This is an open letter to all Steemians, particularly to the Witnesses of our system, who assumed full responsibility for maintaining the SBD/USD parity.
There had been much discussion lately regarding the undervalue of SBD, which had been trading at 10~15% discount against USD for quite a long period of time. I'm not going to re-iterate through those theories/analysis on how or why this happened, but to focus only on one aspect:
The Witnesses are not doing their Job to maintain the USD-peg.
If they keep doing nothing, there's no way that SBD will fall back to the $1 target. (well, by mere luck or random market force, it might move towards $1 or even shoot higher, but definitely won't stabilized there.)
A quick review about the principle of Impossible Trinity:
It's impossible to have all three of the following at the same time:
(1) A fixed foreign exchange rate
(2) Free capital movement (absence of capital controls)
(3) An independent monetary policy
Capital control is against the believes of most crypto community. So, in order to achieve a fixed exchange rate (the SBD/USD parity), we MUST adjust the monetary policy timely in response to the ever changing market condition. And this why Steem had the built-in interest-rate & the price-feed machanism.
Although it's clearly stated in the White-Paper:
The primary concern of Steem feed producers is to maintain a stable one-to-one
conversion between SMD and the U.S. Dollar (USD).
Unfortunately, our Witnesses (so call monetary-policy-makers of Steem) are doing exactly the opposite.
While the market condition keep changing, and causing the value of SBD deviate significantly from 1USD, the Witnesses just maintain the same interest rate for SBD all over the time (in fact, all 20 top witnesses now simply leave it as default, which is 10%). And their STEEM/SBD feeds giving a median value that is always mirror the external market price.
With this kind of "independent monetary policy" which totally ignore the markets, there must be a miracle to see the value of SBD stabilized at $0.99~1.01.
Here's a little Request to Fellow Witnesses:
To maintain the SBD/USD parity, take either/both of the following actions:
- Raise the interest rate for SBD.
- Lower the STEEM/SBD price-feed (so that each SBD converted into more STEEM)
Personally, I'm more favor into the latter, which sound more intuitive for ordinary market participants. A cheaper rate for internal SBD-STEEM could boost the demand of SBD hence bid up the price to parity.
All the price-feed producers need to do is just adding few more lines into their algorithm, so that the bots can be easily configured to quote prices at premium/discount to external markets when needed. It is the responsibility of Witnesses to keep an eye on SBD market price, and adjust the amplitude of premium/discount from time to time.
Theoretically (as mentioned in the White-Paper), some short-term swing of market should be absorbed by liquidity providers. Nevertheless, due to the absence of big market-makers in present ecosystem, the Witnesses should take higher responsibility and intervene the market more frequently with the monetary tools.
It will be good if Steem's witness could make some regular announcement/summary, perhaps weekly or bi-weekly, just to signal the market that you are watching closely and ready to take actions when necesary.
Now the Part for Minnow Steemians.
Anything we can do to help the stabilization of Steem Dollar?
YES.
We have the power to vote.
Please pay a visit to steemd.com/witnesses, and take a look into the Feed & APR columns, which represent the STEEM/SBD conversion rate and the anual SBD interest rate quoted by each witness.
During the current period where SteemDollar is trading significantly lower than $1.00, it's recommended to vote only for those who set their STEEM/SBD ratio lower than external market price.
To cast your votes, simply log-in to steemit.com/~witnesses, and click on the arrows besides any witnesses that you like. (Each account are entitled to vote for 30 witnesses.)
Together, we can make a better governance for the community.
So, what are you waiting for?
Ok, a couple of things in response to this post:
Regards!
I agree with your first two points, but in response to #3, I do recall someone talking about temporarily increasing the APR due to the falling price of SBD to incentivize holding more. I agreed at the time and still do, but it seems the witnesses are sticking to the same price.
Either way, I think the peg will be improved in the future anyway, especially if they change liquidity rewards to reward those who push the internal market in the direction of the peg.
