Hi everyone - it’s been about two weeks since my last witness update so I’m due for another one, but I felt it was especially important to provide an update today due to the price movement of SBDs.
Why the broken SBD peg is bad for Steem
As you all are surely aware the value of SBDs has shot up over the past few days and is currently sitting around $9 on coinmarketcap.com. It’s been having some pretty wild price swings and could likely be very different between the time of writing and when you read this.
While this is great for all of us who hold SBDs, I feel that it is very, very bad for the Steem platform in the long run if SBDs cannot maintain a fairly stable peg to $1 USD. But don’t take it from me, take it from Dan:
A strong peg of Steem Dollar vs Dollars means the market will have a strong degree of confidence in the Steem Dollar. The more confidence the market has, the more value / demand there will be to hold Steem Dollars. This in turn means there is a ready and active market for those who earn Steem Dollars to sell into when they want to.
Having confidence that there will be market liquidity at around $1.00 when you want it goes a long way toward people being willing to trust their wealth to a currency. It goes a long way toward merchants being willing and able to accept Steem Dollars at face value. All of these things help grow the value of the Steem network by making it easier to use and building trust.
He wrote the above in this post Boost Steem Value by Backing Steem Dollar last year. At the time the SBD was trading well under $1, but it is equally bad if SBDs are trading over $1 and especially as much above $1 as they are right now.
Also from the Steem Blue Paper it says:
Many users who are introduced to cryptocurrency struggle to comprehend how “magic internet tokens” awarded by the platform can actually have real world value. In order to help bridge the gap between more traditional fiat money systems which mainstream users are used to, and the cryptocurrency tokens which they are awarded through the platform, a new currency called Steem Blockchain Dollars (SBD) was created.
SBD tokens are designed to be pegged closely to one USD, so that users who receive them can know approximately how much they are worth in “real dollar” terms. SBD tokens also offer a relatively stable currency for users to hold if they are looking to preserve their account value relative to USD.
So again - while we may all be making some great short-term profits from selling our SBD, they were designed to be pegged to $1 for a good reason and we should do everything we can to keep them there for the long term good of the platform.
What can we do about it?
As a witness, there are some things we can do to help fix the situation. One thing is to set the interest rate on SBDs to 0% - however since this is already the case the next option is to adjust our price feed bias.
For those of you who don’t know, most witnesses publish a price feed, which means they publish what they believe to be the current market price of a STEEM token.
In the image above you can see a typical one of my price feed transactions. In it I am saying that 1 STEEM token is currently trading for approximately 1.745 SBD. Under normal circumstances 1.745 SBD is nearly equivalent to $1.745 USD.
Due to the current situation with SBD trading at around $9 I have set my feed price bias to 300%, which means that I have adjusted the “quote” value in my price feed to 0.250 STEEM instead of 1.000 STEEM.
I admittedly don’t have a full understanding of the exact mechanics behind all of this but to my knowledge increasing the price feed bias will shift more of the rewards to SBDs and thereby increase the supply of SBDs which should hopefully put some downward pressure on the price. If someone reading this has a more detailed understanding of exactly how the price feed bias affects the SBD supply I’d love to hear about it in the comments.
Calling the top 20 witnesses
While I have set my price feed bias along with a number of other witnesses, it’s only the price feeds of the top 20 witnesses that actually matter. Currently out of the top 20 only @phareism and @netuoso have set a price feed bias and @phareism has set theirs to 1,166% which I believe is just to try to compensate for the fact that no other top 20 witnesses have set a bias yet.
For the reasons mentioned above I am hoping that the rest of the top 20 witnesses will follow suit with a price feed bias of around 200 - 400% until the price of SBDs falls back closer to $1.
To help more witnesses adjust their price feed biases I have also submitted a pull request with updated documentation to the steemfeed-js github repository created by @someguy123 since the configuration options for adjusting the bias were undocumented.
If anyone needs help updating their price feed feel free to contact me on https://steemit.chat and I would be happy to help!
That’s enough for now about SBDs and price feeds...I also have a bunch of other updates about projects I’m working on and all that but this post is already pretty long so I guess I’ll save those for the next update.
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Thank you for reading, and looking forward to hearing from you in the comments section!
Having the SBD price high is a huge benefit for authors, a huge opportunity for visibility on exchanges, and consistently puts buying pressure on Steem which is very good for all of us. We might be unwise to try and force the price down because "we think it should be lower" while most of our community is very excited to be where it is. After reading this post I am going to ask both witnesses biasing feeds to remove the bias.
Thanks for your response @jerrybanfield! As most of the top witnesses have not set a price feed bias you may turn out to be correct, although I do still feel that it's overall not a good thing for the Steem platform.
All of these benefits that you mentioned are great, but they should be coming from a higher STEEM price and not from a higher SBD price. So i'm not saying that I don't want higher rewards for authors, more visibility, etc, I just don't think this is the right way to go about it.
