosystem, it doesn't improve it.

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lukestokes (75) · 7 years ago

I can respect that perception, but I don't think I agree with it right now. We're just barely getting started here in terms of world population that's in cryptocurrency. Until it's completely ubiquitous, expecting stable cryptocurrency at this stage isn't realistic (yet). People still need to pay their bills and such. Poor people especially should not be gambling with speculations. They need something stable to keep the lights on and right now, that's still the USD for most people. If we can get a stable peg, we can speed up the conversion process to cryptocurrency.

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rycharde (63) · 7 years ago

Hi @lukestokes, this will take me 2 or 3 more sittings to go through all the comments. So, apologies if these points have been covered already.

I wrote about this here and here.

Firstly, I'm not sure why you say that conversions are only in one direction. Go to the internal Market and one can freely exchange STEEM for SBD and vice versa. Indeed, when SBD spiked in December, there was a point when about 8 STEEM could be bought for each SBD. Having such a lucrative trade suddenly available meant holders of SBD who participate within Steemit could power up at a very attractive rate. The trade itself slowly created the re-balance between the two currencies.

What I am seeing is that any very profitable trade quickly becomes known, and as more people do the same transaction the prices reach a new balance.

So, although this does not appear to have been the plan within the White Paper, what I am seeing is that the "peg" is not between SBD and US$, but rather between SBD and STEEM. Possibly an unintended consequence, it strikes me that having two currencies is proving to be a useful buffer.

These are still early days and we are seeing changing dynamics happening with price changes. I would not change any code until there is enough data to see clearly how the market adapts to these changes.

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eonwarped (68) · 7 years ago

The internal market counts as a swap, not a conversion. A conversion will destroy the input token and create the output token. How that affects the market is slightly different.

The peg is most definitely not between SBD and STEEM. The underlying mechanism is the feed price which is how the witnesses determine how SBD is printed and converted.

By the way, high steem prices means more SBD is being printed. Long term there is natural downward pressure on SBD price.

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rycharde (63) · 7 years ago

OK, thanks, now I get why "conversions" are spoken of differently to just trading the two currencies internally.

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phgnomo (64) · 7 years ago

Hello @lukestokes

I would like to add an economic view on the discussion, based on fiat currency economics. I think it is a needed perspective, since we are talking about how Steem economics should works. Could you take a look?
https://steemit.com/witness-category/@phgnomo/sbd-usd-peg-taking-exemples-from-the-real-world-economics

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fraenk (62) · 7 years ago (edited)

I've just picked this topic up in my most recent post concerning the liquid steem author rewards and i've linked to this post under "further reading"

You've got my vote-for-witness! Way to go, being unbiased, reasonable and educational on the matter!

Does it need to happen right away while SBDs are still high? Maybe not. Maybe we should let inflation run its course as more and more SBDs are printed.

Well... I think the time may be here?!

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lukestokes (75) · 7 years ago

I wish, but unfortunately the market still wants to drive up the price of SBD:

Until people stop doing this, then any attempt to fix SBD will be considered manipulation by those who benefit from it free-floating. It's a challenging problem to solve.

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fraenk (62) · 7 years ago

Yeah, I guess it's tricky politics.

The way the markets will react to these mixed rewards might even drive it up further considering the supply is getting constrained... meh

Shamed be he who thinks evil of it.

Thanks for your support on my post!!

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gprince (51) · 7 years ago

If they Peg SBD to 1$ or 2$ ...what will happen to we the minnow.. Not even a full minnow like to say "Steemit Kid" that have not to depend on when we are not capable enough to purchase STEEM and we depend on the 0.01$ low Upvotes as little penny we are using to maintain ourselves..... They are many whales out there who are only after themselves when we the nothing are much this plenty..

The fact that pegging SBD is might be a Good decision but from my own view, it will only benefit the whales and never the less we the rest is gonna suffer.
Let take my Blog for perfect example; the biggest payouts is 1$ .now imagine we having 0.5$ and less on our post from maybe like 5 newbies like me which what they can only upvote with 0.01$(biggest) while most is 0.00$(with their 100% Upvotes) at the end of the week the biggest amount to claim is 0.02SBD and 0.001SP. So with the penny we are claiming imagine Steem rises and SBD peg at 1$, imagine how many times and articles to post with 0.01$ claim to get just one STEEM(approximatly A Month).

Steemians like @surpassinggoogle is trying so hard to adjust the newbies With less payouts but he can do it alone. I wish am also like him with huge Steem power to help and let people benefit from, I also want to curate and promote and also to bring up the newbies if I have Steem powers or someone to sponsor me, I WANT TO HELP.
You can check this post I made for the newbies not quite long out
https://steemit.com/introduceyourself/@gprince/short-message-for-newbies-and-everybody-on-steemit-currency-currency-don-t-get-discourage-and-have-hope

Now The Question is

What's gonna happen to Us the Steemit Kids when steem rises and sbd peg to 1$?

or it will be better SBD is totally cancel as payout and start using STEEM instead.

Thanks... You reply is needed
(For the Newbies/minnow)✍️📝

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syampadusen (42) · 7 years ago

very interesting explanation I like it @syampadusen

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gregan (59) · 7 years ago

Quite a read. I don't have a big opinion of it, as I have little SBD and steem, but I'm always content to vest steem with a higher ratio than the SBD I traded it for since my curation rewards aren't that great.

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adnan840 (15) · 7 years ago

Bitcoin price has decreased for the last few weeks.SBD and STEEM value is also increasing and decreasing.

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wilfredn (51) · 7 years ago (edited)

Hi Luke, coming from an economics background, I've penned a post on the SBD peg - how it should have worked, why it is not working, how to get it working and whether we really want the peg.

You asked the question "Are pegged assets valuable?" IMO, the answer to that depends on whether users of the asset value its stability. If SBD is only meant to be a short-term asset, kind of like loose change in your pocket, and people convert SBD to other cryptos or Steem upon having enough of these small change, then the price of SBD does not actually matter that much. I'm only holding on to a small amount of SBD at any point in time, a fluctuation of 10% affects my $5 holding by a small amount.

Currently, the peg is broken and has been for a long time. Once people stop believing in a peg, there's no reason for it to hold anymore. There is nothing inevitable about the peg just because it's announced, but the platform is not willing to take costly and painful measures to defend it. Once nobody believes in the peg, it then becomes profitable for users to hold on to SBD as an investment for short-term gains if I think the price will rise in the future.

In short, maintaining a peg is not a cost-free measure. That's an idea that seems to have been missing in a lot of conversations about the peg.

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johnelia (40) · 7 years ago

Thank you sir ammazing boss

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miniature-tiger (68) · 7 years ago

Hi Luke,

Thanks for putting together this article. It's a fascinating and important discussion and it's great to see it being carried out in an open and generally calm manner.

My two questions for you if that's OK (sorry on reading they come across more as "challenges" than questions!) is on the detail of the operation of the STEEM to SBD conversion and it comes from the point of view of understanding whether it will be possible for SBD to act as stablecoin, i.e. as a replacement for Tether. I will use an example as I think this is simplest:

Let's assume I (or a number of participants in the market) have a large amount of Bitcoin, say US$20m worth (sadly I personally do not) and I see the market about to crash. I look at SBD as an option for stability but there are only $7m coins and the SBD price has dropped back to $1 (as desired) so there isn't enough.

In the comments above it is suggested that the alternative route would be for me to buy Steem and then use the Steem to SBD conversion to obtain SBD for stability. So here the details are important (and I'll admit my understanding of them is not clear so thanks for helping out!):

Is this conversion going to follow the protocol of a delay for 3.5 days?
Is the price for the conversion the average over those 3.5 days from the witness feeds?
If so, how much SBD will I get for my $20m worth of Bitcoin? If Steem is falling in correlation with Bitcoin, will I get less than $20m?

If so I can't currently see how this works as a stable option.

Is the idea instead that we would increase the volume of SBD on the market dramatically - if so where will this extra SBD come from?

My second question is: Will the conversion be from Steem Power to SBD or from Liquid Steem? I assume it's not the former as this would provide a fast route to powering down. So if it's the latter, doesn't this provide an incentive to power down and hold more liquid steem? (which is not necessarily a bad thing in itself but generally I always see the high power up levels of Steem as a great indicator of the confidence and solidity of the platform).

Thanks for your time on putting all this together!

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lukestokes (75) · 7 years ago

Yes.
Yes, more or less. There's a specific way the code figures out the exact price your conversion will be at, but it is related to the feeds and taken as an average. (@smooth or one of the core developers could probably comment more accurately on exactly what the code does to find that average).
That's a great question. If STEEM falls while the conversion is taking place, then yes, you might get less than $20M. The only way that wouldn't be the case is if the marketcap of SBD grows much larger, just like Tether went from $500k to $1.5B.

It doesn't work for the $20M scenario you mentioned which assumed STEEM was also falling in price. If people are buying up STEEM to convert to SBD, then the argument would be that the price of STEEM would rise, not fall.

You can't create SBD out of thin air. It has to be created by the blockchain.

I don't think this introduces any new incentives to hold SBD. The same exact perspective exists now. If someone thinks STEEM is volatile and doesn't want to hold it or power it up, then they will hold SBD today. Unfortunately, now they no longer get that non-volatility they would if SBD was worth $1USD. They may move into SBD at $10 and watch it crash down to $5. :(

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gulshannsaini (53) · 7 years ago (edited)

I liked this post of yours because it is telling us how a common person is joining hands to decentralised Money.. even when I joined steemit at first I thought my friend is just joking but later I learned alot from white paper and also started to use digital currency... And yes you are totally true that the value of sbd is pegged it can rise or go down... Sometime people might get off and on just because of this crypto market.. even these days in India our government is making an issue on bitcoins... That bitcoins should be banned and it is a ponzi scheme... Don't understand that why they want this... When a person make less money by investing in bitcoins then it is okay with them but now when some people done good then they are just making it an issue... And calling it a ponzi scheme... Sometime I just get confused by this kind of issues.. completely a game of pegged sbd.. haha.

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lukestokes (75) · 7 years ago

Governments don't like to have their monopoly on currency creation (and the initiation of force) threatened.

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anam01 (43) · 7 years ago

I've quite recently been half trusting in the corner that some SBD whales were going to purchase goliath pieces of STEEM in the interior market and drive the cost of Steem far up keeping in mind the end goal to get the SBD esteem more like a dollar... unrealistic reasoning.

All things considered, a gliding peg appears to be difficult to keep up hypothetically, yet would be well justified, despite all the trouble as I would like to think. Gives a superior sense to more current clients to comprehend the estimation of a post and see characteristically what they acquire. Ought to likewise include greater liquidity (ostensibly, if not really) to our inner markets.

I shiver to think how much fluid STEEM and SBD sits in Poloniex and Bittrex.

