Ho Hum, this is old news right? Wrong! We’re in unchartered territory here after a week that could not have turned out worse for STEEM and the Crypto market overall. STEEM DOLLARs are trading at about 0.86 US cents as I am writing this and sure, most users would say that the peg is broken because we’re supposed to be at $1 USD so the peg is broken on the down side….but they’d be wrong because we now have a haircut on conversions in play so the market price should actually be lower!
"What!?" you exclaim in disbelief. I can feel the exasperation and confusion at this point. I don’t particularly want to go too heavy into the math, but I will try to explain what is going on in layman’s terms. Regular readers of mine would know I’ve been banging on about the System Debt level for some time now and there is a bloody good reason for that as we are seeing this week. You see, inside the code of the STEEM blockchain there are certain rules around converting STEEM DOLLARs into STEEM that is supposed to keep the STEEM DOLLAR trading at or around $1 USD. BUT, if the Debt Level gets too high (over 10%) then the system won’t convert STEEM DOLLARs to $1 USD worth of STEEM, it will apply a Haircut – which is financial lingo for basically shaving off a loss. As the System Debt level rises above 10%, you might only get 90 cents or 80 cents worth of STEEM for every STEEM DOLLAR. Now let that sink in for a moment….
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By my calculations, with a STEEM price at just over 31 cents today we will be getting a 23.5% haircut on conversions and that puts fair value for the STEEM DOLLAR at about 76.5 US cents. What this means is that (once again) the STEEM DOLLAR is currently overpriced – to the UPSIDE. Now I personally am 100% certain that the bulk of the market does not understand what is going on with this system and it has not yet realised that the System Debt and STEEM DOLLAR value is currently in a downward spiral with a falling STEEM price. When the market does finally realise I expect a few things to happen….
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Firstly, I’d expect that conversions of STEEM DOLLARs to STEEM will immediately dry up and then secondly I’d expect the STEEM DOLLAR price to crash as another wave of HODLers rush the exits and dump on the markets. We still have millions of SBDs sitting on exchanges just waiting to flood the markets so as the penny starts to drop I’d expect to see the STEEM DOLLAR spike down hard (probably into the 60’s this time) before the smart money comes in and starts firing up the conversions to resume the STEEM DOLLAR Purge I’ve been writing about. However, that support will only happen if the STEEM price can stabilise because a lot of STEEM DOLLAR converters will have been burnt in this recent fall (I certainly have been) and I don’t think they’ll come back in and put themselves at the mercy of a 3.5 day conversion window unless there is some confidence that a bottom has been found. These are scary times!
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There is no doubt that there is a downward spiral in play here and the only thing I see that could pull us out of it is a big bounce in the broader crypto market. We really need this to happen within the next week because at this rate I think we will have potentially irreparable damage rendered to the STEEM DOLLAR and the STEEM platform overall if we can’t pull out of this nosedive.
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I hate to be the bearer of more bad news here so please don’t shoot the messenger. I’m the sort of guy who doesn’t like to sit on knowledge when I can help people by explaining it. I hope it’s not too late to help some good Steemians save the furniture if they’re HODLing SBDs.
The conversion rate of SBD to Steem is determined by the debt ratio not the price on the internal market:
Source: https://steempeak.com/sbd/@timcliff/sbd-explained
The current debt ratio is at 10% so no "haircut" yet. In fact the supply of SBD has been reduced by more than a million in the last few days due to the conversions and the debt ration is stable at 10% for the time being.
EDIT: the median price used for the conversion rate is taken from the price feeds of the witnesses not from the internal market. At this time the debt ratio should be at around 12% so the conversions should pay about 83 cents on the dollar (10/12). It's odd that Steemworld is still showing a debt ratio of 10%.
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Thanks for the link. @timcliff explains it well there.
I've been keeping an eye on the conversions. We had a spike on the 18-19 Nov but over the last 5 days there's been less than 250K SBD converted total so the debt is not dropping that fast. I have the debt ratio at closer to 13% once the delayed feed price comes through. I might have the calculations wrong, but I think steemworld has maxxed it at 10% because technically - that's as high as the debt is allowed to get. It's the conversion rate that suffers.
I'll recheck the math but I think that when the feed catches up with market price then SBD conversions be at that level if the STEEM price doesn't bounce.
I estimated the supply using the historical data from https://coinmarketcap.com/currencies/steem-dollars/historical-data/ dividing the marketcap by the closing price.
13% is probably closer to reality than 12% (I did the math in my head so I was probably off by some decimals).
