📉 Steemonomics 💡 TIL: Why are we suddenly getting liquid STEEM rewards?!

2년 전

I'm sure most of you will have noticed this by now:

liquid steem in author rewards

I don't think I was the only one who was pretty dumbfound to see that. So what changed, where is this coming from and why is it happening all of a sudden?!

The Short Answer:

The STEEM blockchain has a built in mechanism to control it's "debt-ratio" between SBD and STEEM. The plummeting price of STEEM and the resulting loss in market capitalisation has triggered this mechanism. As a result, the blockchain is basically trying to decrease the availability of SBD compared to STEEM.

@steemreports (as always) has a great tool that shows the situation with real numbers and they even manage to describe it in one simple sentence:

Because the SBD/STEEM ratio is above 2%, the SBD print rate has dropped, and payouts will include some percentage of STEEM instead until this ratio is back below 2%.

So now we know what happened and that the system is just working as intended.

But wait...

Let's think about that. In essence, the price of STEEM dropped and that has caused even more liquid STEEM to be issued in rewards? Does that make sense?

It's Not That Simple!

To fully understand what's going on, we need to take a look at what SBD actually is, or at least what it was intended to be: SBD stands for Steem-Backed-Dollar and I'll simply quote @dan from this post here, because he probably said it best himself:

When it comes to the Steem Dollar, their purchasing power depends upon the market demand for STEEM. The Steem Dollar is really nothing more than a smart contract for a variable amount of STEEM [...] The idea behind a Steem Dollar is that it should almost always be worth about one US dollar. We have set rules in place to make this statement true 99% of the time by making the Steem Dollar convertible to a dollar worth of STEEM.

and he goes on to say:

Anyone who promises you that any asset will always be worth something is either ignorant to some risks or a liar.

Which brings us to the more fundamental issue in understanding what's actually going on and where this mechanism might eventually cause more harm than good.

Pegging SBD to the US-Dollar, or not?

Back when these systems were put into place, making sure SBD's value stayed down to the US Dollar was simply not an issue, and afaik it might have just been overlooked. 2 years ago there was quite some confidence that the given rules would hold up for 99% of the time. Let me just repeat @dan's gospel here for clarity:

it should almost always be worth about one US dollar

Unfortunately, that hasn't been true in quite a while, we've been living in the other 1% of time for way too long and I'd argue it's not healthy for the steem ecosystem in the longer run.

In more economic terms, SBD is issued as "debt" against STEEM being the available "equity". There is a mechanism in place to "burn" SBD for STEEM (or to speak economically - to collect equity for those debts), but there is no mechanism on the chain to do a conversion in the opposite direction.

The "printing" of SBD on the chain happens under the assumption that it's value is exactly 1 USD of STEEM. To determine the final amount to be issued, the price-feed for STEEM/USD (a moving 7 day average) that is being broadcasted by the witnesses is being used. That's why we have been printing way too much SBD for quite a while and why it's "debt" isn't being settled.

It's a broken peg.

SBD is essentially only pegged one way - to be at least worth one US dollar. There is no mechanism to regulate the value of SBD back down to one dollar. And thus, the "debt" just keeps growing and we now started issuing even more "equity" to control the debt-ratio.

What Does That All Mean

And how can it be a bad thing we've been so generously overpaid with inflated SBD?

All these rules on this chain were designed around the assumption that SBD would be worth, at least roughly, one US Dollar. The fact that it's way above that, does cause a few easily overlooked problems. Now I am not an economic expert and maybe I am missing some insights. But here's where I see the issues:

  • SBD does not get "burned"
    Nobody is going to convert his SBD to STEEM via the on-chain method, because you'd be making a big loss! All that issued SBD stays out there - you could say all the "issued debt against STEEM" stays in existence and doesn't get settled. It really shouldn't come as a surprise that the ratio would grow above 2% sooner or later.
  • STEEM might "devaluate" further
    Now technically the price pressure caused by the liquid steem rewards is only exercised on the SBD-to-STEEM price, but I would expect this increased supply to also create a bit of downwards pressure on the open markets. In turn, that would further lower the market cap and cause liquid steem to be issued at an even higher ratio. Looks like a dangerous downwards spiral could engage here.
  • The numbers are all "confused"
    Ok, this is not really an economic problem, but I am sure most users are constantly puzzled about the $-values displayed on their posts.

