Fixing Steem With Baby Steps: SBD
It's been a while, but my criticism of Steem is back and stronger than ever! In this post I'd like to discuss SBD and why I think that witnesses are making a big mistake by not printing more.
Reasons to not print more Steem
I keep hearing the same tired argument for not printing more SBD. SBD is viewed as the debt of Steem, which I think in itself is arguable. Still, if we assume that SBD is indeed the debt of Steem then the reason for not printing more is obvious: printing too much debt could lead to a cascading crash that decimates the Steem ecosystem. Nobody wants that.
However, the amount of SBD that witnesses are willing to print is entirely too low. The target is 5%. Therefore, because Steem has 271,180,705 coins in circulation according to this rule we should only be printing around 13.6 million SBD. We are already at 15,698,554 SBD so witnesses have almost stopped printing SBD entirely. This is bad, and I'll tell you why.
Investors have been treating SBD as a speculative asset instead of one that's supposed to be pegged to $1. You can't reduce the value of SBD to $1 if you stop printing it. People are holding SBD. The answer is simple: print more SBD. I really don't understand what they are thinking.
We want the value of SBD to go down to $1. We obviously have to print more. Making the claim that printing more will destabilize the economy is ridiculous. The MakerDAO only requires over-collateralization by 150%. This means that every Dai dollar printed only has to be backed by $1.50 worth of Ethereum. This system is working just fine.
In comparison, Steem wants every SBD to be backed by $20 worth of Steem. Instead of 150% collateral they want 2000%. This conservative fear of printing more debt is having a very negative effect on the Steem ecosystem.
USD is also debt. How much collateral does USD have? Well we're using a fractional reserve system, so it's far less than 100%. More debt is owed back to the Fed than money in existence. Even this totally messed up system has been up and running for a hundred years. Clearly, we need to rethink this 5% target mark.
We have to bring the value of SBD down to a dollar much faster. We need to allow people to get payouts in 100% SBD to achieve this. Being afraid to print more SBD is ridiculous at this point. The Steem platform can handle way more debt, as is obvious by the success of the MakerDAO platform.
Once more SBD gets thrown into circulation people will stop treating it as a speculative asset. Once SBD goes below $1 people will actually trade it in for $1 worth of Steem, destroying the SBD. This is how the system was meant to operate in the first place.
The value of having a stable coin connected to Steem is an absolute necessity to mainstream adoption. Currently, the witnesses are making a huge mistake by not printing more. The 5% target is abysmally conservative and hurting the platform a lot.
I was in a discord a few months back and tried to pitch the whole 100% SBD payouts idea and was basically shut down instantly.
We don't want plankton to cash out their money instantly.
Really? That's what we're worried about? The group getting the least rewards cashing out? I just don't get it.
Steemit Virtual Government
Part 1: The Vault
Part 2: Improved Filters
Part 3: Resteeming
Part 4: Hot and Trending Tabs
Part 5: Permanent Vesting
Part 6: Post Order Priority
Part 7: Upgrade @null
Part 8: Official Android Support
This change is planned to be included in HF 20:
https://github.com/steemit/steem/pull/2503
Good baby step!
But to borrow an idea from the post, it means that this:
Turns into this:
BTW, I agree with @edicted that the "debt" label is questionable and often used carelessly or taken too far. There can be an analogy to debt in some ways but it isn't literally debt, nor does it function like any conventional form of debt that I can think of.
Not that baby steps are necessarily bad. It is good to be conservative and not err on the side of being too careless and blowing things up, but at the same time not too conservative and missing opportunities in a rapidly evolving market. The right balance is always a challenge.
I look at the 10% limit less about the amount of how much STEEM “backing” the SBD and more a matter of how much additional STEEM would be generated in the event of a significant market decline. It is an extreme example but if we had a 100% debt ratio with no “haircut” rule and saw a 90% marketcap drop, it would reak havoc on the STEEM economics.
Glass half empty vs. glass half full. More ability to produce SBD without such extreme backing requirements might strongly benefit STEEM and pull the price and market cap much higher. Look at DAI: It has gone from nothing to 50 million while SBD is stuck at 15 million. Anyway, lets see how it works with the incremental changes first. Baby steps.
That example is so extreme I fail to see the relevance. Steem has what, 9% inflation going down half a percent every year? In order for SBD to match 100% debt ratio it would take over ten years AND SBD would have to be greater than a dollar the entire time. During that time the inflation of actual Steem would be zero percent. This would artificially inflate the price until SBD came back down to $1.
Time and time again, the more I think about it the more I come to the conclusion that the problem is that witnesses aren't willing to print ALL the inflation in SBD. Doing so would actually push the value of SBD below $1 and it would start getting burned and inflation would kick in and posters would start doing 100% SP payouts. There are a bunch of systems in place to get SBD back to $1 but we're afraid to use them for some reason.
I'm still waiting for some kind of "AH HA!" moment concerning SBD. It feels like I must not be understanding some fundamental concept.
Steem has to issue inflation to matter what. This inflation will devalue the currency no matter what. Why would it matter if the inflation is issued in SBD instead of Steem? At least SBD provides a buffer while the value remains above $1.
As it stands now, SBD is a miserable failure and should either be radically changed or removed completely. SBD has been > $1 for 8 months now. To me, this is wholly unacceptable for a currency that's supposed to be soft pegged to the dollar. It's very frustrating to keep coming to this conclusion only to see the witnesses doing the exact opposite. It makes me feel like the system is somehow being gamed with the bit-bots because most of the money they receive is in SBD.
