How to "fix" the SBD peg

2개월 전

Maybe it is common knowledge among everyone who interacts on Steem (or maybe not) that the peg of the steem dollars is broken. We've all seen the SBD potato posts (which alot of people find annoying) plus @thecryptodrive published a proposal to use some of the funds from the SPS to help in that initiative.

I don't believe that these initiatives will accomplish anything. To quote myself:

I think that the intention of this initiative is commendable however it is a drop in an ocean and it will not even make a scratch. At the current prices we need to burn 2.5 million SBD so it would take this proposal 10 thousand days to achive it's goal...that is 27.4 years. Assuming we multiply this effort by 10 it would still take almost 3 years to do it.

With the current inflation rate the blockchain is producing about 30 million steem per year. That has a value of 3.9 million USD or 6 million SBD (at a price of 0.13 for steem and 0.65 for sbd). So burning 2.5 million SBD means that we would need to re-route 42% of the inflation to this. That equals to 100% of the author rewards for 1.2 years.

That is not even considering that with the last HF there is nothing stopping the printing of SBD. The whole SBD pegging mechanism is FUBAR.

The only realistic way that SBD will be worth ~1 USD is if Steem is at least 0.20 USD again. Doing conversions is not good because the market sees that the inflation rate skyrockets and the price will reflect that.

Going forward we need to make sure that the code does not issue SBD via author rewards since the SPS already takes up 10% of the inflation and that triggers the haircut rule faster than normal...In addition we should make sure that there is a mechanism in place that stops printing SBD via the SPS. Maybe have a hardcoded rule that buys SBD from the internal market instead of printing more SBD...or we just live with the fact that SBD will no longer be worth about 1 USD.

In essence, the pegging mechanism was broken with the last hardfork.

This is what I propose:

  • Only issue SBD via the SPS.
  • That means no longer paying author rewards with SBD.
  • If the debt ratio reaches a certain limit the SPS does not issue new SBD but instead it automatically buys it from the internal market.

The reason to stop paying author rewards in SBD is that the SPS already takes up 10% of the inflation and we all know that the haircut rule is triggered when the debt ratio reaches 10%.

As I mentioned above currently the blockchain does not stop printing SBD. If we make it so that the SPS does not issue new SBD but instead it buys it from the internal market under certain consitions we will restore the mechanism that helps the up side of the peg.

I have to say that I am not a fan of the liquid ratio of steem/sbd to start at 9%. I would much rather have it start at 5% and increase/decrease in a linear way.

Due to the nature of the crypto market I don't think it's prudent to have SBD under-collaterlized. We all saw what heppend with the effective inflation rate of steem after the amount of SBD conversions doubled the expected issuance of steem last year. Which in turn affects the steem price and ultimately the peg for SBD.

Let's not make that mistake again.

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SBD doesn't have any significance at all. If people want a stablecoin, cool, whatever, but it has absolutely no relationship with how valuable STEEM is. It simply does not matter.

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Actually it is significant because SBD can be converted to steem and that has the potential to increase the supply of steem which under bear market conditions exacerbates the sell pressure and ultimately the value of steem. Under a bull market it works the other way.

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Yes but that is why when the price of STEEM is low people stop being paid out in SBD, resulting in no issue. Additionally, there are penalties put on SBD conversions to STEEM when the price of SBD is much higher than a dollar or much lower.

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The problem is that with the last hardfork the blockchain keeps printing SBD via the SPS. Even if there are penalties people will do conversion if there are arbitrage opportunties. I did it myself last year and so did alot of people resulting in a ton of steem being issued that way and ultimately a portion of it finding it's way to the market adding selling pressure to the price.

FYI Golos(Steem fork) has implemented the compulsary convertion, as it was proposed earlier by Dan Larimer here.
https://steemit.com/steem/@dantheman/steem-dollar-stability-enhancements
However my favorite way to withdraw SBD from circulation would be introducing the option to "power up" SBD.

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Well the compulsory convertion can be a big problem if you factor in the amount on exchanges. The "power up" option has the disadvantage that it doesn't affect the debt ratio or it can even make it worse if it is incentivized with "paying interest".

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Once "powered up" the corresponding amount of SBD effectively "does not exist" any more, from that moment on it is just an extra line of code to calculate vesting_shares.
Therefore it shouldn't be taken into account for calculating the debt ratio.
If the amount of the liquid SBD is below the haircut line you could power down SBD as well.
Otherways you power down SBD to Steem taking in account the haircut.

Assuming another alt season, the price should recover on its own. I'm sure either way the potato and burnposters after claiming credit will find a way to justify their continued existence. After all, that's a lot of sunk costs for these projects that amount to pissing up a rope. We shall see.