In Conclusion:

I don't mind liquid STEEM rewards! At least we are lowering the rate at which "debt" is being issued, but as long as this pegging issue doesn't get addressed properly, it remains problematic and it comes with a bunch of long term risks in my eyes.

The core problem that I see is the fact that the SBD/USD-pegging only works one way, up. I know there's been a debate amongst the witnesses about introducing a two-way-peg (e.g. allowing on chain conversion from STEEM to SBD) but there doesn't seem to be enough consent on the issue.

I've heard a lot of arguments about how the high SBD prices are making this platform so attractive and that we dare not touch that. In all honesty, I think that's a very shortsighted argument... and it might even just be an easy excuse for a greedy focus on individual short term gains versus long term health in this ecosytem.


I'm not an economist, all I have is my common sense!

Maybe I am seeing things from the wrong angle?
Do you think overpriced SBD are a good thing?
How do you feel about your liquid STEEM rewards?

I really think this issue needs more disussion.

 

Further reading:
The SBD:STEEM debt and payouts by @tarazkp
STEEM Rewards News Flash by @eonwarped
Witness Discussion – SBD price and reverse peg by @reggaemuffin
Should SBD Be a Pegged Asset? by @lukestokes


Warning: Don't search for "pegging GIF" images on google!

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Interesting post. But I don't think I understood more than 1/10 of it. :)

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Lmfao! Same here 😀

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well... I guess economic "science" is more about faith than facts anyways. :P

If I could get you to at least try and wrap your mind around this platform as an economic system of it's own nature, just a little bit, I'll already have accomplished something ;)

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Yeah, don't worry, I used to work in IT, I have been here since 2016, and still I get confused about how this place works at times.

If you have any questions in particular, feel free to ask me anything ;)

I'll give you a TL;DR:

  • The rewards have adjusted automatically to make less new SBD available because there is too much already, according to steem's built-in economic rules.
  • These built-in rules all operate under the assumption that SBD was correctly pegged to the value of 1 USD. This peg is not working correctly (as SBD is obviously above 1USD)
  • This may or may not be problematic - that's probably a question of economic ideology?!

I posted about this here yesterday thinking it was some kind of update to the way payouts were being delivered.

Thanks for clearing it up @fraenk!

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Awesome! I am happy I could help!

You sound like an economic expert to me. Very informative post on liquid steem and sbd. For me, I am here on the long term as such I need the ecosystem to be healthy and strong , value of steem high and market cap very high. Bcos of this, let the best option be implemented which is reversal of sbd to it's for plan of 1$. Well, let's hope next hard fork addresses such. Thank you

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Ignoring the fact that "economic expert" sounds almost like an insult to me :P I'm glad you found my insights informative.

I guess it's obvious that I'd welcome a "reverse" pegging to be implemented rather sooner than later, but it's a delicate political decision to be made. You should consider giving your support to those wittnesses who share your vision of this platform.

P.S.: I looked at your witness-votes and see that you are supporting a few witnesses who are actively against the idea of a 2-way-peg.

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I guess I support those I follow and read their post. Was not embedded in the politics of 2 way peg. If I could find a link of witnesses supporting peging of SBD then I will support them. I heard some even say leaving sbd to sort it's self means true decentralization
Talking of spam, hope we u it against spam in steemit as it's getting way too much. I updated on such and will update on more. Thanks

To be honest, I thin k the whole SDB and it's peg was a terrible idea, it would be better if there was only STEEM, it's liquid form and locked version as Steem Power.

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I actually quite like the idea of a properly pegged asset.

You should check out the post by @lukestokes that I've added under "further reading" on this post. He has this 20mins or so video going into the pros and cons of a working 2-way-peg on SBD and why this might actually be steem's "secret weapon" on the crypto markets. It's really worth watching!

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let's see if I change my mind after watching those...

