Witness update

4년 전

I will be upgrading my witness to the upcoming 0.16 fork assuming no technical problems are discovered before December 6.

I have reduced my witness SBD interest rate (APR) setting from 13 to 9%. I do not expect this to have an immediate effect on the median rate being paid on SBD (currently 10%) because many witnesses are still using 10% and some are above. However, I hope that other witnesses will join me in lowering the interest rate.

The white paper indicates that the interest "must be stopped" any time SBD trades consistently above $1, which SBD has done several times, and is currently. It also indicates that a higher interest should only be used as an incentive to support a weak SBD price in a low debt situation. We are currently in a high debt situation, with payouts being made in STEEM instead of SBD and the debt ratio only slightly more than one 50% STEEM price drop away from SBD dropping off the peg and taking a haircut.

While I believe the "must be stopped" language is a bit abrupt (gradual adjustments to assess the effect are probably better most of the time), it is clear that it is not useful to be paying high interest (if any at all) to encourage people to hold something that we have too much of. Instead, the SBD price peg is currently being supported at par by a feed discount which both increases demand for SBD and encourages conversions of SBD to Steem, reducing debt. Some witnesses have suggested reducing the discount to prevent SBD from strengthening too much, and while I agree this would be a good idea if we were not already (and probably inappropriately) paying high interest, I believe we should reduce or stop the interest first, and then assess the continued need (if any) for a feed discount. This is the process implied by the monetary policy rules given by the white paper and it is the process that I support.

The internal market maker bot has gotten a real workout the past few days with all the action on the STEEM market, and has performed well with no downtime. Instant exchanges continue to be available all the time up to 40 SBD (about 225 STEEM) with approximately 0.5% spread. As I've ramped up the available liquidity, I've noticed steadily increasing use from Steemit users (aside from bots) which is a good sign. People are finding the internal market much more useful now.

After the fork, despite the 80% reduction in witness pay, I plan to continue existing sponsorships of ecosystem projects (steemcleaners, busy, and the food/cooking contest, others on a case-by-case basis) on existing terms until at least the end of the year. These are already exceed the weekly witness power down, so I will continue to cover the difference with outside funds. I don't intend to change the witness power down during that period, so it will remain at the same (two year vesting) rate as before.

Rewards from this post (in whatever form received -- STEEM, SBD, and/or SP) will be converted to SBD and burned, as were previous witness post rewards.

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I don't think this qualifies as a "high debt situation" at this point... the price feed is showing a debt ratio of 4.73% because it is using a discount. if it was not using the discount, it would be reporting 4.26%.

That's on the high side of manageable.

It may soon move down, though... your most recent price feed update would register a debt ratio of 3.06% ... or 2.71% if you were not discounting.

I'm pretty sure that we have different thresholds for what we consider high debt... But if the sbd_print_rate is non-zero, I'm fairly sure we're not in a situation like the example from the white paper. It defines high debt (beyond which interest payments should be discontinued) at 10%... and I think currently 5% is more appropriate (beyond which sbd rewards are discontinued)... but, we're significantly below 5%.

But, setting that aside... I have a much more substantive problem with how you conceive of the discount and its effects. I am very concerned with what seems to be your embrace of a permanent discount and your movement to reduce the interest on SBD.


The discount is intended to be used in the case of SBD trading below $1 (when debt is high... when it is not high, the interest rate should be raised instead, according to the part of the white paper you cite). This is intended to increase demand for SBD. The underlying logic is that if people aren't willing to pay $1, it is because they determine that they won't get their $1 back... so you offer them more steem upon conversion so that they are assured they won't lose money.

This is only necessary when the market is anticipating a decline in the price of Steem. When the market expects some measure of stability, the $1 of steem produced from an unadulterated price feed would provide the same value proposition that you're attempting to reproduce with your discount.

Really, when you apply the discount you are just trying to increase the real value of SBD to $1, when the blockchain wouldn't otherwise provide $1 worth of value.

The discount is pushing the market price of SBD above $1, because the market is anticipating relative stability in the steem price. The real value of the SBD, given the discount, is significantly more than $1. If people are buying SBD at $1.03, it is because they are confident that they won't lose money (and I think since they are paying a premium, they likely expect to make money... given how the market has been over the past 2 weeks, I'd say it's a reasonable expectation)

The correct thing to do at this point in time is to start reducing the discount until SBD is no longer above $1. Unless the market starts trending down again, I'd expect parity to be achieved with no discount. But only after removing the discount entirely, if SBD is somehow still trading above $1, consider reducing interest.

Reducing the interest while applying the discount will only damage SBD and the platform. Continuing to discount under the current (2 weeks) market will guarantee a sbd price over $1, because that's a fair market price. Eliminating interest will just make SBD useless for any purpose other than converting while you can still get well over $1 for it...

