Why Worry??? The Increasing SBD Is Great For The Blockchain!!!

Earlier I read a post by dragosroua which discussed SBDs and the price appreciation. I have seen a number of other posts related to this topic so I feel compelled to write about it to clarify a few things.

https://steemit.com/steemit/@dragosroua/are-you-really-playing-the-steem-long-game

There appears to be great confusion surrounding SBDs.

To start, Steem Dollars are debt. Hence, they are a liability to the STEEM ecosystem. Each SBD entitles the holder to $1 of STEEM. This is similar to convertible notes which are often used to fund projects.

The amount of SBDs outstanding is not limited like STEEM. They are issued when someone creates content. In other words, they are paid to authors. This can come in the form of an article when the individual opts for the 50/50 split or when commenting which is always paid in that manner. Curation is paid in SP.

I will use the time frame in the article to show how the expansion of SBD is not a problem. In fact, it is a very good thing for the ecosystem.

The Debt Actually Went Down

It is crucial to understand how SBDs are converted.

A SBD entitles the holder to $1 worth of STEEM. However, the holder is not paid $1; this is crucial.

In November there were roughly 3.5M SBDs outstanding. At the time, I recalled buying some STEEM for about 80 cents.

Today, there are 10.2M SBDs outstanding with STEEM at $3.25.

Most would say the ecosystem had $3.5M in debt in November and it jumped to $10.2M today.

That would be incorrect.

There is no way to convert SBDs to dollars. The USD as a peg is nothing more than a ratio. SBD is really worth 1/whatever the price of STEEM is priced at. Each SBD entitles one to $1 worth of STEEM...a token that fluctuates in dollar terms.

So what does the debt work out to in STEEM?

November: 3.5M SBD divided by .80 = 4.375M STEEM.

Thus the outstanding debt had claim to 4.375M STEEM

Today: 10.2M divided by $3.25 = 3.138M STEEM.

Thus the debt today lays claim to 3.138M STEEM. In other words, the STEEM ecosystem owes 1.2 M LESS STEEM than it did 4 months ago.

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The fact that people are paying a premium for SBD above the $1 value in STEEM makes no sense. Yet, it is not relevant either. Markets pay a premium above face value for assets all the time. Initially, it looks like SBD were pumped. The fact they remain elevated for such a prolonged period of time shows that there are a lot of buyers who probably have no idea what they are buying.

@dragosroua hit the nail on the head when he said markets will figure it out. I cannot tell you if the price of SBDs will go up or down from here. What I can tell you is there is a point, if the price does go up, where there will be too many SBD created for the market to handle. I do not know if it is 20M, 30M or 50M but at some point, the price pops.

A crash in the price will cause those who trade on the open market to lose money. Yet Steemians will be protected unless they are sitting on SBDs. Powering up means SBDs are turned into STEEM. Also, if the price gets to parity with the $1, people will opt for the 100% payout in SP, thus reducing the number of SBDs created.

The other advantage is that while the price of SBD is above a dollar, no interest is paid on it.

Helps Distribution

It is a great time to be powering up. Payouts are higher than normal. On a 50/50 split, 1/2 the payout is receive about 3.5 times what it should. This is enabling people who power up much quicker.

As noted, SBDs are only paid to authors, not curators. Hence, the ones profiting are those who actually create content.

Why is this important?

STEEM has a distribution problem. Over the last month, I wrote about how this is changing. One of the central premises is that as more people join and post, the reward pool is diluted from the bigger players. In short, they cannot churn out enough content to maintain their percentage of the overall holding.

Therefore, the ones who are benefiting are the smaller accounts who are posting more content. Collectively, they make up a greater percentage of the whole than they did before.

Another factor in this is many of the bigger holders are using the increase in SBDs to minimize their risk. There are many who tied up a lot of money into this blockchain. These people are taking the SBD payout and moving it elsewhere. There are a lot of them who are not powering up since their accounts do not really need it. Looking through some of these accounts, you find a lot of SBD that is sent to exchanges, which, I presume, means they convert it into a different currency.

Regardless of what they are doing with them, they are not turning them into SP.

Evening out the distribution is a great thing for the blockchain. I believe, at the moment, the increased payout on posts because of the break from peg by SBD is helping this significantly.

At some point, the market will figure out it is paying a premium on SBD. When it does, the price will move downward. Until that time, however, my answer is still the same...power up.

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