Proposal of how to stabilize SBD

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Okay this idea came to me after checking out the Maker platform. If you haven't ever seen or heard of it, the idea is actually rather simple. In order to pull out a loan of Dai (Maker's Stablecoin), I have to collateralize the loan with some ether. If the price of ether drops too low, bots will sell the ether I collateralized. If I return the Dai I borrowed from the Maker platform, I must buy some maker to pay the "stability fee", but afterwards all the Ethereum I've collateralized will be returned to me. The idea is that if the price of Dai goes to high, the platform will print more Dai for each ETH collateralized, if it's too low the platform will print less eth for each ETH collateralized.

I propose we take this idea and implement it on Steemit. To do this would be no small task but I'd like to paint the picture of how it might work. To create an SBD one must first collateralize their steem. This means locking it up in a contract on the platform. While the steem is locked up it can't be spent until all the outstanding SBD is returned to the contract and converted. This is as opposed to collateralizing SBD with all of steem, it's collateralized against individual contracts. In addition, if the price of steem drops too low while the loan is still outstanding, block producers and others can run scripts to auto-liquidate the contract in the event of a price drop. This results in the stability of the SBD. Because the steem backed dollar is automatically converted before the price goes to low to pay off the debt, SBD would be more stable. As opposed to our current system where the APR and price are the only tools witnesses have to control the price.

In addition to this mechanic, MKR implements a maker fee. Every Dai is charged ~1% each year for stabliity. This fee is paid when you convert Dai back into Ether, but it can only be paid by buying Maker token to pay. All proceeds from the fees are used to autonomously buyback and burn the Maker token of which there is a finite supply. If this mechanic was implemented on steem, steem would replace the MKR token for fees and stability. Loans of SBD by the blockchain would be collateralized by Steem, and paying off your loan would result in ~1% of the steem collateralized would be burned each year.

The net effect of this change would be allowing steem blockchain to issue loans in a fairly similar way to the Maker platform. These loans would be backed by steem, and denominated in a stable token called Steem Backed Dollars. Steem Backed Dollars can be accepted and converted back into steem for a 1% fee each year. All 1% of the fee is used to buyback & burn steem. I believe this technology could be a huge boon to steem. We already have a stablecoin, lets collateralize it. What do you think of my idea Steemit?

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It sounds good except for one small issue...what happens when the price of the collateral goes down so much that there isn't enough to cover the value of the pegged asset?

This actually happened recently with BitUSD on Bitshares (which has a similar mechanism). There the outstanding BitUSD loans were liquidated and the asset no longer held the peg.

SBD already has a similar way of handeling this (the "haircut rule").

The smart contract that underpins the Dai token hasn't been tested by the market the same way that BitUSD or SBD have. I am not so sure that with the current market conditions of STEEM it would make much of a difference.

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I concur with this.

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But how is it that DAI managed to stay stable even after a 90% drop on the price of steem and bitUSD couldn't? what is the difference? Is it just the amount of staking people did? Or are there deeper issues?

I am all for making and better and this is a good idea. But there are two things to consider.

  1. A similar implementation already exists on bitshares and it is probably not too hard to port it to sbd.
  2. In sbd the collateral is payed by the chain itself. It is a mechanism to cheat out some extra rewards when prices of steem are rising. This proposed change will no longer allow to do that, but cheating never works out in the long run so that would probably be better anyways.
  3. The stability fee of maker is just bullshit, just remove it altogether.

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I have said before that one of the missing components of the SBD peg is the inability to short. That is, the inability of the internal platform to support borrowing SBD into existence.

But I didn't really think about the exact mechanism. I just imagined how bitshares pulls it off for smartcoins.

It would probably make sense to look at other (more successful) implementations.

I'd be interested in seeing this happen in some future hardfork, say, HF25. 😄

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This platform supports shorting. To short the SBD under this system you would buy a bunch of SBD and convert it to steem. imagine if the price of SBD was $1.02, meaning you can pull $1.02 of steem out of a CDP for 1 SBD. When the price of SBD renormalized at $1.00 you would be able to buy $1.02 worth of SBD with what previously was $1 of SBD. The leverage would have to come from off platform. If you don't count unleveraged shorts I don't know if the Maker platform supports shorts.

Highly rEsteemed!

Why use SBD? You could do it with an SMT.

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SBD is the natural currency to do this. It's role in the Steem ecosystem is exactly to be a stable coin and most of the mechanisms described above are already in place...

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That will be a total different ball-game...

There is a difference between a Utility-Token and a Security-Token.

Will never happen.

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What do you mean? That a SMT is a better choice for a stable coin?

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Yes, don't call it a stable coin, it's a security token.

Steering away from legal obligations is no longer the norm,  more and more issuers have found out (often the hard way) that compliance should not be feared, but rather embraced.

Investor flocks will fly around more often and governmental vultures will look to chip away flesh elsewhere.

Why you think there are plans for a foundation?

Steering away from legal obligations?


@picokernel, sorry to see you have less Steem Power.
Your level lowered and you are now a Red Fish!
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Are you proposing using another blockchain to handle our SBDs or can steem handle smart contracts unbeknownst to me?

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Steem can handle smart contracts in that we can code the steem blockchain to execute specific contracts. The contract that the MKR platform uses is called a CDP and steemit could just hardcode the contract into the steem blockchain. The SBD can already be thought of as a contract. You're provisioned by the blockchain a certain allotment of steem per SBD.

Stable stablecoin is a key feature of a social on a blockchain

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We could make it into a steem sidechain...

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Okay this idea came to me after checking out the Maker platform.

I have made this suggestion multiple times before as well.
We need to fix the problem before the next bull run when SBD is $10 a coin and it overinflates the platform again.

https://steemit.com/curation/@edicted/curation-and-sbd-are-broken

https://steemit.com/sbd/@edicted/sbd-is-killing-steem

The MakerDAO is an amazing platform to borrow from. Steem could do it much better because of the three second blocks and no transaction fees.