It's not that we think it should be lower - the system was designed for it to be lower. Just look at the dollar values shown for post rewards on SteemIt.com - even though they are in SBD they show $ as the unit. This is because it's assumed that SBD roughly equals a USD.
So overall I agree that it's nice for us right now, and I want all the same things for the platform as you, but I just think this is not the way this was designed to happen and it may ultimately cause more problems down the road and I think we should try to get on top of it now before it's too late.
But I will say that i'm definitely open to the possibility that I'm wrong, so I will state my opinion and trust in the fact that we have some great top witnesses who will form a consensus about what is best and steer us in the right direction!
That kind of goes against the idea of the US dollar peg then though, and against the job explicitly set out for witnesses to do what they can to maintain this peg.
That bias also matters on internal conversion. If somone decides to convert internally SBD --> the bias will weaken the trade. That's a pretty drastic haircut to someone that held an SBD. That's why not everyone is doing it. It's also not clear to me that having a strong dollar is bad for the system. Especially as the US prints way more and this platform does not the freemarket will take hold and the value of SBD will rise. If we print more that's no beuno because if the price ever dips we're stuck holding interest payments on many more debt notes. So, I think I came to the conclusion that I'll up interest however much we need to ensure sbds don't go below $1, but I don't think I'm going to change my bias just because it's over $1.
Just enjoy the post rewards. Better thing to do is fix the price feed so that you can see the amount of steem, amount of sbd, and a drop down to pick your fiat value of choice.
Thanks for jumping in here @aggroed. I'm glad to hear your opinion even though I disagree with it.
STEEM is supposed to be our strong dollar, SBD is by definition supposed to be pegged to the USD. If the value of the USD goes down then SBD should go down with it because that's why it exists, but STEEM will get stronger which is what we want.
Like it says in the blue paper:
If they are no longer pegged to the USD then they are no different than any other crypto token and they no longer function as a very important user-friendly feature of the Steem platform.
If we're not going to keep SBD pegged to USD then we should just get rid of them altogether as at that point they're redundant and just cause confusion.
Another way of thinking is that with price increase in SBD, almost all users are taking 50/50 profit and therefore, blockchain is producing more SBD. Since large number of users are converting SBD to STEEM due to astronomical ratio. Therefore, STEEMs supply is consumed and STEEM's price should rise due to demand. However, people are earning 4-6 times due to how payments are made. In theory, it should help STEEM's price, but SBD holders/traders are at risk in the long term. I wonder how long it can go on. Who are the people/traders who is buying SBD or hodling it? Is there a group or group of people intentionally pumped the SBD so that they can earn 4-7X times, I am not sure.
SBDs have also been referred to as half-pegged. Some don't see an issue in the value going above 1 USD. It still means the authors get at least the value in USD, no problem if it is more. The opposite is not true and there the witnesses should intervene.
Where are they referred to as half-pegged?
https://steemit.com/trading/@cryptographic/what-is-going-on-with-sbd
It's more complex than it seems at first sight. Do we really want to peg to the dollar? What if the dollar gets to hyperinflation? And how far can you try to correct to the negative side? We can't 'print' SBDs, it's a fixed supply. Pegged cryptos are a strange thing.
It seems pretty complex to me so it must be even more complex!
Whether we want it to be pegged to the dollar is not a question for current management practices but a question for revising the stated purpose of the SBD instrument. We should be doing everything to keep it pegged or change things so the peg isn't even a goal.
If it's not pegged then we don't need it and the blockchain should be changed accordingly.
You're completely right here, why aren't people getting this? Is it just being opportunistic and enjoying the price buoyancy?
In my opinion either it's pegged or we get rid of it completely, as you say here.
This is the right answer. Keep it half pegged.
If the dollar were so great, we wouldn't be all in on blockchain cryptos.
UPDATE
I managed to implement support for bias in publish_feed.lua (my tool to update your witness price feed: https://github.com/develCuy/lazy-steem) so you can use it like this:
./publish_feed.lua --bias=300 dropahead http://cli-wallet-instance:8093Original comment
Nice post! Can you elaborate on how exactly you transform 1 STEEM to 0.250 with a 300% bias? I'm very confused about it!
@yabapmatt, I did not use algebra in 17 years... but I found the formula!!
STEEM quote = 1 - (BIAS%/(1 + BIAS%))Example:
0.250 = 1 - (300%/(1 + 300%))ok we do need high steem price, i understood.
but how high SBD price is bad for steem network? is still unclear,
anywayz you have my witness vote, and we want all of the witness to take step for betterment and long life of the cool guy STEEM.
Positive contribution is always highly appreciated.
Good Luck
SBDs were created as really a user-friendly feature, as it says in the blue paper:
One of the great things about the Steem platform is that it's one of the most user friendly cryptocurrency platforms in existence. That will help drive adoption and help drive the value of STEEM. If SBDs are no longer a stable currency pegged closely to one USD then we lose one of the user-friendly features of the platform and also in that case SBDs are really no different than STEEM and there's no point in having them at all.
