Sorry I cannot understand why "we can not tolerate more than one or two 50% price drops in the next 15 weeks" If STEEM price becomes 1/4 while SBD amount is the same, is the debt ratio around 18%? That is dangerously high number but will it trigger the black swan event?
By "tolerate", I mean without serious failure, at least of the peg, and possibly with much more serious consequences for the rest of the Steem. (I actually wrote "without reaching peg failure at 10%" in the above comment.)
First, due to the "haircut" code, the debt ratio won't ever be >10%. However, this will cause the SBD peg to be abandoned, which has to be considered a failure of a pegged asset, and will cause serious damage to the Steem brand as critics will (correctly) point to it as evidence that the design does not work (in practice at least, given witness timidity to make hard decisions). I would also make it even harder for people to ever trust the SBD price with additional (costly) supports, such as even higher interest, since it will have been proven to sometimes fail.
Second, it can't really be predicted whether that would cause "run on the bank" type scenario. It depends how happy SBD holders are to be to continue facing the possibility of greater losses but limited gains (at best, they don't lose their $1). Many would likely feel better off holding STEEM with the exact same downside and unlimited upside, or more-likely moving to real USD, Tether, BTC, or some other more stable holding (if they wanted the risk of STEEM they would have been holding that to begin with). This can possibility be counteracted (as I proposed doing the last time we approached the "haircut" level) with very high interest, but that very high interest will have a high cost and further increase the debt (when it is already high). It also depends on how many altruistic SBD holders remain. @abit doesn't appear to still have 300K (I don't know how much he has; it is spread over multiple accounts I didn't add up). The largest current SBD holders are steemit and a dev, so I suspect there is a bit of altruism left, but this clearly can't be relied upon by the system design or witness policies; it won't always be true (high on the list are exchanges which means to a large and growing extent crypto traders are in control). The system, including witness policies, must be able to successfully manage risk without relying on altruism or reaching peg failure, or it simply doesn't work.
Third, it would clearly be far more difficult to retire the necessary amount of debt once that level is reached to restore stability. Every time the can is kicked down the road by saying "the situation isn't that bad yet" the risk of arriving in an even worse situation grows larger. One or two 50% drops is not far "down the road" (speaking in terms of risk) at all. It happens to crypto tokens, STEEM or otherwise, all the time.
Since this post was about the white paper, I will quote:
The primary concern of Steem feed producers is to maintain a stable one-to-one conversion between SMD and the U.S. Dollar (USD)
We are not supposed to be sacrificing the stability of the peg just because it might cause downward pressure on the STEEM price or hinder increases in the STEEM price, or because doing so incurs costs. The peg itself depends very much on trust, and witnesses can only be trusted to manage the peg if they are committed to doing so, consistently, during both good times and bad.
The SBD peg is part of the Steem platform and brand, and contributes to the current and future value and utility of the platform. If we do not believe this is the case, or we think that the costs are not justified, then SBD should be removed.
I understand your concerns now but there seem some misunderstandings in your thoughts.
First,
Wrong. If we set enough high discount in downtrend markets to compensate loss in conversion, we can keep the peg.
Second,
This is plausible. But will under 20% debt ratio trigger the bank-run? Unless the bank run causes over 70% STEEM price decrease, the network is still fungible.
Third,
You are totally misunderstanding and distorting my opinion. I did not propose to sacrifice the peg. Actually your previous stance will break the peg to greater than $1 with more costs. If we can keep the peg at the same time save our money, why don't we do that?
You misunderstood the context of that comment. It wasn't about a downtrend. It was about what happens when 10% is reached. At (what would be) >10% debt ratio, the blockchain code will break the peg. Instead of using the price feed, SBD is converted into STEEM as a fixed ratio of market cap. In effect, the debt ratio is capped at 10%, but SBD is "dropped off the peg". Dan's original post
As I said earlier, we simply have no way to know. The 2/5/10 limits were implemented by the developers because they viewed these levels as increasingly dangerous. I do not believe we should run a live test of the danger level at 10+.
Maybe I'm misunderstanding but if you are suggesting that a bank run should be risked because the system would survive it, I would greatly differ. SBD certainly would not survive it, at least not the existing holders who would lose a large portion of their supposedly stable-value wealth. This would cause huge damage to the platform in terms of reputation and trust, even if STEEM did literally continue to have a value >0 and the blockchain continued to function. (On the plus side, I imagine Steem would get a fair bit of attention, as NuBits did during its liquidity crisis last year. It is sometimes said there is no such thing as bad publicity.)
Sorry if that was not clear, I wasn't claiming otherwise. I was simply making a point that witnesses (as feed providers, and, while the white paper doesn't say so, interest rate setters) are charged with protecting the peg. That can and will incur costs to stakeholders. Our mission is serve stakeholders by protecting the long-term value to the platform supposedly offered by the stability of SBD even if that incurs costs (and at times those costs may be large). I'm certainly open to considering the point of view that the costs are not worth it and SBD should be dropped (or scaled back or modified in some manner).
I do not think you propose sacrificing the peg, but you do propose measures (or express reluctance to take measures due to cost) which I believe increase the risk that the peg will be broken. That is largely a judgement call since there are multiple considerations to balance and many of the actual factors being balanced such as actual risks and actual effects of actions taken (or considered) can not be fully known.
No! I never proposed to break the peg by accepting that it would be worth more than $1. I proposed to reduce the value of SBD to $1 by reducing the interest rate, perhaps by a lot (including possibly to the point of "stop all interest" as the white paper states), though we must make more gradual adjustments to assess. A lower interest rate along with an unchanged discount should result in a lower SBD price (ideally bringing it to $1) while retaining incentives to continue conversions. One can never be sure a particular measure will work, but that was what I proposed, not to deliberately keep SBD above $1.
Right, I also misunderstood (and forgot) what you proposed. The heated point was whether high discount+low interest to keep the peg is desirable or not. Anyway, I think we all agree that our intention is to protect the peg and to benefit the network and stakeholders. I will be more aware of potential dangers of high debt-to-ownership rates.