No worries. There has been about a 10% bounce in the STEEM price since I wrote this and that might be enough to keep the wolves from the door if we've found a bottom.
I still find steemworld more useful than coinmarketcap.com because it shows the current supply of both STEEM and SBD in real time and it shows the various feed and external prices too. I did have the debt level near 13% but on this rally its now lower so I have par at about 85 cents for the SBD. This is now slightly higher than market price so we're closer to equilibrium here.....
Thank you. I am still learning about Steem, and I am curious what would be the price of SBD and Steem next week. I think many steemians have lost their motivation to write on steemit because of this price going down.
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I think a lot of people have left the platform because of the price and it's probably the wrong reason to leave. This is why I am a bit dirty on those top dogs who were cheering the high SBD and claiming it would bring more users because anyone who came here for the money.....would leave for lack of it down the road.
Or maybe we can see it like this: those people leaving because they were just here for the money, and when there is less money they leave, they are not here to provide values for others or supporting steemit or dtube communities. So, it is okay for them to leave because they don't contribute much to the steem blockchain. And it is their rights to leave. I think. I might be wrong though.
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Now you've done it! You've just told everyone! ;)
Haha. My readership is pretty small so I think you flatter me.
You have been the man to listen to this year, I wish I'd acted when you first started on the topic - just didn't want to power down.
I see you've sent a sizable sum out recently, no faith at all in a recovery? Looking for 7 cents to return as an Orca? :D
Maybe. To be honest I don't have a price target and I'm not sure I will ever want to invest in STEEM again. What I am looking for is a few signals that we've hit the bottom and I'm also looking for a few fixes/improvements from Stinc and the Witnesses.....that I don't think are coming.
That doesn't mean I won't keep posting now and then and building relationships with people in the crypto space as there is still value to be found here on the inter-personal and networking level. I'm just not confident that value is going to be found as a HODLer of STEEM or SBD unfortunately.
Fair enough.
Well I'm all in here, and will be sticking around, although I'm likely to have to find work to eat and buy your STEEM.
I think a change in wider market sentiment is coming, hopefully sooner rather than later as this nosedive is looking pretty serious!
Cheers.
There will be a bounce. It is seriously overdue, just not sure how soon or how strong it'll be when it comes. There's got to be an important TA support level around here somewhere.
My point is that I just hope it is soon before market confidence in the SBD gets trashed.
Well at least the raffle tonight was great.
It sure was. SSG is just brushing this off and going from strength to strength. It's actually pretty awesome to see that sort of resilience from a community regardless of what the prices are doing.
@buggedout - I thought you would find this interesting as well...
https://steemit.com/bitshares/@lukestokes/bitshares-global-settlement-and-chain-freeze
Thanks. Yes, I did see there was a Black Swan on BTS and they had a chain freeze which I suspected was related. So SBD is not the only peg mechanism that is having trouble and at least with SBD it remains liquid and trade-able despite the haircut.
I tried looking up CarbonUSD that you wrote about earlier. For now I've parked some funds in TrueUSD which in an ERC20 token that I could at least store in my cold wallet.
True USD being featured on Binance as well makes it a deeper pool so to speak as well which I'm sure helps.
Ahh so that explains it...
https://busy.org/@thecastle/can-anyone-here-help-me-with-the-math-on-this
Looks like I am fucked then... This was kind of my last hope to maintain solvent during this crypto dump. At this point I guess its time to just lose everything as Bitcoin makes its run down into 3 digits range...
Damn it!
Yep, once we hit the 10% Debt Threshold then basically SBD is pegged to STEEM and not the USD so if STEEM goes down then so does SBD.
I got out of SBD about the time I wrote this and have moved some of it into TrueUSD today. It's basically a Tether clone but there is probably less counter-party risk. As an ERC-20 token I can store them on my KeepKey which is an added bonus.
PS - This is not financial advice. Pls do your own due diligence.
well I'm fucked then... I don't want to put all of my money on an exchange. I guess ill look into a couple other stable coins for now.... This was a big part of my plan for when the market was going into capitulation. I guess it was too good to be true and now I am paying the price. Ill just park my SBD in steem for now and hope for the best... Or just dump for EOS or a stable coin on ETH...
TrueUSD is a stable coin on ETH. If you have an ETH wallet you can store TrueUSD there.
I only see two stable coins on Bancor, PegUSD and DAI. I will likely research both before I do anything. One thing that is for sure, if SBD tanks into the 60% range and steem does recover when BTC bounces then the converts for SBD might be really profitable.