Awesome discourse, as dependably @lukestokes.

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lukebrn (58) · 7 years ago

Hi @lukestokes, I answered a similar post by @aggroed the other was my response - I hope it helps!

High SBD values definitely correlates with user activity, and I believe that it is also the underlying causality.
As an entrepreneur working in ICO consulting, online courses and having just recently cofounded a tech start up and gotten funding, I have also started out as a blogger looking to turn Steemit in to one of my revenue streams. High SBD rewards make that possible - I am using the high valuation to buy steem and build a respectable presence on this platform.
While a stable currency backing Steemit has some very real use cases, I believe that the inflated SBD is bringing in users - from personal experiences, any friends that I have recruited have come primarily to make a profit blogging, so the bigger the rewards the better.
If I was deciding, I would do as follows:
Hire a statistician to try and definitely find a correlation and causality between growth rate and SBD price. (I'm not a statistician, but with an engineering background I'm pretty handy with maths and would happily provide some figures on this until you get some solid figures for sure).
Leave things the way they are until the active user base increases to a lot more than what it is now.
Create a Steemit-wide poll and ask users what they think. Not sure how to make a poll on this but I'm sure there's a way to get to nearly every active user.
Based on correlation results and user survey results, make a decision. Maybe the solution is to make the exchange ratio 1:2.5 instead of 1:1, but without some concrete stats to back a decision, it's hard to say.

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lukestokes (75) · 7 years ago

High SBD values definitely correlates with user activity, and I believe that it is also the underlying causality.

Why? Why couldn't it be high STEEM values which impacts the whole rewards pool (meaning instead of seeing $1 on a post, they may see $10)?

profit blogging, so the bigger the rewards the better.

Yes, but most don't even know what the value of an SBD is. They just look at the number next to the post. That number goes up when the value of STEEM goes up. The correlation you're describing has been discussed at length and from what I can tell it connects just as easily to STEEM price as SBD price (as they have gone up together). As I mentioned in my post, STEEM has gone up 46x times compared to SBDs only going up 7x.

ask users what they think

Do you think most users understand how the economics work here? I've been learning for over a year and a half, and I'm still figuring out all the details. Just trusting "all the users" to fully understand the complexities of this blockchain doesn't seem like a very wise way to go about handling a $1.6 billion platform.

If the conversion rate wasn't 1:1 that would introduce a problem, IMO. It has to be consistent for it to work and actually be a stable 1:1 peg.

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lukebrn (58) · 7 years ago

You made some excellent points there, one which I had not previously considered to be quite honest.
After reading this comment I took some time to read back over your post and reconsider my point of view - I guess it does make sense to peg 1SBD to 1STEEM in the long run, based on the future prospects for STEEM's values, even the value it is at at the moment. It does create stability, which is attractive to investors especially - I'm not sure why I didn't think of this before, I guess that I didn't look in to it enough and rushed to answer, my apologies!

Regarding asking users what they think, yes it's true that they may not understand the economics of it all, but it is important to take their opinion into account. Just like presidential votes, people may not know who can best run a country, but in countries like America who have immense power, they still have voting power. I would say that a decision should be made by witnesses, as they are voted by the people, but that some sort of poll should be sent out the the platform's users to that witnesses at least know what users think.

Thanks for getting back to me and clearing up my misconceptions!

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lukestokes (75) · 7 years ago

peg 1SBD to 1STEEM

I think you're still missing something. It's not a 1:1 conversion in that 1 SBD = 1 STEEM. It's that 1 SBD = $1 USD worth of STEEM. That's a really important distinction. That's how the blockchain treats SBD.

Research how Sybil attacks work and you're realize a simple poll won't work. One person can create thousands of accounts and screw up the results. That's why stake weighted voting is so important. We definitely need to hear from as many people who want to discuss it. That's what this thread is all about.

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lukebrn (58) · 7 years ago

okay I see, then I am still pro my original opinion!

I understand, but I think that statistics from users are important and that it is something that needs to be accointed for by numbers, although I'm not sure how. Will look in to Sybil attacks!

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partywalrus (50) · 7 years ago

"Why? Why couldn't it be high STEEM values which impacts the whole rewards pool (meaning instead of seeing $1 on a post, they may see $10)?"

Because it would be very hard for new users to build their Steem Power. A doubling of the STEEM market cap would result in twice as big upvotes, while the current SBD cap of 50 mill has increased the payouts 6x. Or am I missing something here?

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lukestokes (75) · 7 years ago

I don't think it's that clear cut as not everyone sells their SBD for STEEM and powers up (though I highly recommend they do so). The amount of SBD distributed (along with SP) is also determined by the rewards pool payout amount.

I do see that a high SBD valuation for those who sell for STEEM and Power Up is a great way to get Steem Power faster, but I also think any time the price of SBD goes above $1 USD worth of STEEM, a reverse conversion could accelerate that even more (i.e. more SBD to buy and sell for even more STEEM, if speculators are jacking with the SBD price). The main point of concern for me is that the economics of this blockchain were not built as if SBD would float. It assumes SBD is pegged, which isn't the case right now. If we like things as they are, then we could make other fundamental changes which would essentially have the same result such as increasing the total rewards pool or allowing more liquid payout in SBD over Steem Power. It's a larger discussion related to how much inflation and rewards pool distribution we want. From one perspective, the currently high-valued SBD captures value from the larger marketplace without changing the inflation by printing an accelerated SBD amount if a reverse conversion were implemented, but again, when considering these issues in terms of benefit for the whole community, I think we should consider long-term benefits and value them over short-term benefits. If we keep SBD floating, we introduce more confusion ("Why two floating speculative currencies? Let's just have one instead."). That confusion could lead to some thinking we should ditch SBD all together which, to me, means we could lose out on a potentially huge opportunity to have a solid pegged asset.

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noboxes (67) · 7 years ago

Let the market decide, it will tell you where it needs to be. Or in other words, DON'T TOUCH ANYTHING, especially right now. Any changes are going to generate unintended consequences, for example crash all market value of not only SBD but Steem. Please, don't touch it.

But, keep these conversations going, the market will over hear the crazy talk and maybe it will come to 50 cents, then you witnesses will be having a different conversation

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lukestokes (75) · 7 years ago

I agree with "if it ain't broke, don't fix it" in general, but this is broken. That brokenness has some unintended consequences where people think they are getting $1 in value but are actually getting much more. Hurray! People like gifts. What I want to point out is they may be paying dearly for that gift in missed opportunities if we instead had a strong peg and a high valued STEEM token further increasing the rewards pool.

Previously we had liquidity rewards where people got paid A LOT (far too much) money for providing liquidity on the internal market. It became a problem so we changed things and removed it. Same thing for the hyperinflation this system used to have. It was obscenely rewarding those who held Steem Power (mostly the steemit account) so changes were made.

We have to find the right balance to make changes as needed while not breaking things by tinkering when we shouldn't.

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jankasparec (68) · 7 years ago

Love this convo and logic @lukestokes !

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noboxes (67) · 7 years ago

Thank you for the very patient response, Luke.

I'm 48 and I've observed markets intensely ( way to intensely) since 2008. The impact of that crash left it's mark. Markets when left alone will find equilibrium. The SBD market is not being left alone right now, you guys have raised payouts to 85% which is a distortion. My key point here is just stop, stand back, observe and only react when needed. So the debate is subjective to one's opinion of 'when needed.' Don't touch anything for 120 days or more, but no less than 120 and the market will be your answer. I cannot explain logically why someone in Korea perceives there to be value of an SBD to be in excess of $1, but it is, the market is telling us it is.

"First, do no harm"

Yes, I know we have a white paper that states other intended outcomes. Nonetheless, we will continue to discover that steem is an amazing blockchain and it will evolve into something none of us could have envisioned. I believe that the social media aspect will continue to grow, but it will ultimately be a small part of the steem eco system

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smooth (70) · 7 years ago

you guys have raised payouts to 85% which is a distortion

I'm not sure what you are referring to here. I don't know of any change to payouts.

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lukestokes (75) · 7 years ago

Can you clarify what you mean by "you guys have raised payouts to 85%"? That seems like a very misleading statement. Who is "you guys" and what did they do?

As for the white paper's unintended consequences with a reverse peg, honestly, to me, it doesn't make much sense now that we have a larger market cap.

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eonwarped (68) · 7 years ago

This is a reference to what I feel is a further misguidance about the payouts on steem.supply. People do not realize that underlying valuation of posts are in steem (ok, vests, but this makes far less of a difference) and the 50/50 refers to splitting and converting that at the the price feed rates.

People are citing that percentage in terms of proportion of what is displayed in the UI, and not realizing that that number is proportional to the feed price to begin with.

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smooth (70) · 7 years ago

Going to 50 cents is very unlikely. There are existing mechanisms in place that address it going below $1, which is why despite a price that has been all of the place, it basically has never been below $1 (short term fluctuations aside) since 2016.

Anyway, your comment about avoiding unintended consequences is well taken.

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noboxes (67) · 7 years ago

I agree, it's very unlikely, I was simply trying to make a point quickly. I appreciate your kind and thoughtful reply, to be honest I was not expecting one.

As I replied to Luke below, First do no harm. I emphatically believe that if some of the 'solutions' are implemented, it will do more than cause harm. There currently is amazing momentum, let's not alter that.

SBD's will take care of themselves, let's move this mental energy over to the upcoming onboarding, hive mind, and SMT's.

The current state of SBD's are allowing, but not limited to, the funding for artists to art, coders to code, free thinkers to be free to think more, freedom lovers to be free, and bloggers to blog away, let's not stop any of that.

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muliadi (57) · 7 years ago

good post, I like your post ..

I need your support please visit my blog https://steemit.com/@muliadi
if you like my post please give upvote, resteem &follow me.
thank you, keep on steemit.

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muliadi (57) · 7 years ago

good post, I like your post ..

I need your support please visit my blog https://steemit.com/@muliadi
if you like my post please give upvote, resteem &follow me.
thank you, keep on steemit.

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vangelov (60) · 7 years ago

Isn't it already pegged to the USD. Sorta :D

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lukestokes (75) · 7 years ago

It currently only has a conversion mechanism protecting it when it falls below $1 USD. There is nothing we can currently do when it goes above $1. That makes it no different than any other speculative asset meaning its use as a peg is... well... useless.

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alokkamboj (40) · 7 years ago

I think your Post is for a big group of people very helpful!
Thx for making this Website for us!
Upvote when your in my opinion @alokkamboj

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jankasparec (68) · 7 years ago

Luke you put so much work in this. I absolutely have to come back to it tomorrow and re-read it. Thank you for this precious content!

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lukestokes (75) · 7 years ago

Thanks Jan. I think for most people this discussion is just too massive for them to digest. That's okay with me. It's not for everyone. But... for those who are passionately spreading their opinions on this topic, I hope this post helps them at least operate from first principles and logic instead of a story someone convinced them of.