Given that anyone who knows the Steem platform knows also that SBD is intended to be pegged to 1USD, I have to question the intent of whoever has pumped the SBD price. Either there is going to be a big dump or someone has plans for SBDs in general that I am not aware of!
I have set my witness Interest rate to zero, but I don't think it will do much. I haven't changed the bias due to lack of detailed understanding of the mechanics and unless I get the detailed mechanics then I won't bother.
Since, one can potentially earn 4-6 times due to how payments are made, is it a group or group of people intentionally pumped the SBD so that they can earn 4-7X times, I am not sure. In theory, it should help STEEM's price since demand for STEEM against SBD should be high. However, non-sophisticated SBD buyers/traders are at risk in the long term. I wonder how long it can go on.
I wonder the same... Who the hell is buying SBD at 7?! Are they confusing with STEEM? Are there ulterior motives?
In my opinion we shouldn't be that worried about SBD holding it's value comparing to USD, We can add a feature to show the equivalent in USD and everything would be peachy.
even easier we can have a browser addon to do the work without the need to touch the settings while it's working to our benefit.
I'm afraid if we push down SBD, steem's value would drop as well. maybe we should add the option for 100% SBD rewards for posts, this will increase the amount of SBD driving the price down while pushing the price for steem up by reducing the supply.
I'm not entirely sure how this helps if those who are pushing the sbd values are not on the platform. If we believe the prevailing assumption that the current price increases are due to being introduced into the Korean market, and the platform does not seem to be overrun with new Korean users that I am aware of, then are they just using Sbd as a token investment and not caring about sbd vs Steem. They see one token moving more than the other and they want in on the one that's moving.
I really agree with you here and your comments on the subject. It's time for people to take a stand on this and adjust their witness votes accordingly. You've earned my vote.
Thanks - I mean I definitely see both sides of the argument and I'm certainly not complaining about the increased value of my SBD, but in the long run I feel it's not good for the platform.
Thanks for the education :-)
Btw I come to this forum to find out who to vote for to do my voting duty.
I placed witness vote for you
This is an opportunity to power up but definitely not the right way for the community as SBD has risen. And it’s good you’ve set your feed price to 300%. I just hope other witnesses also follow this trend to bring SBD back to a dollar rate.
Thanks - and nothing wrong with selling the SBD we have and powering up, definitely a great opportunity for that!
Thanks for sharing. I didn't quite know that a high SBD price can be bad for steem until now
Yep, it's a high STEEM price that we really want!
Yah! I was thinking that too.
Maybe one reason it is so difficult to peg SBD is due to its extremely low supply (just 3.5 millions at the moment). Due to this low amount, it can be very easily pumped.
Yes that is why there is such large price movement, it only takes a relatively small amount of money. But that's why we need the witnesses to help increase the supply as much as we can to bring it back down.
It is pumped by market, and there is no way to lower price except selling SBD. I don't understand the mechanism you are talking about will reduce the price of SBD. Does it increase the supply of SBD?
Yes it would increase supply, thereby putting some downward pressure on the price.
I see. You've already mentioned it, but I didn't notice it since I could not understand the mechanism. Yes, I think that is the sole solution if you want to push down the price.
@yabapmatt the SBD wasnt made to be a peg. if you read the bluepaper atleast. and the high SBD price is amazing for creators. if it dropped back to $1 i would be very disappointed and lose a lot of the interest i had in this project. let the free market work guys.
its steem BACKED dollar. meaning it will always be exchangeable for at least $1 worth of steem. the paper never mentions it being made to be pegged to one dollar. let the market work. its working now and its benefitting the entire community immensely. trying to artificially drive the value down sounds like a terrible idea and is contrary to the decentralized nature of blockchain currencies. please guys do not do this. not only will it be bad for creators, it will be HORRIBLE for our public image as well. people will say oh its centralized. look they can artificially manipulate the price of their currencies. that sounds a lot like fiat! do NOT do this. it is a BAD idea.
Dear I have vote you for witness, can you tell me how witness help us, I have 30 option to choose witness, is this necessary to select 30 witness for a account.
Good questions - I'll refer you to this post by @timcliff - Witness Voting Guide which explains everything you should need to know about witnesses and why they are important!
Thanks for your quick response , I will read it all ...
Is it able to convert my account as a bot.. If it is possible give me a reply...
Hi @ranjithpvrp - I'm not sure what you're asking exactly. Please contact me on https://steemit.chat if you want to talk about it more.
Nice post..
Dear friend, Really your post always good and helpful. Thanks:)
I wish it rise to 1000$ for some short time :P
You got a 76.92% upvote from @postpromoter courtesy of @yabapmatt!
Please don't do anything to bring sbd lower, all steemians are enjoying it.
You got a 4.78% upvote from @sneaky-ninja courtesy of @yabapmatt!
You got a 18.18% upvote from @votebuster courtesy of @yabapmatt!
You got a 17.05% upvote from @allaz courtesy of @yabapmatt!