Right now I'm just having these feelings that Steemit might have been structured either by mistake or design as a platform that only rewards those who started early or invested large sums of money in acquiring SP.
I've seen many whales posts that aren't anything spectacular and they get 100+ in reward because A) they have other old whales buddies upvoting them, B) they get upvoted by dolphins and bellow because it's expected their post will get a big reward so a chance to get a nice curation share, C) both previous reasons.

With their voting power used on those mediocre whales, minnows that produced a better quality content only get the crumbs... :(

I don't have any hard evidence supporting this I'm saying tho...

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I hear you... money talks around here... and too many treat this platform like a printing press for their own coffers...

I don't think it was designed that way, though... looks a bit like the tragedy of the commons to me. The individuals (or too many of them at least) focusing on short term gains over long term health in the economy.

Putting that in the mix with a severely skewed wealth distribution and the resulting reward issuance might be a destructive combination though, I share those concerns!

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The other thing I find sort of funny? weird? ironic? is that less than 5% of my followers upvote my posts....are them really that bad? I know I'm not Mr writer and I rarely make posts past the 2000 characters but I know how to make drawings...In fact I feel I was getting more upvotes back in 2017 than now that I feel I've been getting better both in my art and writing posts...or was that I got worse and I don't know? xD
I'm definitively getting more commissions now....perhaps I shouldn't worry that much about this and just enjoy the ride while it lasts hehe

I liked when the SBD was ~12$ hehe

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well... the tragedy of the commons ;)

maybe we all need to worry more and still enjoy the ride even when it's a bit bumpy at times ;)

The "printing" of SBD on the chain happens under the assumption that its value is exactly 1 USD of STEEM. To determine the final amount to be issued, the price-feed for STEEM/USD (a moving 7 day average) that is being broadcasted by the witnesses is being used. That's why we have been printing way too much SBD for quite a while and why it's "debt" isn't being settled.

...Ice cream?

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Yes, please! I never say no to ice cream.

I guess you were trying to say that part isn't really clear?! I agree! Maybe an exemplary calculation can improve on that:

Let's say you get an upvote from an account that has 15,000 SP. That vote would be worth roughly 1SP in rewards. Now, if you have set the rewards to be paid out in liquid and vested rewards (50/50 SBD/SP), you'll get 0.5 SP powered up to your account and the other 0.5 SP will be converted and paid as SBD.

It's this conversion where the STEEM/USD value comes into play.

If STEEM's 7-day-moving-average price is 2USD at the time of conversion, you'll get 1SBD paid out (and the post rewards will show $2.00). If the price was, say 10USD, you would get 5 SBD from the 0.5 SP.

I hope that made more sense?!

Can I have my ice cream now?

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Man, it DOES make sense now! I can't believe it, you just made me understand something math related.

Thank you very much for taking the time to explain. So, is this some kind of emergency procedure? Are we just that bad?

Oh! I almost forgot:

icecream.jpg!

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mhhmmm... that heap of deliciousness was worth it. I'm glad I could clear it up for you!

And yes, this is in fact a protective mechanism in the steem design to prevent the debt rate from exceeding. As all these rules, it was designed under the idea of $1-SBDs, hence it does not have the intended effect.

Witnesses did see this coming and potential remedies had been discussed... the sudden drop in STEEM-USD prices accelerated the situation, though, so nothing had been done in time.

But don't take this as FUD, it's not like the world is going to end, there are plenty of good arguments why the markets should be able to self-regulate the situation, but in the long term these rules definitely need to be improved!

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Honestly, sometimes I think the whole steemit upvotes/flags mechanism has to be rethinked from the scratch.

But let's just wait and see. :)

Did you also notice that Steem Power is also significantly higher?

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Well... actually the vested STEEM rewards haven't changed at all, it is the amount of SBD that has reduced on your rewards.

Technically an identical vote (same amount of RShares) will result in the same amount of vested STEEM rewards (ignoring reward-pool fluctuations).

But since the whole "on-chain-conversion" happens on the assumption that 1 SBD = 1 USD in STEEM, the declining price of STEEM on the markets reduces the amount of SBD being created, this is also reflected on the $-reward-preview on posts. This number, too, is calculated under the 1 USD assumption.