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jankasparec (68) · 7 years ago

Totally understandable. Well I'm glad I'll have my private tutor (you), in less than 3 weeks :) I will bug you in between the beer sessions :)

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lukestokes (75) · 7 years ago

Sounds good to me. :)

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whatamidoing (69) · 7 years ago (edited)

It’s hard for me to really get involved in this debate as I don’t come from a capitalistic mindset of “Everybody is entitled to everything that they earn, no matter how much it is” and I find many people with influence on the platform dismiss my opinion at that. I realize crypto currency usually functions inside of the principles of capitalism so it’s a little awkward to participate in debates about how it is implimented when there are some fundamental differences in ideology but I believe freedom can only exist when we all consider the ecosystem, so people are entitled to what they earn to a certain extent, but I believe that the existence of superwhales will eventually become a threat to the ecosystem, so my main focus when assessing what would be best for steemit always starts with the question of “How will it affect the distribution of wealth?” Will it make it easier to for minnows to grow? Good. Will it make it harder for whales to grow, good. I say that will full intentions of becoming a whale myself, and I hope I can maintain that stance when I do.

The reason I bring up the capitalistic mindset is that with it, whales seem to grow no matter what, and minnow growth always comes along with whale growth and the whale growth seems to happen exponentially, skewing the distribution of wealth further, I’m not saying that all capitalists go full on communist or anything like that, but I hope that even whales can realize that super-whales are a threat to the ecosystem and whether we keep sbd pegged at a dollar or not may make a difference, but it’s periphery to the question of “how do we maintain a fair distribution of wealth”.

A peg may slow down a more severely skewed distribution of wealth but a greater skew seems to be coming either way, and it troubles me. If pegging the sbd is the first step in measures that address this, then I’m all for it, I just don’t want to see the day when Steem looks like the world economy, where “rags to riches” stories are increasingly hard to find, and as far as I can tell, the only reason we still have them at all is that Steem has some massive growth potential, but things can’t grow forever.

Sorry if this reply seems a bit off the main point but I hope you can consider it.

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lukestokes (75) · 7 years ago

It is a bit off topic, but I appreciate the discussion anyway. I too am concerned with massive wealth inequalities as they can bring instabilities, especially when we flagging wars going on. If we have good actors involved, however, I can see wealth inequality as not that big of a deal. If everyone is getting richer and some are getting more richer, that can actually be okay. But yeah, that's a larger discussion. Maybe it's all part of improving the world.

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udochi (42) · 7 years ago

Wow! This is extremely educating. Thank you so much, for this @lukestokes . You just got yourself a new fan.

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lukestokes (75) · 7 years ago

Thank you. :)

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jadeturf (45) · 7 years ago

quite informative, but @lukestokes I advise you to try as much as possible to make your article succinct, because one gets jaded easily from reading an epistolary, anyways great work.

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lukestokes (75) · 7 years ago

Please read the opening paragraph. This is not a situation where the issue can be overly simplified so as to be discussed succinctly. I usually take great efforts to simplify things and explain complicated things in simple terms, but when we're talking about the complexities of a $1.6B market, we can not go off of simplified stories that aren't based on first principles and shared definitions. Unfortunately, too many people are doing this and they are actually distorting the discussion instead of helping. If someone isn't willing to do all the hard work to fully understand the complexities at play here, then, IMO, this conversation isn't for them. They should trust the system to work and move on to other things they are more interested in.

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adeotidaniel (0) · 7 years ago

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Reveal Comment

babangsunan (50) · 7 years ago

I am @babangsunan really like your post every there is your post I do not forget upvote thank you friends have shared things that visit my blog @babangsunan interesting i love you

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eurogee (65) · 7 years ago

Hello @lukestokes

You have really blown me away with your arguments, and thus goes to show how right I have been all these while with respect to SBD price. Everything I see SBD price increases by even a unit above what it was originally designed to be, it aches me in the stomach! High price of SBD makes steem seems useless for real but because people get more steem with lesser amount of SBD, they appeal to be supporting this unhealthy arrangement.

Honestly, I will have to review my witness votes. I will have to speak to my witnesses to see which paper of the divide they fall into to enable make the right decision.

Thank you for this eye opening article.

Upv by
@eurogee, the Steemivangelist and the founder of @euronation Newbie's Support Team

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lukestokes (75) · 7 years ago

I wouldn't be too quick to go changing witness votes just yet. No changes have been agreed upon yet, let alone coded up or tested. Right now we're all just talking things through and we should be careful not to make quick decisions about a very large amount of value we don't want to mess up.

eurogee (65) · 7 years ago

You're quite right. Let me hold my peace and see what happens eventually.

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adeotidaniel (0) · 7 years ago

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lukestokes (75) · 7 years ago

Give the three posts I mention here a read: https://steemit.com/steemitistome/@lukestokes/steemitistome-relationships-reputation-and-rewards

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gold84 (63) · 7 years ago

@lukestokes this has been a great video and education about the SBD and about the current needs to reach a consensus of what is best, looking at the long term success of the steem blockchain and thus everyones success here.

What do you think if @aggroed helds a panel with the most important 20 or 25 witnesses to discuss everything about the SBD.

Looking forward to your thoughts!

Regards, @gold84

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lukestokes (75) · 7 years ago

Sorry, I replied to your comment above before seeing this. Here's what I said:

Not all the witnesses are native english speakers so I'm not sure a panel discussion is the best way to flesh out this issue. Reading just my post on video took me over 21 minutes. This isn't a simple topic to be figured out on a short-from panel discussion. This should be done carefully and methodically with data-driven, well thought out proposals.

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andrewdaines (47) · 7 years ago

This is such a complicated issue, and one that even some of the largest fiat systems around the world have grappled with and failed. As an interesting use case from the fiat world, take a look at the Swiss National Bank's pegging of the CHF with the EUR, and then the removal of that peg, and the massive corrections that took place. The sheer amount of effort and cost to maintain the peg was extraordinary. It appears that in the end the removal of the CHF peg to the EUR was more political than economic, and they could have likely maintained the ongoing pegging.

So, with the pegging of SBD to USD, it appears that the witnesses have failed from the original intent to keep a stable SBD. With all of the competing politics among witnesses, how can you all come to a consensus?
Again, this is certainly very complicated, but I applaud you @lukestokes for taking up this fight and trying to get some clarification moving forward. I'll be watching this pegging issue closely, as it has huge implications for the future of the ecosystem.

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lukestokes (75) · 7 years ago (edited)

Thanks for a great comment. In this case, I don't think the witnesses have failed as much as the system genuinely has no good mechanism for dealing with the SBD going above $1 in value. Even the white paper admits this with a sort of ¯\_(ツ)_/¯ justification. If we had a tool to use, we'd use it and educate others on how to use it. SBD interest is already 0%, and I don't think anyone really wants negative interest.

I'm not familiar with the CHF challenges, but that might be an interesting post if you want to write it up. I'm sure we all have a lot to learn from many different sources.

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smooth (70) · 7 years ago

SBD interest is already 1%,

SBD interest is 0%. Typo?

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lukestokes (75) · 7 years ago

Ah shoot, yes. Typo. Thank you, will edit.

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gniksivart (67) · 7 years ago

With almost everything done in the past 6 months I've treated SBD like it's a pegged asset and have been trying to convert it to anything else as fast as possible to lock in those gains so my view maybe biased.

My question is if we don't honor and hold the peg now, then why would anyone trust us to honor / hold the peg in the future?

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lukestokes (75) · 7 years ago

They wouldn't, nor should they. We'd just have two different speculative tokens creating confusion.

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emancipatedhuman (66) · 7 years ago

Reading your posts always help me realize how little i know and how much I need to learn. But after reading them I do feel a little less inadequate in my knowledge, haha.

I am keeping my STEEM intact and I keep contributing to the STEEMIT network in hopes that my little contribution helps bring in more people to this groundbreaking solution to super controlled social media.

Thank you, again! <3

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lukestokes (75) · 7 years ago

Thank you, Luis. :)

Any chance you're going to Anarapulco?

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emancipatedhuman (66) · 7 years ago

speaking for the 3rd year in a row!

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lukestokes (75) · 7 years ago

Awesome! I'll be there. I actually checked the speakers page before asking becauseI didn't see you on there.

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emancipatedhuman (66) · 7 years ago

yeah the logistics has been a bit scrambled lol. i'll be happy to meet you in person, sir.

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lukestokes (75) · 7 years ago

You too! Looking forward to it. :)

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edje (69) · 7 years ago (edited)

A Question to You:

Do you think the average trader at the crypto exchanged know what is written in the Steem Whitepaper?

When we want to have a stable SBD, ie 1 SBD = 1USD, different mechanisms need to be found, to do this. Interest rates are nothing compared with the gains one can make on the exchanges trading crypto currencies. That instrument does not work.

Why not using a mechanism Tether is using? And how are currencies pegged in the fiat world?

And then this...

How Posts are payed out does not help to drive SBD down, it may even drive the price up since we get much more value from our posts with a higher SBD.

On topic of community members driving a pegged SBD or not through voting and unvoting witnesses based on their standpoint on this topic: I dont believe that that will ever happen for the most voters due to the fact there are so many other elements at play why we vote for a witness and why we dont vote for another one. When the witnesses and all of us want to tackle this topic with a vote from the community, we really need to implement a community voting mechanism that is uncoupled from witness votes.

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lukestokes (75) · 7 years ago

Because I don't trust Tether. At all. There's no way to verify anything they claim via a blockchain or smart contract. SBD with a two way conversion would have smart-contract based pegging, similar to how bitUSD works (and has worked quite well).

A community voting mechanism that doesn't factor in Steem Power is wide open to Sybil attack. It simply will not work.

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edje (69) · 7 years ago

We could make SBD a true pegged asset again! I'm not against that to be honest.

We can only change mechanisms when SBD is close to 1 USD again, otherwise it is simply stealing from SBD holders. I have the gut feel not so many Steemit members do like SBD to be pegged, for sure not those who write posts due to the extra US Dollar value we get with the implemented payout method.

Tether

Agree that this one is far from transparent.

A community voting mechanism that doesn't factor in Steem Power is wide open to Sybil attack. It simply will not work.

And we do have to trust the very few individuals who have by far the majority of SP they make the right decisions when voting? The issue we have to deal with is that fact the power is more or less centralised, while we try to let Steemians and the world believe we are decentralised. I would expect THIS exact issue to be the MAIN topic at every witnesses meeting, and always at the top of the agenda; How to change these things, and execute on it. SBD pegged to USD or not is far less relevant discussion IMHO.

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lukestokes (75) · 7 years ago

I wouldn't call it "stealing" considering it was speculators who drove up (according to the white paper, "manipulated") the price to begin with.