I wouldn't be so casual about suggesting SBD should be eliminated, because I actually agree that the success of the platform hinges in large part on the viability of sbd as a stable currency that people can have confidence in... whether it is your intent or not, I think the course of action you are suggesting (effectively permanent discounts and eliminating interest) puts that at risk in a very real way.

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The effective feed discount (and therefore the difference between actual and reported debt load is not as large as you suggest). This is due to the spread between feeds reported by various witnesses and how these are used to adjust the price, which in turn are not always adjusted in real time (rather than applying a median filter on the discount itself). At the time of my commenting now, the last reported (median) feed on the blockchain is 0.188 with a quote of 1.05. Comparing this with the current market price of 0.184, this implies a discount of only about 3%. This number varies over time but recently it has often been in the range of about 5-6%, due to several of the top 19 witnesses having reduced their discount (some using an automated process, in contradiction to the advice from the developer).

In any case, we can agree that the debt ratio is somewhere in the neighborhood of 5% (even 4% would be). As such accepting that as situation that doesn't call for reducing debt is playing Russian roulette (while slowly over time) squeezing the trigger six times, because this debt level will, especially if (incorrectly) not viewed as dangerous, be reached periodically and sooner or later, it is a certainty that a 50% price drop will occur turning 5% debt into 10% debt, haircuts, reputational damage to the entire Steem platform, and likely greatly increased overall instability that is difficult to characterize. Given a random walk model, we can expect a 50% price decline as equally likely to a 100% price increase. There is a 50% chance that the former, very dangerous, outcome will happen before the former, fortuitous and helpful outcome. By accepting this risk and betting on it not happening, we are essentially risking the heath of the system on a coin flip. (In fact given black swan-ish risks such as hacks of both the coin itself or exchanges or other large wallets, price pumps in BTC or some other coin that draws capital away, regulatory action, etc., large declines may in fact be more likely than large increases, but we can ignore that as the exact probabilities don't matter.) We got a bit of a reprieve the last time we approached 10% because a supportive community member who happened to be a very large SBD holder decided to convert a lot of it and power up. That community member has much less SBD now and may or may not want to power up even more. We can't always rely upon the goodwill of SBD holders to help rescue us, especially now that the amount of SBD in such friendly hands is now lower.

It may soon move down, though... your most recent price feed update would register a debt ratio of 3.06% ... or 2.71% if you were not discounting.

I will certainly be happy if the strong market action continues, the price increases and the debt ratio dwindles. However, we can't count on that. We can (and should) hope for the best, while preparing for the worst.

But, setting that aside... I have a much more substantive problem with how you conceive of the discount and its effects. I am very concerned with what seems to be your embrace of a permanent discount and your movement to reduce the interest on SBD

This is a mischaracterization of my position. I'm not in favor of a permanent discount (at least not one anywhere near as large as now, I do think think that a small, probably negligible, permanent discount may be necessary in some hypothetical distant future equilibrium but I think we can disregard that).

I am in favor of setting the discount based on the characteristics of a market where SBD hoarding is not being uselessly (and even harmfully) subsidized. In order to do that, the interest rate must be reduced first (or possibly in tandem) in order to assess how much discount is needed to maintain the peg when hoarding is not (or less) subsidized. The 10% initial rate made sense when the supply of SBD was very low and its value and supply needed bootstrapping (it would have been harmful to encourage conversions more than hoarding when the debt ratio was 0.01%). It is no longer the case that such a high rate adds value to the system when SBD is (we would I think at a minimum agree) at capacity and even the interest on it is itself increasing the debt.

I do not agree with the theory about the feed discount being directly tied to the "market expecting a decline". It is tied to some extent to the risk in the market (volatility) but if the market truly expected a decline, specifically, then people would sell now, at higher prices ahead of the expected decline, and the STEEM price would drop now, instead of a week from now. People able to do this consistently would make a large profit even in a generally declining market. Do you know of any? I don't. While it is theoretically possible that SBD trading market participants have a radically different forward-looking view of the STEEM price than STEEM market participants, it is pretty contrived and unlikely. This is especially the case because these are not really markets driven by "crowds". The number of participants are small and include mostly Steem users dumping their coins, a few somewhat sophisticated traders, and bots (sometimes these bots are indeed dumb, but I doubt that dumbness extends to making big bets on "expecting a decline" seven days in the future, something that would very likely fail to make a consistent profit both in backtesting and in live trading).