TLDR: plain and simple if you print all the inflation in SBD then people will stop treating it as a speculative asset. Steem needs a stable coin. The witnesses need to take the training wheels off and stop regulating SBD creation.
It is not the witnesses choice to print STEEM in place of SBD. It is based on the rules that are coded into the blockchain. To change it would require a hardfork. The pull request that I linked is a change that I submitted to make a change in the next hardfork to print SBD (instead of STEEM) for longer.
It was my understanding that the witnesses control the hard forks. I appreciate your reply and think it's a step in the right direction.
No. We vote yes or no on whether to accept or reject the hardforks, but the development team (Steemit, Inc.) is who decides what to put in the hardforks and does the coding. The witnesses have a voice in the process, but it is a limited power.
The change that I developed to increase the SBD printing is one of the few (if not only) times that a witness has actually done coding to make a hardfork change.
We are working towards having this become a more regular thing, but there are a lot of complexities involved in making it happen. For now it is mostly up to Steemit, Inc. to decide what goes into the hardforks.
Not all of the coding as your change demonstrates. In practice the vast majority of the coding (and all of the approving) would be accurate.
"Inflation" as a term is somewhat unclear.
The price of STEEM can vary a lot faster than 9% per year and the price of STEEM (as well as the quantity in existence) is what determines the market cap of STEEM and therefore the ratio between the value of SBD and the value of the STEEM that is sort of implicitly backing it.
Actually for the past 1-2 months it has been pretty close to $1. It briefly dipped below $1 about a month ago and has bounced around in the $1-$1.20 range ever since. Against a backdrop of much higher volatility in the general cryptocurrency markets I would consider that reasonably well pegged. It doesn't have the ability to resist extreme pumps as we saw in late 2017 and early 2018 (and arguably once in early 2017) but outside of that it has mostly worked. It can certainly be improved though.
The bid bots adjust the STEEM and SBD they receive to to market price in real time so they really don't really benefit from overvalued SBD (they just get less of it).
If there is anyone gaming the system (or at least having an incentive to) it would be speculators holding large amounts of SBD and looking for it to pump rather than function properly, not bid bots.
This is a large part of the motivation behind @timcliff's patch to pay out more of the rewards in SBD under more conditions (if still not all of it under all conditions). More generally, I agree with your statement.
You make good points, but there is no ambiguity in the term inflation. More Steem is being created out of thin air and distributed to the community using upvotes. This is inflation.
A stable coin should oscillate above and below $1 as frequently as possible. If you look at Dai stable coin it usually hits $1 multiple times a day.
According to Coinmarketcap SBD has not gone under $1 in eight months, and if it did the Steem created by trading SBD for $1 worth of Steem is totally negligible, rounded to zero. This is unacceptable.
Steem is set up perfectly to operate with 100% of the inflation being paid out in SBD if SBD is greater than $1. In the case of SBD being less than $1, inflation should be paid out in Steem and/or Steem Power. Preferably Steem Power to promote HODLing.
There shouldn't even be an option as to what kind of payout a post gets. This just adds needless confusion to new users.
There is. It can mean either an increase in prices (which would happen, to the extent that prices are denominated in STEEM, whenever the value of STEEM drops), or an increase in the supply of STEEM. These can happen together or separately and one may lead to the other but they aren't identical concepts. See:
https://en.wikipedia.org/wiki/Inflation
https://en.wikipedia.org/wiki/Monetary_inflation
Perhaps, but who decided on "should" (other than you, of course, which is perfectly okay)? We are dealing with something that has never been done before, so everything is really open to experimentation and differences in tradeoffs.
That's not quite right, as I mentioned. It went below $1 briefly a month or so ago and has done so again in the past 24 hours. Coinmarketcap probably has a degree of time granularity or inaccurate prices which isn't showing this correctly. No one is arguing it has been working perfectly or even well though.
This is not necessarily so. 100% of inflation paid out in SBD would be more, but it wouldn't necessarily be enough. It took about nine months to get to 16 million in SDB supply, which at the moment (in a weak crypto market) is enough supply to keep the price at about $1; with all inflation paid in SBD it might have have happened faster, say a month or two, but: 1) a month or two is still pretty slow, and 2) 16 million might not have been enough to keep the price at $1 in a stronger crypto market. All of Steem's inflation is still only something in the neighborhood of 8.5%/y and that's just not all that fast when the demand for SBD grows rapidly.
I agree all else being equal (which it is not; there are other considerations), the peg would work better with more inflation paid in SBD. But not perfectly.
As far as the payout option, that is also a more complicated issue than just "there shouldn't be an option". It's kind of a different discussion though, we're probably getting off topic a bit.
I guess I'm out of the loop! Good to know.
Always love discussions on improving steem
Your argument is sound.
Not printing the currency encourages the hoarding of it, and the trading of Steem for SBD to get more of it, in the hopes of a pump, when SBD is by it's very nature is supposed to be the currency that doesn't pump.
It's Steem you want to encourage people to hold. :0
What are you thinking about implementing so called "reverce convertion", which would allow to print SBD not just "by witnesses", but by everyone, as it's described here :
https://steemit.com/sbd/@lukestokes/should-sbd-be-a-pegged-asset-if-so-when-should-we-peg-it
I didn't read that but I've already stated that Steem needs a coin exactly like Maker. We should be able to lock up our Steem in a collateralized debt position and create SBD out of thin air just like you can with Dai coins and Ethereum.
The peg that this creates is a stronger one than current SBD by 1000 fold.