As I mention every month in my Witness Engagement Report, ~75% of the non-Steemit, inc SP is not currently voting for a witness. That means there's a lot of room for more people to vote to change things if they are not happy with the decisions witnesses are making today.

Saying "it's centralized" doesn't make sense to me. Centralized compared to what? POW mining is centralized. The FED is centralized. At least here we have block producers who can be removed right away if the Steem Power holders want to remove them.

Do you have any ideas for changing Steem Power distribution short of actually stealing from people?

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edje (69) · 7 years ago

Do you have any ideas for changing Steem Power distribution short of actually stealing from people?

I think it is quite difficult to change SP distribution. I think how Steem was launched was the wrong setup, that created a couple of whales who have the power. Also the fact Steemit Inc has such a huge power, is not good at all. In any method to distribute SP to a (much) larger group of individuals, those who have by far the most SP, need to be incentivised to distribute their SP, as Steemit Inc need to start downsizing their stack. But regardless what we can think of incentivising the large SP holders, the fact is that many of the individuals holding the large SP, will do what is good for their own pockets. That is why I made the statement: it's gonna be really hard to change things.

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lukestokes (75) · 7 years ago

Well, you mentioned it should be the main topic of every witness discussion, but if there are no clear solutions or even possible directions forward, then what would we even talk about? It's easy to point out problems but much, much more difficult to discuss and suggest feasible solutions. We can't incentivize people to give up wealth without some justification.

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edje (69) · 7 years ago (edited)

I'm not a witness, so I'm not part of your discussions. We have witnesses to represent the community. The community therefore is allowed to point out issues, while we do not need to have answers. That is the prime job for witnesses to figure out. But that said: I throw you some ideas.

What about introducing a different way of rewarding, while all the SP is left in the hands of who has it. SP can be converted to Steem, so everyone keeps their wealth.

The new mechanism of voting shall not be based on this amount of SP, or Steem someone has.

Dan believed voting and curation required rewards to the curator, otherwise no one would vote.

SOLA, a Instagram on steroids so to speak, works very well without any curation rewards. Users still vote, a quite a lot of engagement ongoing. They also have a better way to give chances to good content, posts are shown randomly to users, while they don't have a search capability. Ok, their content is more quick content, the service is build for that, therefore this randomness works.

This may not be the way forward for Steemit, but removing curation rewards AND a voting mechanism based on something very simple: 1 vote is 1 vote regardless of who votes maybe something that can be discussed and a good way forward.

Of course we can set a minimum limit of SP or something for an account to be able to vote, or at least their vote to have a value in determining the Steem distribution...this to prevent all sort of new accounts starting gaming the system.

SOLA does something else very good, they give out x number of points per day, and all you do costs points. When points are gone, you can buy them, or wait until you get some free points again. This stops spamming.

We don't limit anything, not even voting, we have some soft limits, but no hard limits.

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edje (69) · 7 years ago (edited)

I throw in another idea: Remove the TRENDING and HOT channels and introduce a RANDOM channel. On top of that, introduce random posts in users personal FEED. Also, allow tags to be selected to follow, not only users and present all of it in a single channel to the user. SOLA, another social community I recently discovered has RANDOMNESS as their key aspect of the service and it seems to work! Read more about SOLA and the way they approach rewarding in this post here: https://steemit.com/socialnetwork/@edje/a-social-network-based-on-randomness-and-it-works

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edje (69) · 7 years ago

The removal of HOT and TRENDING channels and introduction of RANDOM channels I've articulated in this post published at the Steem blockchain: https://steemit.com/utopian-io/@edje/proposal-increase-visibility-of-posts-through-randomisation

I would like to see your feedback on this, as well as the collective of witnesses discussion this type of changes to make the Steem blockchain more fair.

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edith4angelseu (57) · 7 years ago

I will read this up later for better understanding. Thank you for sharing

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deanlogic (61) · 7 years ago

If SBD isn't pegged, then there isn't a point to having both STEEM and SBD. Get rid of the questions of how people are paid out and remove SBD for good.

SMT's will be the new SBD for exchanges and such.

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lukestokes (75) · 7 years ago

That's an option, but again, read my post and consider the lost opportunity costs since we are so close to having a real pegged asset that could have participated (potentially) with some of the run up Tether experience when it went from $500k to $1.5B.

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denmarkguy (76) · 7 years ago

It's one of those "heavy" questions with few easy answers @lukestokes. I just read this twice... I'm going to respond without letting my mind get "polluted" by reading all the responses, so please forgive any redundancy.

I definitely think the idea of SBD being "pegged" is a worthy ambition. Forget, for a moment, the fairness (or not) of what bloggers may or may not get paid-- in developing nations, or elsewhere-- and lets cosnider the future of the entire Steem ecosystem. If we have hopes of having an actual economy here, we need something with a somewhat "known" value to trade with.

One of the problems with cryptocurrencies as actual "currencies* is that they (so far) really haven't behaved much like "money." They behave like investments; people hold Steem, BTC or Dash not to buy groceries, but in hopes of financial gain. As long as that is the case, we don't really have currencies. The instability and wild swings are a DIS-incentive to spend cryptos. So we end up with speculation...

I am experiencing this first hand, in my own attempts to be part of creating an economy here. For example, put out a request with the #steemgigs tag and an offer for something at 25SBD has a completely different value today, vs. next week. Before the holidays, I tried using the @steembay initiative a couple of times... each time failures, not because my offers we bad, but because something offered with an "eqiuvalent" bid of 5 USD suddenly changed value to 30 USD in the course of a week. You can conduct commerce like that.

So there's a consideration for a "pegged" currency.

The "elephant in the room" nobody really talks about seems to be that SBD went seriously off-peg when Korean exchange UpBit entered their partnership with Bittrex and suddenly one of the world's most active markets had access to Steem and SBD through Bittrex.

Looks like a great thing on paper, and lots of us have benefited from that! But let's consider this: Did anyone stop and explain to all those newcomers to our assets that SBD isn't "a real coin?" I doubt it. A bunch of people who'd potentially never visited Steemit saw a small capitalization asset that was easy to pump the price of. They don't care what we're trying to do there... they just see a coin mooning and apply TA to it.

So whereas everything you have said is TRUE, it really only applies to those of us who are part of the Steem/Steemit ecosystem. It's like owning common stock in a high-flying IT company. We have zip control over what complete outsiders DO. Community members? Sure. Witnesses? Sure.

Pull up the last couple of weeks of SBD trading. Daily volume is sometimes 4X+ of the entire market cap of SBD. That means an incredible amount of "churning" It means every SBD in the marketplace changes hand FOUR TIMES A DAY! In monetary terms, that means as much as $200 million per 24-hour period... no disrespect to the witnesses, I have no idea how you could functionally even put a dent in that.

So this leads me to a whole new lone of thinking. Maybe part of our answer-- or something to consider-- is that SBD might need to become like "preferred stock" in the world of investing. Not everybody gets to own it, and not everybody gets to trade it.

The currency here is STEEM. SBD (if you get down to the nitty-gritty of it) is more like a smart contract. Maybe it should only be tradable on the internal market. If you want to "liquidate," you have to trade your SBD for Steem, and then take your Steem to Bittrex or wherever. You can still use your SBD for internal trading, like SteemBay, Steemgigs, rewards on different Steemit front ends, to trade services individually... but only STEEM ever leaves the Steemit ecosystem.

Maybe it's a bit radical... but maybe it's needed. Unless we can devise a way to "train" the world to not speculate in SBD. Short of "going Zimbabwe" on it (aka dumping 50 million SBD into the market to render it worthless) I don't see that. And isn't "printing money" the exact thing we're trying NOT to do?

Sorry for the dissertation length comment...

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lukestokes (75) · 7 years ago

they just see a coin mooning and apply TA to it.

If they tried that with bitUSD they'd get wrecked because bitUSD has a mechanism to prevent it from floating too far above the upside. We don't. If we did, I think SBD would behave much like bitUSD as far as stability goes.

"Putting a dent in that" has nothing to do with witnesses. It has to do with a conversion mechanism that, if available, would end up flooding the market with SBD as people choose to do the STEEM to SBD conversion. That flood would stop the market manipulations and bring the price of SBD down (while maybe also driving up the price of STEEM as more people want to participate in it).

Any talk of "gets to" loses me. It's all an open system. There are no centralized controllers here. It's impossible to prevent people from putting a token on an exchange if there's any way at all the token can be transferred to anyone. When a token is sold "on an exchange" it's not magically leaving the exchange ecosystem. It's in an account like @bittrex (just like any other STEEM account).

to render it worthless

That's exatly what can not happen because of the currently in-place mechanism of converting SBD to STEEM. That peg works. We've seen it work. I have no reason to think it won't work again.

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eggstraordinair (52) · 7 years ago

Funny coincidence, I just made a post asking why do we need two tokens, I don't think I understood completely, but we have sbd in an effort to bring stability, and steem is the actual token, you say sbds are a debt backed token, are these Dollars held by someone? Oh God I have so many questions lol

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lukestokes (75) · 7 years ago

Ask away, and I'll answer them as best I can. :)

For starters, you can read the Blue Paper and the White Paper in the menu on the right.

To your specific question, they are debt backed by STEEM, not USD. Ever SBD entitles the owner to 1 USD worth of STEEM. There's a smart contract on the blockchain that will do that conversion for a user in 3.5 days (to avoid gaming the system with price fluctuations). The discussions going on lately are if we should also allow a conversion from STEEM to SBD which would drive the price of SBD back down to the peg it's supposed to be at while possibly also increasing demand for STEEM.

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eggstraordinair (52) · 7 years ago

But why do sbd exist? Why can't payouts be in steem?

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dksart (63) · 7 years ago

Why even bother with SBD, it is kind of pointless asset. All it is a convertible note, so it is just basically STEEM that has not been created yet.... rather than trying to figure out how to control it's value just eliminate it, modify the blockchain so it no longer creates new SBD and change the post award to 50%/50% STEEM/STEEM power

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lukestokes (75) · 7 years ago

And ignore the potential value of having a working pegged asset? If we can fix this, why wouldn't we? Read the world domination post I linked to. Read about how much the market wants a pegged asset. Would we be good stewards of the value here to just ignore that?

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stephen-somers (63) · 7 years ago

I wondered why the conversion option had been removed. As much as I like getting Extra value with my rewards the concept of a pegged instrument is very valuable to an economy. I don’t think the market really understands what SBD is.

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lukestokes (75) · 7 years ago

It's not removed from the blockchain, just from the steemit interface. Trading a SBD for $1 USD worth STEEM would be silly if the open market is giving much more than $1 USD per SBD. Some don't understand how this smart contract works and were getting burned by it. We need more SBD in existence (which a reverse conversion would allow) to bring it closer to the peg.