It is incorrect that the feed discount prices only the anticipation of a price decline. In fact, the discount prices a large (and not even fully knowable) variety of factors affecting or potentially affecting the willingness of market participants to engage in conversions including volatility/risk, cost of capital, availability of capital, liquidity and trading costs, overhead, possibility of changes to the feed discount itself, risk of exchanges shutting down wallet transfers, risk of exchange hacks or similar losses, quirks in the method of calculation (median of medians) of the conversion rate, quirks in feed reporting practices, risk of taking a 'haircut' (low now, but not zero), and probably others not sufficiently obvious to list.

These factors are difficult, if not impossible, to measure or assign a value ahead of time because they represent the hidden preferences of market participants and prospective market participants. That is why the white paper suggests increasing the feed discount when the rate of conversions becomes low (and debt is "dangerously high", a situation I consider to apply when SBD is only a little more than a 50% price drop away from taking a haircut, a process in turn fraught with many risks and costs to the system, which by the way is something you have also written about).

The witnesses can not directly control the actions of market participants. We can only provide incentives (in this case a feed discount) when needed. If the incentive is insufficient, then it should be increased; if it is sufficient, it should be maintained; if it is overly sufficient, it should be decreased. Price fixing that incentive based on what we think it is should be, and not based on what market participants actually do, is not correct or useful.

I wouldn't be so casual about suggesting SBD should be eliminated

I an absolutely not in favor of eliminating SBD either, but the possibility of viewing the experiment as having been tried and failed (as with hyperinflation) is something that people within the Steem community are increasingly beginning to discuss. Like you, I see SBD has having great benefit which is why I want to see its risks reduced and see it's supply being actively distributed to active platform users (including new ones) in the form of rewards, not hoarded by a relatively few well-off (and generally sophisticated) account holders. The former adds value by: 1) being more user-friendly to users recruited from outside of existing crypto circles who are uncomfortable with highly volatile and unfamiliar crypto assets (which is a top-priority goal and purpose of Steem); and 2) keeping it circulating and seeds a market for games, services, tips, gifts, commerce, etc. that will encourage its use. The latter does not.

In the discussion with the devs over whether witness rewards should be paid in SBD (since they are supposed to be used to pay for servers), it was explained that this was not a good idea, because the capacity to create SBD is limited and it is better to reserve that limited capacity for new users (where it provides the added value described above). This likewise applies to SBD that is hoarded, and also to the fact that SBD printing for rewards is stopped or reduced (instead giving STEEM to users which does not provide the added value described above).

I know you are in favor of removing or changing the 10% haircut rule, and depending on the situation after the fork I may also support that. However, given the system as it exists today, the 10% haircut rule exists and creates its own risks, risks which inherently make 5% debt ratio dangerously high. The same can be said for the print rate reduction that pays users in STEEM instead, and in doing so impairs the mission-critical goal of being a platform friendly to non-crypto users (and likewise if it turns out this appears safe to modify post-fork, I would support doing this as well). Dan has also, by the way, stated that he thinks that the current debt is quite high and that a 1% target is about right (which would restore SBD reward payments, although he didn't explicitly say that was his reason). If you look back at the how the SBD stability features such as reducing the print rate and then the haircut were described, it is clear they were intended as a remedial measure for high debt, not an intended operating point (though without action from witnesses this may unfortunately become the case). I disagree with him about plenty, but in this case I agree. As such, I can't support measures (high interest) which support the SBD price by incurring a significant cost to subsidize unnecessary and harmful hoarding and discourage debt reduction.

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The effective feed discount (and therefore the difference between actual and reported debt load is not as large as you suggest).

I just calculated it again, and got very similar results.

Right now, the feed price happens to be what it was when I did my earlier calculations...

feed_price base 0.125 SBD quote 1.115 STEEM

The money supply is:

virtual_supply 240,587,032.201 STEEM
current_supply 229,213,915.358 STEEM
current_sbd_supply 1,275,013.099 SBD

This translates to a debt load of...

1-(current_supply/virtual_supply)
1-(229213915.358/240587032.201)
0.04727236

We can remove the effects of the quote, by recalculating the virtual_supply...

current_supply + ( current_sbd_supply * 8)
239414020.15

1-(current_supply / 239414020.15)
0.04260445

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Removing the quote is not necessarily the accurate way to make the adjustment. The reason is that the blockchain takes the median after the quote has been applied. A witness with a slightly out of date base that is higher (or lower) than average may become the median if their quote is higher (or lower) than average. (Witness price feed updates are not required to be real-time so this is expected.) For this method to be correct you would have to back out all of the witneses quotes and then recompute the median.

The method I described above is correct. I just recalculated it by using the current market price (0.180 as I write this) compared to the latest (final value reported by get_feed_history) aggregate current feed value which is 0.192/1.140. This results in a net discount of 6.5%. As I indicated above this number varies over time but this value is typical. Simply using the current base of 1.140 results in an implied discount of 12.3% which is far from typical.

