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RE: Witness update

in #witness-category8 years ago (edited)

obviously not good for the network (and consequently STEEM stakeholders).

Except that your analysis ignores the cost of risk to the network associated with the unaddressed higher debt amount in the first state. That is why the whitepaper warns that failing to follow the rules risks damaging the STEEM price (due to the cascading effects of static debt amount over the course of unpredictable price trajectories, which can easily include 50% drops, or of course much more).

Let me ask a question (preceded by a statement): If we follow the rules, and the system fails (reaches a broken peg or some other negative outcome) then we will know that the system as designed, including those rules, does not work and needs to be changed (or SBD simply removed). If we do not follow the rules, and the system fails (in the same manner) how do we know that the system (including the instructions given the witnesses) did not work? The answer is that we don't. I suggest that we follow the rules and see if they work, which they might. If they don't then changes will be required. Likewise if you have a proposal for how to design a pegging mechanism that not only maintains price parity but also as effectively manages debt risk at lower total cost, then it would be a good proposal. I don't believe that you do.

(You may object that the rules don't precisely address this situation, which is true, but it is clear that the current system state with the peg supported by a high interest is not intended. Increasing interest is only advised during a low debt situation. Since we have had high and cascading debt load (ratio) for months, starting at least when Dan suggested a feed discount, a remedy for a weak peg in a high debt ratio situation, how does it make sense that we even have high interest at all? Arguably it made sense as additional price support in the special situation of closely approaching the "haircut" rule, which risked provoking a run on the bank, but once that situation was avoided it should have been removed. Which of course is part of why I have been and continue to proposing decreasing it now.)

As you indicate in your diagram, any version of the peg has a cost to the network. This is clear as a peg is a manipulated construct that is costly to maintain. It is also a risky construct that requires that its risk be actively managed (in the current version of the system). If not, statistically the result is certain (eventual) failure. This active management includes ensuring that sufficient conversion incentive is offered to effectively manage/reduce high debt, even thought in the short run this clearly has a cost. Price parity is not enough, and that's why the white paper has multiple rules for different situations.

BTW, I'm not sure I agree with your complete analysis of costs. Over time higher interest is an ongoing cost. The longer the higher interest is necessary because more risk is built into the system state, the more than cost accures. By reducing risk both the feed discount and the interest rate can also be reduced (later), which reduces overall costs even more.

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I support that follow the rules idea.
When I signed up I was given three steem on the promise that I could power them down when I got to thirty steem, now I'm told I have to have 300, that goes down the wrong way, for me.
I'm hoping that when I get to three hundred (thank you steemsports) I don't get told that now it's 500 because they raised the signup amount, again.
Thank you for the hard work you have given to us!!

Unfortunately the way that mechanism is implemented is really poor. I wish it were different. You have my greatest possible encouragement in reaching a level that you can actually power down. That sucks. Sorry.

Thanks for your kind words, it is of no importance to me, really, I have been powering up, but it could lead to hard feelings from 'regular' users,...

Except that your analysis ignores the cost of risk to the network associated with the unaddressed higher debt amount in the first state.

You are wrong because the cost of risk comes from high debt ratio instead of debt amount. And again, you still cannot prove that facilitating conversion has no negative influence on STEEM price.

As you indicate in your diagram, any version of the peg has a cost to the network. This is clear as a peg is a manipulated construct that is costly to maintain.

Wrong again. If there is no discount, there is no cost to the network.

I suggest that we follow the rules and see if they work, which they might.

Actually I am doing following the rules now. The white paper says, "If SMD trades for less than $1.00 USD and the debt-to-ownership ratio is over 10% then the feeds should be adjusted upward give more STEEM per SMD"

When Dan suggested feed discount, SBD price was $0.88 and the debt ratio was 2.8%, which already did not meet the rules, but the debt ratio seems to rusing to 10% so it could be a proactive movement. Now, however, SBD price is over $1.00 and the debt-to-ownership ratio is under 10%, which is totally opposite to the high discount condition. (Please be noticed that the rule is AND statement, so violating either of them can reject it)

Wrong again. If there is no discount, there is no cost to the network

My account just earned some SBD interest. Who paid that? Interest is a substitute (under certain circumstances) for a feed discount. Both carry a cost.

Actually I am doing following the rules now. The white paper says, "If SMD trades for less than $1.00 USD and the debt-to-ownership ratio is over 10% then the feeds should be adjusted upward give more STEEM per SMD"

When Dan suggested feed discount, SBD price was $0.88 and the debt ratio was 2.8%, which already did not meet the rules, but the debt ratio seems to rusing to 10% so it could be a proactive movement

Yes, it was explained that the 5% goal and 10% rules in the white paper were not sufficiently safe, after the team had reviewed the SBD mechanism some more. The 2/5/10 cutoffs in SBD stability were written with this in mind as well, to ideally try to keep debt closer to 1% and slow things down should it reach 2-5% followed by the eventual haircut (although I'm personally not convinced any of these rules, including even the haircut, actually do what they intended, but that's what the blockchain is implementing now)

Now, however, SBD price is over $1.00 and the debt-to-ownership ratio is under 10%, which is totally opposite to the high discount condition. (Please be noticed that the rule is AND statement, so violating either of them can reject it)

The debt ratio is higher now.