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thomasaquinasftw (55) · 7 years ago

Let the market decide.

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lukestokes (75) · 7 years ago

What if they did and they want a secure pegged asset that actually works? Should we ignore that opportunity? So many people are talking about how messed up Tether is and how it can't be trusted (just check Twitter). Isn't that a great opportunity for us if we can get our peg fixed? Ideally, we could do it once the price of SBD comes back down as it has in the past once enough SBD are printed and speculators get bored and move on.

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rocking-dave (57) · 7 years ago (edited)

I hope you realize you are advocating for regulating a free market pretty heavily and drastically. If a country was considering doing something like that, wouldn't you be against it?

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lukestokes (75) · 7 years ago

I think you misunderstand what a pegged asset is. I'm one of the biggest supporters of free markets you can find. That's why I'm into cryptocurrency so heavily. We can't get the whole world to accept cryptocurrency overnight and a pegged asset is a great way to get people to transition. Go read up on how bitUSD works. Look at how the market has spoken for Tether and how that market cap has grown to $1.5B. Re-read the "world domination" post I linked to. This isn't about manipulation, it's about recognizing what the market is asking for and responding to it. Having two speculative cryptocurrencies makes no sense. SBD only makes sense as it was originally designed as long as we can fix the upside part of the peg. Otherwise we should get rid if it and getting rid of it completely ignores the market opportunities of providing a stable pegged asset, especially if Tether was to fail and all those market participants were to go looking for other options.

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rocking-dave (57) · 7 years ago (edited)

First of all, thank you for taking the time to read and reply! I absolutely appreciate it keeping in mind the sheer amount of comments you have gotten here, it shows real dedication and care!

I'm one of the biggest supporters of free markets you can find.

I know, that's what I'm trying to appeal to. The most ironic part I think here is the fact that I think you lean more libertarian than me and right now you are the one advocating for drastic regulations.

I understand the value of a pegged asset fairly well and I used to think that having one is a real long-term advantage for the Steem blockchain. Unfortunately, both me and the whitepaper were wrong about the ability of the current set up to keep the asset pegged. The market took the asset and started doing something unexpected with it. This is already a big blow to the reputation of SBD as a candidate for a stable asset and I personally believe that implementing the proposed hard-peg with the flip of a switch will not do anything to save that reputation. I have not doubt it will create a market crash on our blockchain dragging the value of Steem down along with it, will lead to many people abandoning the platform and will show deliver a huge blow to the reputation of the Steem blockchain and community.

Also, let's please be real - the SBD asset has been stable in the past but this has't led to any significant outsider adoption. Somebody that's scared of cryptocurrency in general is not going to invest an asset outside of the most popular ones. Are the people investing in Tether or bitUSD newcomers? I doubt that. A pegged asset has value only to people that are already into crytocurrency, for anybody else who wants stability tied to the US dollar, the US dollar is a much easier hedge without the added hassle of having to go through Bitcoin and its slowness and fees.

Having two speculative cryptocurrencies makes no sense. SBD only makes sense as it was originally designed as long as we can fix the upside part of the peg.

What do you mean it makes no sense? It obviously makes enough sense to the people who are currently investing in it and pushing its value so high. It currently makes sense to the platform because it's fueling both unprecedented growth and unprecedented high value of Steem. I know it's not what the whitepaper envisioned, but I'd say I'd rather go with the market on this one instead of the whitepaper.

Why would we want to go against that and go against that so drastically? Implementing a hard reverse peg is going to be a huge market intervention that is going to destroy a lot of value and a lot of the market cap of our blockchain. More importantly it will show the investors willing to invest into our platform that the community does not care about them and is ready to destroy their investments at the flip of a switch. To me that would project a strong message that our blockchain is ready to make huge changes to the rules on a very short notice. That is neither trustworthy behavior, nor is it behavior conducive of stability. It will be very hard to recover from something like that.

SBD has never been close to rivaling Tether yet, so trying to force it to be one against the "wishes" of the market is counter-productive at the very least. We can peg in the suggested way only when it's value is really close to the mark, otherwise we will be creating a huge market swing and a crisis artificially. Again, being ready to do something like that will immediately prove us to be unfit to maintain a trustworthy pegged asset. We'll render what we are trying to achieve impossible.

If Tether was to fail, most people would not consider SBD as of now - the supply is too small, the market cap is too low, the blockchain it's is constantly introducing huge changes through hardforks and its past graph clearly shows that it is not stable. A quick fix can only make that record worse, not better.

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shreek77 (34) · 7 years ago

I also like the idea of a better STEEM distribution and if people take high valued SBD rewards to buy STEEM and power it up, that could certainly help.

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afiqsejuk (58) · 7 years ago

Hmm. A very complicated problem indeed that will affect the future of Steemit. I had read all the comments pertaining to this matter and I think it is wise to take action quickly than dilly-dallying with decisions which we would all regret later.

I did not read the article fully but I had bookmarked this page as the most important discussion I ever come across to deal with the future of Steemit. Upvoted!

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lukestokes (75) · 7 years ago

Saying "we should take action quickly" while also saying "I haven't read the article fully" communicates to me you may not fully understand the complexities involved here. Making quick, rash decisions is not something we should do with a $1.6B market.

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eonwarped (68) · 7 years ago

First, a stable asset is without a doubt the end goal, otherwise there's no reason for it to exist, as others have said. Anyone foaming at the mouth over high SBD prices is delusional and greedy because regardless of how they feel about it, in the long term SBD price will go down as long as STEEM price is high. So I don't question that, and we can treat this nice SBD bonus period as a bonus. The question I am now struggling with is timing.

Is it true that we are being left in the dust because we don't have a stable asset? I have a hard time believing this is true. The other examples of tether being successful: it's only because it was adopted by an exchange and was properly bootstrapped. It had not proven it could be trusted to maintain the peg in the early stages either (I don't have proof of this). Are any stores clamoring to adopt tether for their services? I highly doubt it. So why would we assume the same for SBD?

I think the argument for stores or services requiring a stable value of SBD is not really that convincing. All services would still be pricing relative to a FIAT currency anyway. As far as I remember, SBD's price is not so volatile as changing within a minute that it would break services wanting to price their services in this manner. Once a crypto proves stable (and it would need many years of convincing), it might reconsider. SBD has the nice property that it can in theory be pegged to anything, and all it would need is the witness price feed adjustment to set steem's price feed to something else. So if the USD fails, we can always choose something else. Cool....

Finally, reverse conversion mechanism could make it happen faster, I have no doubt of that. But we need to address the debt ratio. Let's say we print SBD like crazy. If/when SBD goes sub 1$, it would (at least for rational participants) triggers a mass conversion of SBD to STEEM, and that could prove to be quite unstable for the overall system. Yes, there's a hard cap for printing at something like 5% of STEEM market cap according to the witness price feed, and I should hope at least some cap is respected here as well. But if we're speaking about "unintended consequences", surely one of them is that (given that we still enforce a cap after this change) our payouts may end up being in purely STEEM after the cap is hit.

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lukestokes (75) · 7 years ago

Great comment, thank you. I agree, we can't just point at Tether alone, which is why I mentioned two different posts talking about pegged assets in general. I do think they have great value in the ecosystem and I'm not alone there. Investors are working to make those things happen and as more people get on-boarded to cryptocurrency but want to avoid the volatility, pegged assets may be hugely popular in the short future.

For me, it's not about stores/services/merchants wanting SBD (yet) as much as it's investors and exchanges saying, "Yes, we want a stable USD token." bitUSD and Tether are examples of that, but bitUSD is interesting in that it represents a threat via the BitShares decentralized exchange system to existing centralized exchanges, so I can see why some exchanges don't want to use it (it would be like promoting your competitor).

I think the market cap is sufficiently larger in STEEM than SBD to make the conversion concerns not as big of a deal for me. The STEEM value is going to be printed either way based on the price feed. It's just a matter of what format it's in.

eonwarped (68) · 7 years ago

Thank you for your response! Ah interesting, considering the motivations. But if we're just talking about investors and exchanges, I'd rather not even bother doing anything for them, because if the peg is the reason they are holding back, then they aren't interested in the STEEM platform. SBD's peg property is not the highlight of the platform, while I agree that it will eventually be useful. If they really believed in STEEM, they should place positions on STEEM which would naturally print more SBD.

It's the investors and exchanges in the first place that threw our peg off balance, if I wanted to point fingers at someone. Although that's not actually fair, we need the exchange so get investors on STEEM to begin with. I don't get it though. Are you saying exchanges are refusing to list STEEM/SBD because of this? (Heck they could at least list STEEM)

I'll need to read up on more pro-peg discussions though, there might be a reason I am missing (Re: timing of peg).

Re: market cap comparison, the crypto market is volatile enough that the SBD / STEEM market cap ratios can change wildly, so I'm not so sure about it. But I can see right now for example that it's at like 0.4% :)

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lukestokes (75) · 7 years ago

Are you saying exchanges are refusing to list STEEM/SBD because of this?

Nope.

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markrmorrisjr (70) · 7 years ago

Wow, great post, I think I understood about half of it ! LOL Anyway, on your comment that high payout values are in the price of steem, the fact that, whatever the price of SBD on the exchange is, the value within Steemit remains $1, makes that incorrect. Right now, one SBD is worth more than one ST, so those wishing to power up are doing much better than they would at $1 in ST, so vesting has increased. Next, is the effect of a higher SBD price part of what is gaining steem so much attention in the form of crypto news and progrnosticators? If so, what value do we lose in that regard, if we peg it now? Is their vital momentum being built to onboard new users that may peter out if that changes now? Anyway, my three cents. @markrmorrisjr

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lukestokes (75) · 7 years ago

the value within Steemit remains $1

That only applies to conversions from SBD to STEEM which has been removed from the steemit interface for this very reason. Look at the internal market. You're still getting the same value of STEEM there for the open market value of SBD because of arbitrage.

I don't know if we can automatically assume vesting has increased in this inflated SBD scenario. What if that value was in STEEM instead which increases the entire rewards pool which increases the amount paid out in Steem Power directly?

a higher SBD price part of what is gaining steem so much attention in the form of crypto news and progrnosticators

I've yet to see evidence of this. The higher price of STEEM is what changes the size of the rewards pool and increases payouts displayed on posts (not SBD value). That, and getting added to exchanges (both SBD and STEEM) is what drives speculators, traders, and investors to get involved. I think the new user excitement is about getting paid, not just about getting paid 1 SBD worth $7 USD instead of getting paid more Steem Power and SBD with a liquid amount still worth $7 USD (such as getting 7 SBD).