You are looking at the median of medians, which makes this harder to compute, since there is no true market price against which that is compared. You would have to either take all the feed updates in the past week and back them out, or take hourly true market prices and compute a true non-biased median. The discount range I've suggested has been typical for most if not all of the past week thus the aggregate would likely mirror it.

However, as it turns out the debt ratio is even lower than you point out, since the current market price is higher than the one you used (which is lagged). This was something we paid attention to on the way down, but also matters on the way up. We are about 20% higher than the lagged feed now, so that is a 1-1.5% drop in debt ratio. Good, but still not a great situation.

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My earlier calculations were showing that we will slam into 10% if we decline to 5 cents... So a little less than a third of the current price. It could be worse, but it could be a lot better...

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I'll read later. This is a matter that is important to get right as much as possible.

Rather than burning the rewards an alternative could be to power up some minnow accounts - it makes a big difference to morale. Right now (with 104 dollars) you could power up 2 newbie accounts with 1 MV each.

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Give it to the crowd funded whale?
or something similar?

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I'll consider that for future posts. Thanks for the suggestion. At this point I have already promised to voters that it would be burned, and I feel it would be inappropriate to change that now. In a previous post I promised to use it to promote good newbie posts (both accomplishing the burning and giving exposure to newbies), however that couldn't happen because the promoted feature is broken.

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Yes. Obviously if you have promised for this post you shouldn't change it but it would be great if you did it for future posts until the promoted feature gets fixed - I hope it gets fixed soon.

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@thecryptofiend Right , that notion alone makes me think if a person can burn sbd and not give them away what is this platform really worth? Man this is really making me feel a certain way? Something truly is not being stated and truth will come to light!

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I think you are misunderstanding. Burning SBD is not a bad thing in itself. It actually helps to support the economy by reducing the debt burden - this is discussed in the whitepaper. The promotion feature (when it works) does the same thing. Too much unused SBD is the reason for payouts being purely in Steem and SP.

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Thank you for the clarity and responding, cheers!

UV and RS for you. I have voted for you as a witness. TY for your support online and for the work you do. I appreciate it.

I don't intend to change the witness power down during that period, so it will remain at the same (two year vesting) rate as before.

Do you have a choice on rate of powerdown?

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Using CLI wallet you can power down a smaller amount than the full balance, which sets the rate. However, in this case it is sufficient to do nothing, since existing power downs will continue at the previous rate after the fork if not reset.

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I was wondering about that. Been running an experiment to understand powerdown, and figured I'd let it run through the fork. I've been powering it all back up anyway, but wanted to watch it run.
I guess that means that the rest of us can't set longer powerdown timeframes.

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Right, as before, the ability to power down at less than the maximum rate isn't available on the web site.

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@smooth, It should be - let`s implement the slider like we have on voting :)

I don't pretend to understand the economics, but it seems that the majority of people are looking forward to the hardfork changes. I am personally concerned that going from 104 weeks to 13. It seems quite extreme. But, it's beta so why not, right? Thank you for the report and for your continued support of steemcleaners and the cooking contests.

do you know if our current power down status will take effect in the upcoming hardfork? do we have to do anything to power down after dec. 6 or just leave it as it is?

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Current power down status and rate will be unchanged. If you want to switch to the faster rate that will be available you will have to restart it.

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excellent, thanks for the info.

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If you want to increase your rate of power down, you must trigger it again after the hard fork.

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ok thanks.

So, when the fok is this thing going to be initiated already?

Some witnesses have suggested reducing the discount to prevent SBD from strengthening too much, and while I agree this would be a good idea if we were not already (and probably inappropriately) paying high interest, I believe we should reduce or stop the interest first, and then assess the continued need (if any) for a feed discount.

I am not against lowering interest rates in general, but I am against lowering interests as a tool of offsetting excessive demand of SBD caused by high feed discounts, as you are arguing. Here is a simple welfare analysis. (It's very very bad drawing though)

The left graph only has a feed price discount. It moves demand curve upward and increase both SBD price and quantity. But in this graph, the network is paying discount * Q* to SBD buyers and sellers (the distribution is determined by relative elasticity between buyer and seller).

In the right graph, I added lower interest rate that moves supply curve outward, hence we get the same level of SBD price, as you insist. However, we can notice there is more costs on the network, discount * (new Q - Q*), and still have deadweight loss. Your policy seems good in terms of SBD price, and benefits SBD buyers and sellers, but is obviously not good for the network (and consequently STEEM stakeholders).

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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!!

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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.

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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,...

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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)

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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.

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