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Thanks for enlightening me.

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hehehe... "see the light!"

@fraenk, I think this is a very crucial issue, Am glad to have found this post atleast it gives some explanations, but take a look at this;

Truely SBD was initially peg to be 1 USD, but the reverse is the case, but from my own angle, if the increase of SBD against it's intended price is unhealthy to the ecosystem, let bloggers post reward of STEEM be higer than SBD so that the price of STEEM will skyrocket that if SBD so that bloggers can atleast have hope and something to show for on their businessess.

So with the resolution above the SBD pegging can still be left at a dollar.

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I am not sure if I was able to follow your thought.

Are you suggesting to just issue more STEEM in post rewards? Isn't that exactly what the mixed rewards are doing right now?!

It's either I am misunderstanding your comment or you didn't understand the problem I was trying to describe in the original post?!

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I understood your post Dear, what I mean is that the STEEM post reward payout should be greater than that of the SBD.

before the introduction STEEM token as one of the reward in post payout, the post payout reward was on SBD and STEEM POWER, but now, the post reward is from SBD, STEEM, and STEEM POWER, but as it is right now, the post reward on sbd is higer than STEEM, so I am of the opinion that post reward should be given in such a way that STEEM token will be higher than that of SBD

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Oh ok, so I did understand your comment correctly.

But wouldn't that actually increase the problem - more STEEM being issued driving the price of steem further down; less SBD being issued creating upwards pressure on the price... as a result the debt-ratio would still continue to grow and the intrinsic problem would worsen?!

I don't know, that's how I interpret the situation at least.

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so what do you think can be done to resolve the challenge atleast to curb the debt ratio issue?

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I personally would introduce a 2-way conversion mechanism right now, allowing for a downwards peg, immediately. This would force the price of SBD down to 1USD quite swiftly.

The problem here is mostly political in nature I think. Pro-peging witnesses are reluctant themselves to implement this, because they would arguably be in the "driver-seat" position and would be able to trade with foreknowledge accordingly, which would be akin to "insider-trading" and possibly discredit the trust the community puts in them.

As the situation stands right now, while most of the community continues to prefer getting unhealthily high payouts and resists the idea of introducing a downwards-pegging-mechanism for fear of reduced short term profits, me might just be stuck with things as they are...

...until we eventually plummet back down to below 1USD STEEM, see a correction of SBD to close to 1USD... THEN we can introduce the two way peg without political controversy and hope for the platform to recover.

I can really recommend you check out the post by @lukestokes that I've linked under "Further reading" in the post-footer. He has a 20mins video going into all the pros and cons of pegging, much more elaborate than I could ever be.

Should SBD Be a Pegged Asset? by @lukestokes

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that is ok then, in my humble opinion, we are all seeking for the good of the community, if your propose action will be helpful, then you have my support, do it let's see as it goes

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If I could just "do it", heh... I probably would, I'd have to think this through some more... but yeah :P

The beautiful aspect of this platform, though, is that we together must do it. If you support these changes you should vote for witnesses that support it too.

It's a bit like a true democracy should be here, nobody can "do it" alone, we must do it together by voicing our opinions and building a majority consent. Well... let's be honest, it's not a true democracy at all, it's more like anarcho-capitalism, since our stake gives our "democratic" voice more weight... but we still have to elect our witnesses wisely.

A few witnesses that (to my best knowledge) support the establishment of a two-way-peg are @ausbitbank, @lukestokes.mhth and @reggaemuffin. If you support this idea, you may want to consider giving them YOUR Witness-Vote.

Thanks for the explanation! I received liquid steem today for a recent post and immediately searched for why that is, which brought me to your post at the top of my search results. Consider my confusion resolved. ;)

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I'm glad I could help... and I'm impressed that you found me through the search results - faith in organic discovery restored :P

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ミㅇᆽㅇミ

Fantastic news sir, I was wondering why was it happening, I even thought I was the only one receiving it, but now I know better, very enlightening post.

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You're most welcome! I know a lot of us have been confused by that.