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markrmorrisjr (70) · 7 years ago

Right, but as a portion of the payout, you get more shares of SBD than you would. If it was dollar for dollar on the exchange price. So, if your payout is $100 you get $37.50 in steem, currently worth over $200 in usd, whereas, if the payout was based on the exchange price, you'd only get about 5 shares.

So, you don't think a higher price makes us more attractive to exchanges? I'm asking, genuinely. you know more about this than I do.

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lukestokes (75) · 7 years ago

I'm not sure what you mean about getting more shares of SBD. The payouts are based on the witness provided price feed for STEEM which assumes the SBD is functioning at $1 USD each.

When you say $100, I get lost because I don't know if you're talking about SBD value or USD value or what.

As for attractiveness for exchanges regarding SBD, I'm not sure. Maybe, but ultimately I'd imagine they want to see lots and lots of volume as they make money on the trades. The more SBD that gets printed to bring the price closer down to $1 might be a good thing, might be a bad thing as far as exchanges are concerned. Maybe they like pump and dumps. I'm more interested in what the global users who are getting on-boarded to cryptocurrency may want in the future. I think there's evidence they will want a stable coin along with their speculative investments.

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markrmorrisjr (70) · 7 years ago

Post payouts are labeled in dollars. So, a post, marked with a payout of $100 (for simplicity) yields a payout to the author of 75%, half in SP, half in SBD. Since SBD is disbursed as if its value were $1 per share. The author Would receive 37.5 SBDs, worth well over $200 currently. The SP half, valued at market price, adds up to about 6 or 7 shares, or about $37.5 at market prices. So, currently, the price of SBD makes the SBD half highly lucrative. If cashing in, it doesn't take a large payout to bank a handsome amount. If powering up, each share of SBD is worth more than one steel, so, in this example powered up, the SBD side of this post would yield an additional 40+ shares of SP, if sold and converted to SP. Sorry, if I'm taking a lot of time to explain. It's probably not that important anyway, just my thoughts on the subject.

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thecastle (68) · 7 years ago

I say we peg it at 10 USD.

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lukestokes (75) · 7 years ago

Why not $100 or $1,000?

Just saying things doesn't mean they are good things to say. I like the idea of an upper limit peg to prevent things from getting worse and maybe $10 would be the way to go, but I'd also like see it eventually get down to exactly 1:1 as it should be.

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thecastle (68) · 7 years ago

Even pegging it at 10 would cause a massive increase in steem. So its not really an option. All that is needed is a downward force. Being able to convert steem in to sbd and sbd into steem would work I think. But it would be a dick move to people who invested in SBD with outside money.

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thecastle (68) · 7 years ago

Actually, being able to convert steem into sbd would likely peg both coins at 1 dollar... heh

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iamstan (62) · 7 years ago (edited)

This is all Fiat currency. All Crypto and all Fake reserve currencies are not backed by anything.
The only thing that holds them up, is the people that trust that they can use them to purchase things.

I am for pegging steem and sbd to gold, silver, wheat, rice, oil, coal or something that is of actual tangible value, not something based on faith. Something people need, something people have used and needed for more moons, than any of the Fiat or Crypto currencies have been around.

An example I have heard most my life is "in the Days of Solomon you could buy 1000 loaves of bread with an ounce of Gold and today if gold was not manipulated by paper(Gold Certificates) it would buy the same amount of bread".
Not so with the FRN Dollar the entire system was designed to rob nations of their wealth through inflation and deflation.

In 1950 the cost of a loaf of bread was 12 cents. A gallon of gas was 18 cents, toilet paper was 5 cents a roll, and a can of soup was ten cents. Now the same loaf with lots of added pesticides is 1.25 dollars.

The cumulative rate of inflation is 922.9% http://www.usinflationcalculator.com/
You could also say that the value of the USD has declined by 922.9% which is the actual truth. The USD Fiat currency had devalued by 922.9 percent.

What the world needs is a currency backed by something of tangible value, that is not deflated or inflated by the criminal cartels.

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lukestokes (75) · 7 years ago

I agree with much of what you're saying, but we won't get there by just hoping it happens some day. Go re-read the world domination post I linked to in my original post. I think that outlines the path forward quite nicely. The onramp for global cryptocurrency adoption will be a pegged asset to something most people are already familiar with. Once that happens, more people will shift to real cryptocurrency and once those market caps grow large enough, merchants, employees, service providers, customers, etc will demand pricing in cryptocurrencies and that's when we'll have the freedom we want. It's a process to get there.

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iamstan (62) · 7 years ago

Thanks Luke you are awesome. I will read that And I agree that hoping will get us no where. You know that we will support and sacrifice for a legitimate initiative to get a stable world currency.

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ambdavid (53) · 7 years ago

this is very complicated, but I think we should lay emphasis on people trying to scam on this platform z especially self voting,, it undermines the steem Block chain.

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hcosmin (29) · 7 years ago

It seems to me SBD was one-way pegged because it was designed to work with the original, hyper-inflationary STEEM.
You were supposed to keep your long term investment in either SBD or VESTS, now that you don't have to, there's not much point to it, as evidenced by it's market cap (already inflated due to current speculation).
So wait until some time in the future for it to come back to 1 USD again and either convert it all into STEEM and eliminate it in the next hardfork to avoid the unneeded confusion, or peg it both ways as you propose.

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lukestokes (75) · 7 years ago

I agree, we should either peg it or not have it since it causes so much confusion. As I explained in my post, I'm a huge fan of having a pegged asset, so I'd be very, very sad to see it go.

The connection you make the original hyper-inflationary STEEM is interesting. I still think the inflation of STEEM (or, share dilution protection in VESTS as I like to think about it) is valuable. Maybe we should be highlighting this more.

I'm hopeful the "wait and see" approach will work. It's also possible it will just keep being pumped and dumped though.

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charitybot (63) · 7 years ago

Tether will implode, taking down all prices and many exchanges with it.

Many economies have imploded in their futile attempts to maintain currency pegs.

Don't be like those other economies. Learn from their lessons.

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steemitadventure (66) · 7 years ago

There is some truth to this statement as well because I tend to favor the peg but I see the reality of trying to control the "beast".

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lukestokes (75) · 7 years ago

To me, the difference here is we're using STEEM to do it, not some made up currency we print out nothing. If the STEEM supply goes down to create more SBD to cover demand, then in theory the value of everyone's STEEM goes up. In a way, it's still somewhat of a closed loop between STEEM and SBD. The only difference (again in theory) is that value shifts away from SBD into STEEM (or the other direction) whenever SBD is not in line. The thing which keeps this in place is individuals taking advantage of an arbitrage opportunity via the smart contract conversion. It's hard for me to see where the cost is to do this, other than for the speculators who buy or sell too far outside of the $1 peg range.

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devrajsinghrawat (55) · 6 years ago

Hi lukestokes, nice post & Congratulation for getting my vote as witnesses.. Keep it up with the good work and making steemit a better place.

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aboutcoolscience (64) · 7 years ago

Thank you for sharing your view, I think in the long term it will be important to enforce a peg, but there are some upsides to the favorable exchange between SBD and STEEM. Unfortunately the distribution of SP among the users was not fair and several users with high SP are just abusing their power, taking from the community and self voting without giving back much (I wish there were rewards limits to the posts to avoid abuses). Many minnows that are genuinely interested in the well being of the platform are actually using the favorable exchange to do power up, so this is actually balancing things up a little. I think it's definitely positive that as a witness you are interested in this and sharing your view about the peg but I was wondering if you are also discussing ways to make the platform more fair and if you have any plans to prevent abuses from users with high SP. It would be interesting for example if you were to set self-voting thresholds that would automatically lower as the SP of a user increases, so to make sure that they all contribute to the growth of the community and don't just pursue self-interests. Thanks

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lukestokes (75) · 7 years ago

I've had many discussions about self voting (including this one) both on the blockchain and off. As for bad SP distribution, I've yet to see a productive way to deal with it. Maybe the steemit account could do an air drop or something? I don't really know. I've yet to see a good solution beyond just, "If you want more Steem Power, buy more STEEM."

Do you have any ideas?

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aboutcoolscience (64) · 7 years ago

Thank you for taking time to reply to my comment, I think supporting sub-communities and delegating SP to their leaders/curators would be a good way to let users manage themselves and distribute rewards more fairly. I think it's important to delegate and not give away SP so to motivate users to use it wisely. SteemStem is a great example of a community, I wish those were supported more. It's not a solution but it would be a good start.

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syncubate (50) · 7 years ago (edited)

SBDs are described as "an experimental asset on Steem that relate to the US dollar" on page 51 of the Smart Media Tokens white paper. Since November, their originally envisioned peg to the US dollar has remained steadfastly broken.

The debate of this actuality controverts a basic premise in trading: when a buyer and seller agree upon a price, a market is made. What is clear to anyone that has followed this platform or its underlying blockchain is that the value of SBDs has been deemed higher by the free market. If Dan Larimer has conceded this as the new reality, Witnesses should accept it as well.

The notion of an assured minimal store of value in the crypto space as entertained by the concept of "stable coins" is an imprudent and quite frankly slippery slope claim from a regulatory point of view. Without recurring audits to verify the assertion of a peg to some underlying asset, there is no transparency.

Crypto projects should not be misrepresenting their inherently speculative nature to investors/participants. In light of the evident market reality, a formal statement from Steemit Inc acknowledging the fluctuating nature of SBDs would clarify the prevailing lack of clarity surrounding this topic.

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lukestokes (75) · 7 years ago

Did you read the posts I linked to explaining how stable coins work? Are you familiar with how bitUSD works?

I'm familiar with the market's perspective on this (and Dan's comment), but I don't think that's reason enough to abandon the idea of a stable coin in SBD. It's broken because it was never designed at launch to handle the upside speculation. Now that the market cap has sufficiently increased, the question is should we implement on the upset what has already worked on the downside (via conversion)? That's the question. If we should do it, the next question becomes when. At what point does it make sense? When SBD is worth $1 or should we do it at some point above that in order to capitalize on the market potential for stable coins? Also, if we do decide to do this (and we announce our intention to do so), they may be enough to bring it back down as people price in the future value.

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syncubate (50) · 7 years ago

Thanks for the response. My intent isn't to stir the pot or to disagree just for the sake of disagreeing, but simply to raise a serious concern about the manner in which SBDs have been characterized. That is the focus of my commentary.

We have to accept that the market's perspective is reality - neither the upside potential nor the downside risk to SBDs can be engineered and the Witnesses shouldn't be presented as some sort of Federal Reserve or FDIC presiding over the Steem blockchain with the power to steer the price or uphold the value of any currency or token derived from it, as the Steem White Paper in its current iteration suggests on page 11: "The primary concern of Steem feed producers is to maintain a stable one-to-one conversion between SBD and the U.S. dollar."

