Balancing the SBD/STEEM Debt Ratio

With the current SBD/STEEM debt ratio at 4.5% our post liquid post rewards are being split between SBD and STEEM at a ratio of 80:20, or 20% or our liquid rewards are being paid out in STEEM this reward ratio is calculated on a sliding scale against the debt ratio, so the higher the SBD/STEEM debt ratio goes, more STEEM and less SBD is rewarded. This is effectively increasing the Steem supply and reducing the SBD supply on the platform with the aim at reducing the SBD/STEEM debt ratio. With the price of STEEM on the slide, the debt ratio seems to be increasing. What does this mean economically?

Supply and Demand

Looking at the rewards payouts, with all other factors remaining constant, increasing the supply without an increase in demand will put negative pressure on the price of what is being supplied, in this case Steem. Conversely, reducing supply without a reduction in demand puts positive pressure on the price, in this case SBD.

Now, when the STEEM price falls (for whatever reason), our $ value of our posts potential rewards also drop. We still get the same amount of STEEM and STEEM Power but, because SBD rewards are calculated at 1SBD=$1(USD), fewer SBD is paid out, reducing SBD supply even more. Because the SBD price on the market is above $1(USD) we still get a higher USD value reward, and are able to purchase more Steem with our SBD, if we so choose to do, than if all liquid rewards were paid in Steem. This "extra" spending power could increase the demand for Steem, while reducing the demand for SBD (through SBD being sold into STEEM), helping to lower the SBD price, while putting upward pressure on the STEEM price.

"If we so choose to do."

That is the key: We have a choice.

We can either buy more STEEM, spend our SBD on other goods and services, or even transfer it out to the exchanges and trade it there for other digital currencies. We can speculate on prices and trade with it. SBD is a tradeable currency in its own right, but so is STEEM. We have a dual currency economy, in which both SBD and STEEM can be used to buy and sell goods and services. The two are 90% interchangeable. The only thing SBD doesn't get you is STEEM Power, and influence (VESTS), but you can use it indirectly to boost your SP rewards by buying or bidding for votes from services that accept SBD as payment. SBD has value outside of its design scope as a debt instrument, and there is little to no incentive to use your SBD to buy STEEM, which would increase demand for STEEM, while decreasing demand for SBD

Back to the Peg

Now that SBD is coming down in price, sitting at about $1.45 (USD) right now, we are getting closer to the system-designed SBD peg, where 1 SBD = 1USD worth of STEEM. The question is whether there are any plans in place to ensure that the peg can be maintained at it's mark, or will the free market win again through price pressures and speculation on the exchanges? That is not what SBD was designed for.

There are arguments both for and against keeping SBD at the peg. One reason for not enforcing the peg is that our post rewards are far greater in $ terms. But is the free SBD having a negative long-term price impact on STEEM, and preventing it from getting to those higher prices, and staying there? I believe it is. By fixing SBD at its peg, you are removing the market price forces from it, and transferring those forces into STEEM.

The only way to fix it is to enable bidirectional conversion between SBD and STEEM, to eliminate the external markets completely. With that in place, most external exchanges should be encouraged to remove SBD from their exchanges, and focus only on STEEM as a medium of exchange.

SBD could be used as a store of value for those who are looking for shelter from market volatility, without having to move their holdings into fiat, knowing that their 1 SBD is always worth 1 USD. It can be a savings mechanism, or be used for paying for goods and services knowing the exact price of what your buying in USD terms, even if buying with SBD (or STEEM). You would only need to know the price of STEEM to conduct business. There would be stability, and a greater incentive for businesses to operate with STEEM an SBD as payment options. They would be able to accept STEEM, and immediately convert it into SBD, knowing they had covered their costs, and made profit on their USD cost base. They could also keep their profits in the form STEEM of STEEM Power, which could have other economic benefits for them.

A Free STEEM

The only way for STEEM to reach new highs, and remain there, is for it to become the dominant (and only) tradeable currency on the platform, with SBD playing its role as a "piggy bank" for savings, or the debt instrument it was designed to be. Dual currency economies don't work in the real world. They most likely won't work here in digital economies either, especially if both currencies have similar uses in the same economy.

Let STEEM be STEEM, and make SBD be SBD.

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