I mean I realize that you are saying there is a chance that steemit may spiral down to zero but its probably not super likely to play out that way. Saying something like that reminds me of nocoiners talking about Bitcoin... Sure it will dump super hard but there is likely to be a point where steem and SBD irrationally get a bump because of a Bitcoin bounce.
I'm not saying it will go to zero at all. When I talk about irreparable damage I am talking about trust in the SBD and it's reputation as a viable Stable Coin. As it stands though I think there is zero reason to be HODLing SBDs because it's now pegged to STEEM and is capped at $1 for conversions even if there is a bounce. You'd be better off sitting in STEEM at this point than SBD.
You're right though, conversions might become profitable again if SBD drops below par value but this post was about warning genuine Steemians who are holding SBDs and not realising it was over-valued. If you want to ride it down then that's your call.
Anyway, thanks for the upvote. I'm glad I was able to help you understand the issue here and good luck with whatever you decide to do.
This was definitely the most helpful regarding this topic. My current plan is to sit in steem and wait for a bit. If I feel like another dump is coming I might shoot off to another stable coin. I see that DAI seems kind of interesting but I am not really sure just yet.
Thing about SBD though is that the cat is out of the bag. If Steem dumps super hard then SBD loses parity. Its well known now I imagine. But at the same time its a stable coin that has unique functionality where if the value of steem is going up or stable then SBD dropping below 1 usd becomes profitable. I personally like this prospect. I am honestly more worried about the prospect that SBD has no way to peg down to 1 USD once its over that value at that point I essentially am forced into another stable coin...
@buggedout interesting especially right now to see what direction things go in.
Bounce, hopefully. We are horribly oversold. Sometimes the market can stay irrational for longer than you'd expect though. I was cautiously bearish before but I never thought it could drop this hard so fast after we were stable for months.
Doom and gloom you say?? Cheer up Buggs!! Lol
The way I look at it, you're about 8 hours in front of me, so when the crash finally happens, you should have enough time to warn me.... 😂😂😂
Haha. I wish it worked that way, but no :)
I hate being the doom and gloom guy but I guess someone has to be when it's not all sunshine and rainbows outside :(
I'm with you and have agreed with everything you've said so far. When people let their feelings get in front of facts, we have problems. We all want it to work, but some want it to work with no thought on consequences of how they make it work. Stronger witnesses in the top 20 would be great, with a 5yr vision not 5 day's!!!
Well said @welshstacker!
Unrelated:
As a gold person, have you looked into Digix? Do you have any opinion on them as a means to invest in gold?
I have the whitepaper on my TODO list so I'm not totally across it. I know that some of the senior members of #steemsilvergold are pretty keen on it. If you ask a guy like @thedamus about it he'll probably tell you he is "balls deep" (his words, not mine :p)
It's probably a good one for me to bump up the TODO list today considering I've just shifted my reserves from SBD to Bitcoin and I need somewhere to keep my reserves safe while this latest market volatility plays out.
Mate, you are the Steem debt Nostradamus/ grim reaper! Thanks for keeping us updated.
LOL. Maybe I should change my avatar to something darker.
Things are looking a bit better today as it looks like the market bounce we've been hoping for has arrived. We have had the sharp drop off in conversions that I predicted though so we might be in the eye of the storm here. We need STEEM back up over 0.40 before I'll start to breathe easier.
You really give an in-depth analysis about steem dollar pegs and the conversion issue of steem dollar to steem, I do not know how long this price decline of the crypto market will last. Because it is causing alot of issue to steem price and the steem dollar conversion mechanism @buggedout
As you say, uncharted territory, and interesting to see how it has played out.
The internal exchange market price has stabilised at the same price as the official blockchain price, meaning that SBD conversions are a gamble on future price moves. As STEEM has the larger market cap, SBD price has fallen - thereby, yet again, un-pegged from the US$.
With the open market price of STEEM at 30 cents, or so, it would require a +30% upswing to get out of this current stranglehold.
I never liked raising the SBD debt ratio from 5% to 10% - this current pricing mechanism was always there, but the reduced SBD print rate used to kick in at 5% so we never got to 10%.
The real problem now is that the ecosystem has nothing available that Steemians themselves can do from within the system.
Having said that, rewards in STEEM are astonishingly stable. This is the main reason Id like to see pending rewards shown in the native STEEM rather than a "$" that is not really a dollar.
the SBD seems like it's never been very consistent