There is increasing scrutiny of Tether's claim of being in sync with the USD 1:1. The FTC has rules about truth in advertising and the claim that stability of value can be assured by any crypto currency is clearly inviting regulatory scrutiny.

SBDs are described as "an experimental asset on Steem that relate to the US dollar" in the Smart Media Tokens White Paper. In light of the growing oversight of the crypto space and the evident market disconnect from the original pegged vision of SBDs, I don't think it is in the best interests of Steemit Inc or the Witnesses to continue along with this experiment. Accordingly, SBDs should be acknowledged as fluctuating crypto assets susceptible to varying supply and demand forces, just like Steem is.

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lukestokes (75) · 7 years ago

Interesting perspective, but if we took that fear too seriously, cryptocurrency would have never been invented. I don't think we (and who is "we" here anyway?) should make legal claims about SBD, but I do think we can all benefit by having a working peg and a speculative asset. I don't see much disagreement there. I also don't think it's feasible the blockchain would get "sued" because of the white paper. Who would they sue? There is no company other than Steemit, inc involved and they don't run the blockchain. They could try suing witnesses, but we aren't the ones making the white paper claims.

Tether is completely different because it is run by specific corporations with specific bank accounts making specific claims about the backing to real USD. If any of that ends up not being true, that's fraud by a corporation.

If a blockchain makes a claim and fails on the claim, it loses users and investors who go elsewhere. I'd argue we have a much higher standard we have to upload because the market can make very quick decisions.

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syncubate (50) · 7 years ago (edited)

There's no way to support a peg, unless some entity is maintaining a 1:1 balance of USD for every SBD created by the blockchain such that all SBD holders would have claims to the USD as an assurance of a minimal value being upheld. And even then, it would necessitate recurring audits to verify that the 1:1 peg via USD reserves is in fact being sustained.

Bitcoin makes no assurance of stability in its value. A blockchain in and of itself cannot endorse such a claim. As investors, traders, and/or participants in them, we assign value to their associated crypto currencies. That is the free market at work and that is what the price action reflects: real-time consensus among buyers and sellers on value, happening 24 hours a day, seven days a week.

As the Steem White Paper noted, the Steem blockchain made a claim that the pivotal duty of its Witnesses as feed producers is to "maintain a stable one-to-one conversion between SBD and the U.S. dollar." This experiment has failed on numerous occasions and I would argue that it is one of the reasons why the Steem blockchain itself is not valued higher among investors in the crypto community.

If the Witnesses accept this point and repudiate the intractable SBD pegging role that was originally assigned to them by the Steem White Paper, as some appear to be in support of, I would expect that the investment community would take the Steem blockchain more seriously.

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bryan-imhoff (66) · 7 years ago

What are the risks of a reverse conversion if the SBD market cap does grow and take on a BitUSD or Tether type role?

I recall in the days when Steem was very low in value and dropping, no SBD were printed and burning of SBD was encouraged to keep the debt ratio under control which was always regarded to be a very small % of Steem market cap. What are the economics of having a large amount of debt hanging over the Steem asset?

In general though, I agree with the sentiment of defending the peg or eliminating SBD as having no purpose without a peg.

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smooth (70) · 7 years ago

The expectation is that profitable conversions from STEEM to SBD would tend to increase the price of STEEM because people would buy up STEEM in order to convert, and in doing so reduce the supply of STEEM on the market. In the situation you describe (taking on Tether with its $1.6 billion market cap or even its lesser cousins) would be very strongly bullish for the price of STEEM (increasing its market cap and allowing it to support more SBD at the same ratio).

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bryan-imhoff (66) · 7 years ago

So it would effectively work like SMTs in terms of economic impact on Steem, with all money passing through Steem.
Does the internal conversion process create a form of smart contract where the Steem is held for conversions back the other way, similar to OpenLedger assets on Bitshares? Or is Steem actually burned/lost in any way with redemptions later being filled with new Steem?

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smooth (70) · 7 years ago (edited)

In a sense, SBD is a smart contract but it is hard coded (I guess in Bitshares that is the case as well). The STEEM that backs outstanding SBD is accounted for in the blockchain virtual_supply counter. When SBD is created (currently when posts are paid out, but if conversions could do so then via those as well), the STEEM is moved to virtual supply and when SBD is converted back to STEEM it moves back out of virtual supply and into total supply.

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lukestokes (75) · 7 years ago

Yes, early on when the amount of SBD in existence (the debt) was too high, things had to adjust. Going the other direction, I don't see too much of a concern unless someone did a coordinated attack and tried to convert so much as to create too much debt right away. Again though, the 3.5 day conversion time and the high market cap may not make that much of a concern.

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aligaby89 (43) · 7 years ago

Very interesting post friend thanks greetings support me with a vote

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sco (64) · 7 years ago

I think you're wrong when you think that STEEM would rise automatically if you keep the SBD low. Part of the increased STEEM value might be due to an increased demand because of the high SBD - people are trying to power up with their author rewards as long as they get 1.5 or more steem for one SBD.

Also, high SBD prices are the one and only thing that shifts some of the power from whales to authors atm - quality authors have a chance to catch up a little. And the unfair distribution of wealth and thus power here is a big problem - steem is an oligarchic rather than a democratic system. This has to be considered before implementing such a major change.

I am not against a stable currency. But without simultaneous measures for a better wealth distibution, tying SBD to 1$ is catastrophic, imho.

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lukestokes (75) · 7 years ago

Did I really say it would "automatically" rise? If so, I failed miserably. I do think it's a very real possibility if we had a STEEM to SBD conversion and people were losing trust in Tether and looking for other options. To me, that's kind of obvious from a supply and demand perspective. There wouldn't be enough SBD to meet the demand and the way to get SBD would be to buy STEEM and convert to sBD. As long as SBD was above $1 it would be profitable to do so.

high SBD prices are the one and only thing

I can't say I agree with that. I've been here for over a year and a half, posting and powering up. Yes, I did invest some in the beginning, but most of what I had I earned by building a reputation and relationships. The arguments about the inequalities of whales have been going on since the entire time I've been here. I agree, the inequalities here are a concern. I also know that some people consider me a "whale" now, which I find funny since I've just put my head down and posted/commented over 10,000 times without worrying about what other people are making or doing.

STEEM may be an oligarchic, but I'm not convinced. I run a monthly witness engagement report and we're still only at ~25% voting for active accounts. People control who the witnesses are and the majority of people aren't voting. If they want the witnesses to implement a change (or not implement a change) they have the power to put in witnesses who will do as they want. That's not happening right now.

No matter how much the rewards pool grows, we're still going to have huge holders of Steem Power throwing their weight around. I don't see any solution to this, not here or in the real world. Every attempt to "force" those with more than others to give it up has ended in social disaster. At least here we all have the opportunity to grow in wealth, even if some grow faster than others.

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sco (64) · 7 years ago

If they want the witnesses to implement a change (or not implement a change) they have the power to put in witnesses who will do as they want.

They do NOT have that power as long as a vote of a single whale with 100,000 SP is 2000x more valuable than that of a minnow with 50 SP.
I agree that we shouldn't aim to "take something away" from the whales in economic terms. But democratizing the power, that is another thing. The one thing that keeps things halfway decent in democratic systems (although they are far from a fair distribution of wealth as well) is that every vote counts the same.
As long as that is not the case, we need some ways to catch up economically, for catching up economically IS catching up politically in a system like that. And a high SBD is one of this ways.

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lukestokes (75) · 7 years ago

Please understand Sybil attacks and the various game theory issues at play here before advocating for one account equals one vote. Steam Power is ownership in the platform meaning they have the most to lose if they don't protect the platform. See the witness engagement post I linked to related to voting. Almost 75% of the SP is not voting which means anyone from a 50SP to someone less than that can go find those high SP non-voters people and campaign for them to vote how they prefer.

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sco (64) · 7 years ago

I agree that 1 account 1 vote would go too far. But still, having the top 0.1% owning 75% (and that's no exxageration) of the political power is not a good system.
Imho, the ideal system would account for both number of votes and SP.

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spellmaker (62) · 7 years ago

I really like the high sbd price but if I'm able to earn 7 sbd for 1$ price then I'm down with it. Just can't see it happening right now.

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partywalrus (50) · 7 years ago (edited)

-Disclaimer-
I am relatively new to Steemit, and I might have missed some crucial points, but here is my take on this debate (please do correct my observations if they are faulty or wrong).

What is in your opinion the main selling point of Steemit? When you introduce Steemit to someone else (the key to growth), what is your best argument for using the platform? If you answer to this question is “profit”, then you should think twice before doing something that weakens your strongest argument and likely will reduce the influx of new users.

Sure, commerce would benefit from stability, but in order for commerce to commence there has to be customers.

The way I see it, Steemit is still in its early days with the around 500k accounts and about 60k-80k active users at peak. It should therefore focus on growing its user base. Commercial entities can figure out a workaround for the fluctuating prices (bitUSD for instance), or wait until the platform has gone mainstream. If you believe Steemit is going to shape our future, naturally the market cap would have to reach insane levels, at which point STEEM itself would be a stable currency suitable for commerce.

Everyone here wants what’s best for the platform and its users, but we all have to remember that man is by nature biased, it’s just a matter of to what extent. If you’re holding large amounts of STEEM, odds are you will favor solutions that benefit those sitting on a lot of STEEM over solutions that benefit those who don’t. And you might be doing it without even realizing it yourself by automatically spending more time rationalizing your opinions than you spend attacking them.

Personally I do not think a 1$ pegged SBD would impact the market cap of STEEM much. I saw someone mention the market cap of USDT, implying that not having a pegged SBD was lost potential growth, but it is important to remember that the use case for USDT is miles ahead of SBD, simply because there are no other alternatives at the centralized exchanges (you can not efficiently send USD from one exchange to another), while a SBD pegged to 1$ USD is no more useful than a bitUSD.

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lukestokes (75) · 7 years ago

I try to be careful when talking about Steemit and STEEM, as they are different. In my opinion, STEEM is much, much more valuable than Steemit, though many people don't understand this. When discussing profit, we also have to think about timescale. If having a useful pegged asset becomes very valuable and bitUSD soars in usage between exchanges because trust is lost in USDT, would that be the fault of the witnesses for not working hard to support the peg as outlined in their job description?

I think new users are attracted by the $ values they see on posts, not by the knowledge (I'll argue) most of them do not have about the inflated price of those $ values. STEEM was still growing when the payouts were tiny, just not nearly at the same rate. As long as the STEEM price is growing which grows the rewards pool, I think new user growth will also follow. Steemit, inc isn't doing any serious marketing right now because they are focused on more serious concerns related to the growth. They are preparing for millions and millions of users signing up, not thousands or tens of thousands. I want to get on board with that same mindset and plan for the distant future. Having two speculative tokens, one speculative token, or one speculative token and one pegged asset seems like our options. I prefer option three because I do see great future potential value in stable coins. BTC has a massive market cap but is still very far off from being stable, so I won't count on STEEM being stable any time soon. I do think a pegged asset people are familiar with could really help onboard more people to the cryptocurrency world through the STEEM blockchain. That, to me, is huge. That's what the "world domination" post is all about which I linked to.