(1) yes, the "1usd worth of STEEM" is just a means to give confidence to the people, but i believe the ultimate goal of the SBD is to have a parity with $USD, as descript in White Paper(pg15)
hence, when "1usd worth of STEEM" is not enough the derived the desire 1:1 peg, witnesses should try to gradually increase the amount of collateral, until a new balances is found.
(3) as mention in the post, this is the Impossible-Trinity problem.
If our priority is to have a fixed exchange rate, then we shouldn't stand still with the fixed monetary policy (interest rate)... if we want more control on the interest rate, then we will never had a stable SBD.
Totally agree with your point that the interest rate should be discussed and vote. but this should be done periodically, and adjusted from time to time according to the market environment... When is the last time they have a meeting or discussion?
I think the collateral and a 10% APR should be enough to hold the peg, the reason you see a price below 1 dollar now is because of a downtrend that keeps the exchanges price below the 7 day average shown on steemd, if or when price of steem stabilizes or increaes then you will see SBD at 1 dollar or above... I personally dont think we should assume that the SBD will be 1 exact dollar always, it will most likely vary from 0.80 to 1.20...
SBD has been alive for exactly 1 month today.. it has been below 1 dollar and it has been well above it too, so in my opinion is too soon to be thinking of changing the interest rate.
Exactly right that it will fluctuate. With the current "slow" incentives it appears SBD will be overvalued in a bull market, and undervalued in a bear one. It's just reactionary and slow to change the peg, which is why it would be interesting to have faster incentives to keep the peg as well!
Furthermore, i believe that the voting system here is to allow individual witness to publish their own figure of interest rate, (the 10% is just a default value which could be change anytime) just like the way they publish Steem/SBD price feed... this is the central spirit of cryptocurrency, i.e. decentralization, anti-collusion.
then the system will choose the median value from the sample. Correct me if i'm wrong.
Today, i found that witness @anyx had raise his SBD-interest rate to 15%,
and his STEEM/SBD feed is showing a significant discount from market.
Please vote for @anyx,
we need more witnesses like him, in order to achieve stable SBD 1:1 peg.
That's weird. There's only two witnesses that have the feed lower than 1.00$, and their prices are way off. Like .20 or .30. And they're running outdated versions. Any witnesses running the latest version and reporting between .80 and .90?
The feed is the price STEEM/USD... at the time of writing, the top19 sampling will give a median of $2.13 per STEEM, which is slightly higher than markets prices on poloniex or Bittrex... To help restore SBD to parity, the witness should adjust this price slight downwards...
maybe a 5% for the first try, then watch the market response before taking futher adjustment....
Ah, that explains a bit. I think I can vote intelligently now.
I think majority of the witnes are coders, some of them even good in developing arbitraging or market making bots. I wish they could spend some time to write a codes that monitor the SBD market real time, then automatically adjust their price feed to balance the market force.
It is not the job of witnesses to maintain the SBD peg.
It is part of the job of witnesses to publish the actual STEEM exchange rate (aka price feed). It is also part of their job to publish an interest rate for SBD as they see fit.
IMO the current disparity of SBD/USD is due to two main reasons:
Both points are out of scope for witnesses.
many people get confused about the main purpose of price feed mechanism.
Let's make it clear:
The present of price feed is NOT to mimic the STEEM/USD price at external market,
but to give a suitable STEEM/USD rate that could help maintaining the SBD-USD 1:1 peg:
This sentence is not mine, but an excerpt from the White Paper. (page 14).
I think you are interpreting too much into this.
It is impossible "to maintain a stable one-to-one conversion" in the strict sense only by adjusting the price feed and interest rate.
For example, if one reason for the current difference is the 7 day conversion delay in combination with the steem price downtrend, we'd have to adjust the price toward the expected median in 7 days. That median however is computed from the price feed - meaning you have created a price feedback loop. Which is a very bad idea, since loops have to potential to resonate catastrophically and are not easy to control.
The reasonable thing to do is publish a feed price that matches the market rate. The result will be a long-term stable SBD price that oscillates around USD parity.
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