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pissing up a rope

those were the words I've been looking for!

This (like the shorter Power Down period) smells like very short-sighted initiatives.

Very much correct!

Posted using Partiko Android

I am supporting @sbdpotato and don't think it's useless but I strongly agree with all your proposed changes for better SBD pegging.
I personally think printing rate should start declining linearly at 0-2% market cap instead of 9% right now or even 5%, haircut stays at 10%. The change from 5% to 9% last HF is the biggest culprit of the peg as broken as it is.

Too bad SBD pegging mechanism won't be implemented next HF, too busy with SMT. So, potato for me for now.

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The peg mechanism is too simple. It doesn't take into account the extreme volatility of STEEM. The change from 5% to 9% was motivated by the mad SBD pump during the last bull market. That was too short sighted a measure.

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Actually it does.

This is the main reason that sbd stops being printed at a 10% debt ratio.

When the debt ratio is below 10% and the sbd price is below 1 USD, the it becomes profitable to buy sbd on the external market and use the conversion function inside the blockchain.

But the catch here is that the conversions,while it reduces the debt, it also increase the inflation.

That is why sbd conversion start to be less profitable (less steem paid for 1 sbd) when the debt is above 10%

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Actually it does.

This is the main reason that sbd stops being printed at a 10% debt ratio.

I know all the basics. But they aren't enough.

When the debt ratio is below 10% and the sbd price is below 1 USD, the it becomes profitable to buy sbd on the external market and use the conversion function inside the blockchain.

I know.

But the catch here is that the conversions,while it reduces the debt, it also increase the inflation.

Of course.

That is why sbd conversion start to be less profitable (less steem paid for 1 sbd) when the debt is above 10%

I know that. It was a strange mistake to make it so that the printing only slows down when the debt ratio hits 9%. It weakens the peg. But not as much as all SPS funds being paid out in newly minted SBD.

I believe the slowing down of the printing was moved to 9-10% instead of the old 5-10% because the mad SBD pump of 2017/2018 motivated the witnesses to see to it that it would never happen again. But the new rules are causing a lot of problems now. I think they should've postponed the percentage change until the prices of both STEEM and SBD have recovered.

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Yeah, the SPS fund is another part of the equation that kind of make things worse, since they are increasing the debt, and making it even harder to get it back below 10%.

About the percentage changes, i didn't thought much about it at the time, but that indeed created a continuous SBD printing, when it was supposed to be reduced.

What they missed is that increasing the SBD supply by not having it start slowing down earlier (at 5%) would only worsen the problem once the market returned to a normal condition.

And now, another layer was added to the problem with the SPS paying is SBD.

I think the witness should have sticked with the plan described on the original whitepaper...

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I'm afraid it will be very hard for STEEM to recover when the SBD debt burden is increasing at this rate.

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It indeed severely weakens the peg. At 5% STEEM price needs to drop 50% at a relatively short time before the peg is broken. At 9% it only needs to drop 10%, which is very fucking common on crypto world. The change also come right before the massive bear market we have now making the change way worse. If anything needs to be learnt the chain needs to be more conservative than 5% debt not less.

10% for SPS is too much.

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Why do you think it is too much?

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Because it consumes all the SBD and there is not enough value for that: the price of SBD should tend towards USD $1 and it doesn't recover.
There should be a limit to the created SBD amount for SPS too for that purpose.

SBD was never a stablecoin, there is no force down- or upside. never was.

it's a loosely pegged token. I'm still in favor of removing it completely

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Agree, SBD is a pointless and worthless complexity added to the system.

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I'm still in favor of removing it completely

That is one conclusion that I reached after the last HF

https://steemit.com/steem/@onthewayout/did-we-screw-ourselves-with-hf-21

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There is mechanics in place to influence on the market forces.

But since we have a debt ratio over 10%, the system is protecting STEEM price, avoiding the increase of it's inflation.

I detailed how exactly it works a bit more here: https://esteem.app/sbdpotato/@phgnomo/how-sbd-peg-actually-works-or-how-the-sbdpotato-conversions-won-t-affect-sbd-price

Thanks for this crucial info regarding the very foundation of our platform and funds here. So much tinkering with the code does not look like a good idea, if this is the result. Surely this can be fixed by another hard fork code tweak or something?

When BTC makes its next bull move, we should be fine again. However, that doesn't solve the problem that SBD is inherently unstable - which is the real problem in my opinion.

Thanks for this post @onthewayout and all commenters. This is helping me learn the system. If i am understanding correctly, i support your proposal, or removing SBD altogether.

Namaste
Atma