A SBD-USD Hard Peg? At What Cost?

cryptographic (70)in #trading • 6 years ago (edited)

Let’s say we want a SBD hard peg with the USD. What would you say? At all costs? Should we put the full weight of STEEM behind the effort? What would that look like in real terms? How would we do it? Automatically convert SP to SBD at going market rates when the need arises? Let's look at a theoretical example.

Let’s say for argument’s sake that we agree to automatically and proportionately convert SP to SBD that is liquid and spendable without the need for a Power Down. Now let’s suppose that the price of SBD skyrockets and the mechanism takes affect and the automatic conversion of 10 million SP is enough to keep things in check and the SBD at $1.00USD. Great, we’d say. It’s working, right? But then the demand for SBD overwhelms supply again, and we need another 10 million SP, and again, and again, until we reach total supply of SP. Then what happens? The 9.5% built in inflation rate for SP (for now) would only be a drop in the bucket.

There is a finite supply of STEEM that would eventually run out completely, and if buyers continued to overwhelm sellers, the price of SBD would eventually skyrocket anyway from its artificially subsidized low rate.

Admittedly, that is a simplified and exaggerated hypothetical, but it serves its purpose of giving us a very intuitive and informative perspective without doing any math or getting into complicated details. Okay, and for those who say a less exaggerated plan might work better, like, say, just converting all rewards to SBD while the buyer/seller imbalance requires it? Why would we waste our time when once again the end result would be the same? Being smaller to begin with, the finite supply to try and balance buyers and sellers would simply be used up much sooner, and all for naught.

Finite supply versus unlimited supply is the key question. How can we possibly create a hard peg to the USD? We could do something close, within a closed system where supply and demand is better controlled, but, ultimately, we’d run into the same problem as people buy STEEM to be able to then buy SBD on the internal market, alas, again, until the finite supply is completely used up. The flip side is that STEEM would also skyrocket, but that in itself would cause more demand for SBD as a hedge against a correction. And the snowball would just keep growing until it smashes into reality. It’s just not possible to create a dollar peg with finite resources without great cost to the system. In fact, I submit that it would be ruinous.

The next question is if this is what Steemit, STEEM and SBD are actually all about to begin with. Are we here to peg to the USD? Or to replace it? What if the United States is hit with a severe spate of inflation, or even hyperinflation, and the USD goes into freefall? Would we want to try and peg to that? While the NZD, CAD, AUD, et al. all shoot through the roof, SBD would freefall with the USD (until the finite supply of collateral is completely used up, of course)? Wouldn’t it be much better to have a SBD at $100.00USD?

I’ve accused current SBD buyers of ignorance. Perhaps I’m the one guilty of ignorance. The SBD has a guaranteed minimum peg to the USD – you can’t lose if you’ve bought at $1.00 – and truly unlimited upside potential. The broad money supply of USD is over 10 trillion; SBD is just a little over 3.5 million. There’s no way on earth to keep a lid on SBD. It’s going higher. I just wish I had realized this when it was still at $1.00 as I think we might not ever see a $1.00 SBD ever again.

I’ll be looking to buy on a pullback.

Please leave your comments, input, questions, etc., below!
Your support is much appreciated. If you like this post, please Upvote.

@cryptographic

#investing #sbd #steem #bitcoin

6 years ago in #trading by cryptographic (70)

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gold84 (63) 6 years ago

@cryptographic thanks for writing this to make me understand about the real value of SBD. The same as you, I did not know it was pedged to the USD in a minimum of 1 USD, and that it had an unlimited (to say it that way), upside potential. This is incredible.

Even if we were not able to know this before, so as to buy and keep more of it, we now know it, and this is just the beginning of the journey. This will be incredible when steem goes above $10, everyone here will be amazed with the power steem has, and those who were early adopters will have the responsability to share the power with good thinking, and to make the good, and to continue improving the blockchain.

There will be more time to buy SBD for a bit less. We need to leave some orders placed and wait.

The other good thing is that on every post made, 57% of the rewards come in SBD, so we will receive SBD as rewards, and you can start keeping it more often.

Great post.

Upvoted. @gold84

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cryptographic (70) 6 years ago (edited)

I agree that the way things are set up and the current situation are both very positive for STEEM and Steemit, and that people might be marveling at the price sooner than later. I'm very bullish on Steemit. And a little more SBD in my account would be nice too. We might get lucky with a quick pullback spike lower. Who knows. Today we spiked higher again on over $27,000,000 worth of trading volume the last 24 hours. The last time we got a huge spike higher on similarly high volume we saw a 76% retrace afterwards. It could happen again.

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gold84 (63) 6 years ago

@cryptographic I agree with you. The only thing that keeps me thinking about a different situation of retrace is that in this case several things are going on, between those:
1- After Tether situation of unsafety people found the SBD very powerful
2- A Korean exchange connected with a chat platform (probably the biggest I heard) in Korea added the possibility to buy steem directly with fiat currency, and very easy with the chat paltform.
3- There are so many developments going on for Steem, and it was totally undervalued
4- Yesterday it was crazy in blocktivity.com how STEEM had 165,000 more transactions done in comparison with ETH, and even with that STEEM was 99.7% free for more transactions, and ETH with much less transactions, was at full capacity with thousands of undone transfers. Same for BTC. So the migration will come sooner or later. Still some way to come. When wallstreet explodes the BTC market and transactions will be so high in cost and stucked, this will be the end of story for them, and the beginning of wealth for bitshares, steem, eos. I believe this.

Regards, @gold84

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taskmaster4450 (85) 6 years ago

Very interesting points you bring up.

Yes either scenario would overrun supply of STEEM in a quick period of time. Perhaps this was the publicity that the steem blockchain needed. With all the chaos surrounding tether, people are looking for something else. Perhaps their "flight to safety" is SBD.

We had a pump last nigth which might have been tied to the run up in SBD. Nevertheless, for the most part, STEEM has held up nicely. It is off the highs but still above the trading range it was in before.

What comes next? I think STEEM gets the kick in the pants it needs. You might be right, SBD could continue higher. If SBD were ever to replace the USD, it would make the price of BTC look small. You would have to see $500K or $1M SBD...to start.