For me, it's not as simplistic as "those who hold SBD" vs. "those who hold STEEM." This is about what we want as a platform and when do we want it.

As I've said before, I'm not in favor of anyone losing money, but as we've already seen in the history of SBD, it may happen anyway as speculators pump and dump it. For those who want a stable asset (such as those in developing nations who should not put their savings in speculation), I'd like SBD to be their top choice, not bitUSD or Tether or something else. I think SBD could bring great value to them and our network as a whole if it worked as a stable coin.

If SBD was worth $1 USD worth of STEEM right now, would you be in support of implementing a reverse conversion to maintain that peg? If the answer is yes, then it's a matter of determining the value to our system in having a stable coin and then contrast that against the value we might lose if we let SBD continue to stay floating. We might reach some equilibrium the community is okay with, such as $1.10 or $1.50 or even $2.00 where they'd be comfortable implementing a reverse peg to print more SBD via a conversion to sell to speculators.

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partywalrus (50) · 7 years ago (edited)

Appreciate the response!

Is it not an option to wait with implementation until a potential USDT collapse or exposure? Take the best from both ideas and meet in the middle?

I agree most new users are probably attracted by the $ values, but it is not just about getting new signups. Those new accounts also have to be active to contribute to the growth of STEEM and Steemit. If they go inactive shortly after being created they might as well never have been created in the first place. Higher payout on posts and comments prevents this from happening and help retain new users (as well as old ones returning).

STEEM market cap growing is naturally going to promote growth. From my perspective, this is not a question of growth, but a question of the rate at which it grows. By making it harder for new users to grow their Steem Power, we open ourselves up for some serious competition. With EOS launching in June, I do not know how wise this is.

There is a fourth option: grow STEEM's market cap to a size where volatility resides, and let SBD be the speculative token. Until then, merchants can swap their SBD into bitUSD.

Why exactly would you want SBD over bitUSD to be the top choice for developing nations? They are equally valuable, are they not? The main difference as I see it is that one choice would make it harder for minnows to grow a (direct negative impact), while the other one put STEEM holders at risk of not capitalizing on a potential first-mover advantage (potentially negative impact).

I haven't really studied the system enough to have an opinion on the reverse conversion proposal, but if you have written og red some good articles on this I would love to read them :-)

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vishalhkothari (57) · 7 years ago

Hey @lukestokes i thing you have given a best post. though SBD and STEEM are seems fine and long term horses. You have given us a good point to think about. I will vote for you for sure.

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aqeelshehzad (49) · 7 years ago

Great post great examinations a debt of gratitude is in order for sharing.
It is tied in with influencing you to think from an alternate point of view..

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blog-beginner (53) · 7 years ago

I think it should be pegged. I am fairly new to the ecosystem and was super confused about SBD and Steem.
I think that there can be a lot of market manipulations if SBD is not pegged.

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lukestokes (75) · 7 years ago

It is super confusing and broken. I agree.

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andybets (62) · 7 years ago

Thanks for posting about this very interesting subject. I've just come across it.

Could we implement a peg/ceiling that automatically falls over time according to a schedule to bring the SBD rate somewhat predictably and gradually down to parity?

If we started with a peg like you mentioned at the current price (to prevent it getting higher), I guess this would immediately drive the price down to some extent as it would remove any upside. If we started at the current price plus say 50%, and lowered it every day until parity, it should deliver us safely to our destination within a definite timeline.

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kaykunoichi (62) · 7 years ago

This is why it's important to vote for witnesses. Because even with you explaining it, it still kind of goes over my head a little bit. I am happy either way, whatever is best for the steem blockchain. Of course I and many others are thoroughly enjoying the high SBD price, but I do appreciate the discussions going on, I like to at least try & get a better understanding of what is going on with steem. Appreciate it! This is why I vote for you ^_^

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lukestokes (75) · 7 years ago

I usually try very hard to simplify these complex discussions and break them down in simple terms so everyone can grasp the idea. In this case, I found myself wanting to unload the whole discussion from start to finish so that those who are discussing this topic the loudest can at least work from first principles and really support their positions with reasoned evidence. That made this post much more difficult to follow than I usually go for. Thanks for putting some trust in witnesses that earn it. We are working hard to earn that trust.

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themobilewriter (48) · 7 years ago

Because of high value of SBD i was able to buy 10 steem( Note: It has not solved my bandwith problem yet). If SBD becomes 1 usd then i could only buy a fraction of steem instead of full one steem. This would slow my growth Making me and other new user frustated and forcing us to leave the platform.
Now if you ask me to earn by blogging, then i would say that there are only a handfull of people earning through blogging out of 50k daily active users. Rest of those whom you see earning have actually bought upvote to make the grass look green from outside.
If you ask me to invest in steem to earn through increasing price of steem then fine but what is the guarantee that my money is going to stay safe. What if steem also closes like Mylot.com and triond.com. worse what if the repeat of bitconnect happens with steem. What if founders of steem closes steem.
Please consider many other things also before taking decision. How about pegging SBD to STEEM. This way any one can power up their STEEM with SBD with equal value.

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lukestokes (75) · 7 years ago

Wow, you've been active!

I see you have a couple more SBD in your account. Seems if you want to use this "free" resource of the STEEM blockchain as much as you are, you need to buy more STEEM and power up. You're at almost 500 comments/posts already! You can also consider posting during off-hours when the overall bandwidth decreases.

If SBD becomes 1 usd then i could only buy a fraction of steem instead of full one steem.

But it might also increase the value of the STEEM you have. That said, your usage (almost 500 comments in just over a month!) is probably not typical. You're using a lot of bandwidth!

I don't think someone will be force to do anything. If they want to use a free resource more than they should, then they have to either pay for it or use it according to their means. That's pretty straightforward.

As to those who can't earn by blogging unless they use vote bots, please see my wallet. I have never used a vote bot. Maybe the three posts I mention here will help you: #SteemitIsToMe: Relationships, Reputation, and Rewards

what is the guarantee that my money is going to stay safe.

There is no guarantee! Far less guarantee when value is stored in a speculative asset like an unpegged SBD compared to a pegged SBD.

STEEM will not close like the sites you mentioned because STEEM is run via a decentralized blockchain via block producers (witnesses) from around the world. They get paid directly by the blockchain to do so, not by some centralized company. The founders of steem can't close steem. It lives independently from them on the internet like a decentralized autonomous organization.

Pegging SBD to STEEM would not be a peg at all. It would just fluctuate right along with STEEM making it redundant and useless. It is connected to STEEM in that it will always be worth at least $1 USD worth of STEEM according to the conversion process.

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m-khan (38) · 7 years ago

Very nicely

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donaldpete (51) · 7 years ago

This is really a different opinion topic because I am not gonna lie. You whales sees the positive side of the pegging but we minnows really don't want to hear of this. Everyone is really gonna be bias and rational in their opinion. As very much I would love to see a well functioning steemit blockchain. Nice payouts will go alotta way in making me happy too. But since no one's greater than the community, I wish for the betterment of steemit then.
PS: my opinion may sounds lacking but blame me not, I'm just a newbie just getting to learn on how the platform works from witnesses like you.
Educative post @lukestokes

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dogeking (57) · 7 years ago

It would be very difficult to peg SBD at $1 especially since it can be freely traded on the open market. I must confess that I recently transferred a small amount of SBD to Bittrex to gain on the price fluctuations.

If there were to be a mechanism that prohibits this then that would be a good start. I also read somewhere that people proposed to increase the supply of SBD to bring the price lower. That is a very dangerous proposition. The hyperinflation in Venezuela is the perfect case study on why increasing supply(in their case increasing minimum wage) is not the solution to everything.

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lukestokes (75) · 7 years ago

You can't prohibit exchange transfers or free, open markets (nor would we want to). The point of the SBD is to pegged to $1 USD worth of STEEM. It's a completely different situation than hyperinflation in Venezuela because it is backed, according to a blockchain smart contract, by $1 USD of STEEM. It won't go below that because people will convert it to STEEM. If the debt gets too high, there are built-in mechanisms to deal with that on the blockchain as well.

You shouldn't feel like your actions need a confession. You're doing exactly what should be a done in this market! Sell the SBD to put more sell pressure on it to drive the price back down again. I'm doing the same thing on the internal market.

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bec-on-the-block (54) · 7 years ago

@lukestokes FYI the video link won't work, it says it is restricted. I'm not sure if anyone else is having issues watching it?

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jeezzle (70) · 7 years ago

Works for me.

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bec-on-the-block (54) · 7 years ago

must be my computer. thanks for the reply

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lukestokes (75) · 7 years ago

Odd. I wonder if they are blocking it in your country or maybe a local thing based on an internal network? I'm curious if it works if you try to view it directly on YouTube?

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bec-on-the-block (54) · 7 years ago

It was my computer that was the problem. It works when I try on my phone.

I should have tried that before commenting... I thought YouTube must have been feeling threatened by the steem blockchain and putting restrictions on you 😉

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cryptofig (30) · 7 years ago

Great post, very informative. I think the idea of a stable cryptocurrency is the whole point. Something like half the world population doesn't have access or faith in a centralized banking system, and the volatility of cryptocurrencies today will keep many of those "unbanked" people away. My 2 cents.

Thank you for the video, the article, and all of the associated links. I also really appreciate how you kept referring to the white paper, which was the vision from the beginning.

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lukestokes (75) · 7 years ago

Thanks for reading and chiming in. :)

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ilyastarar (64) · 7 years ago

A refereshing as well as a worrying experience for me to listen to to you while glancing over the text. I had slight understanding of SBD earlier but I feel that I have learned and understood SBD a lot better.

I say worrying because I am speculating SBD to rise soon—may be for one last hurray—so that I can get my most urgent economic needs fulfilled. I have some SBD and I am keeping it either to buy Steem if a seriously low price comes—up like it did when I was able to convert 1 SBD to 5-7 Steem—or the individual value of SBD is enough to buy me my first car and get my house completely constructed. These two are my biggest goals and I a hoping that crypto in general and Steem in particular will help me achieve that.

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bmj (63) · 7 years ago (edited)

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.

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smooth (70) · 7 years ago

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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bmj (63) · 7 years ago

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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smooth (70) · 7 years ago (edited)

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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lukestokes (75) · 7 years ago

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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bmj (63) · 7 years ago

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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lukestokes (75) · 7 years ago

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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bmj (63) · 7 years ago

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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lukestokes (75) · 7 years ago

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

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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bmj (63) · 7 years ago

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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